Boyded Industries Pty. Ltd. v. Federal Commissioner of Taxation.Judges:
David Hunt J
Supreme Court of New South Wales
David Hunt J.
This is an application by Boyded Industries Pty. Ltd. for a declaration that the Commissioner of Taxation has already allowed its objection against his amended assessment for the year of income ended 30 June 1977.
The factual background against which this relief is sought commences with the taxpayer's return for that year dated 16 March 1978, disclosing a taxable income of $66,805. The taxpayer carried on a share trading business in partnership with another company, Boyded
ATC 4552Freeholds Pty. Ltd., under the name Boyded Lakemba, and showed in its return its 99% share of the taxable loss of that partnership, $522,548. This is said to have been a Curran scheme (
Curran v. F.C. of T. 74 ATC 4296; (1974) 131 C.L.R. 409). The return was lodged on 22 March 1978.
On 3 May the Commissioner issued a notice of assessment which was stated (in the accompanying adjustment sheet which forms part of the notice itself:
F.J. Bloemen Pty. Ltd. v. F.C. of T. 81 ATC 4280 at pp. 4291-4292; (1981) 147 C.L.R. 360 at p. 381) to have been raised on a taxable income of $108,748 in terms of sec. 167 of the Income Tax Assessment Act 1936. Section 167 permits the Commissioner to make an assessment of the amount upon which in his judgment income tax ought to be levied (usually called a ``default'' assessment) where he is not satisfied with the return furnished by the taxpayer. The amount of additional taxable income assessed by the Commissioner was $41,943. How that particular sum was made up has not been explored in these proceedings. The adjustment sheet also stated that the assessment would be reviewed upon receipt of the partnership return for Boyded Lakemba. (In fact, the partnership return appears to have been lodged on the same date as the taxpayer's return.) The amount of tax stated to be payable by 2 June was $45.90, and this sum was paid by the taxpayer on 1 June.
On 13 June, the taxpayer gave notice of its objection to the Commissioner's assessment. The precise terms of the taxpayer's notice are said to be material because of the Commissioner's subsequent actions, and were as follows:
Notice of Objection is hereby given to the above Assessment. Our Objection relates to the inclusion therein of the sum of $41,943 as assessable income.
Our grounds of Objection are as follows: -
- (1) The taxable income of the taxpayer amounted to $66,805, and no more, being made up of the assessable income and the allowable deductions disclosed in the Return of income of the taxpayer lodged on 22nd March, 1978 and in the Return of income of the Partnership of `Boyded-Lakemba' which was also lodged on 22nd March, 1978.
- (2) Each amount claimed, as an allowable deduction in each of the said tax Returns, was a deduction properly allowable in terms of the Income Tax Assessment Act.''
On 1 September, the Commissioner issued an amended assessment which required a further payment of tax amounting to $221,488.16. The alteration sheet which accompanied that amended assessment showed the following adjustments:
$ $ Taxable income as assessed pursuant to sec. 167 108,748 Distribution from Boyded Lakemba after whole of Curran 523,439 scheme disallowed "Increase in taxable income initially returned, by application of s 167" 41,943 ------ ------- 41,943 632,187 41,943 ------- Amended taxable income $590,244 -------
On 4 October, the taxpayer gave notice of its objection to the amended assessment relating to the increase in taxable income by $523,439, including in the grounds of its objection a number of grounds directed to the Commissioner's right to issue an amended assessment in the circumstances - an issue which arises in the taxpayer's appeal and which has yet to be argued. Further grounds were added to the taxpayer's objection by letter dated 9 October 1978.
On 23 January 1984, the Commissioner disallowed the taxpayer's objection - said to have been dated 9 October 1978. This application has proceeded upon the basis that the disallowance related to the objection dated
ATC 45534 October 1978 (to which further grounds had been added on 9 October 1978). There has been no investigation of the extraordinary delay by the Commissioner of over five years in dealing with the objection.
On 14 March 1984, and in accordance with sec. 187, the taxpayer requested the Commissioner to treat its objection as an appeal and to forward it to the Supreme Court of New South Wales. It paid the $2 fee required. That request was not complied with by the Commissioner until 8 March 1985 - nearly 12 months later. There has been no investigation of that delay by the Commissioner either.
Finally, by letter dated 29 October 1984, the Commissioner informed the taxpayer as follows:
``Your objection dated 13 June 1979 against the assessment which issued in respect of the year ended 30 June 1977 has been considered and has been allowed in full.''
The taxpayer's argument is that the decision of the Commissioner to allow its objection to his original assessment, as notified by that letter dated 29 October 1984, constitutes an acceptance by him of the grounds stated in that objection. These grounds (which I quoted earlier), the taxpayer says, necessarily deny any basis upon which the Commissioner could have disallowed the Curran scheme deduction. The inevitable consequences of the Commissioner's acceptance of those grounds in October 1984, so the argument goes, are that his disallowance of that deduction in September 1978 and his decision to disallow the taxpayer's objection to that disallowance in the amended assessment must be set aside, and that the Commissioner is now obliged to allow the taxpayer's objection to the amended assessment issued in 1978 and to issue a further amended assessment accordingly. The effect of the Commissioner's recent acceptance of those grounds stated in the objection to the original assessment, it is argued, was to reverse the earlier disallowance by him of the objection to the amended assessment.
The Commissioner replies, firstly, that his decision to allow the taxpayer's objection to his original assessment was made in September 1978, not in October 1984. He points to the credit of $41,943 given by him in the alteration sheet accompanying the amended assessment in September 1978, by which he disallowed the whole amount of the Curran scheme deduction. That was the whole of the amount of assessable income to which the taxpayer's objection was directed. His letter just over six years later notifying the taxpayer of that decision, he says, was no more than a somewhat dilatory compliance by him with the requirement of sec. 186 that he ``shall serve the taxpayer by post or otherwise with written notice of his decision'' on an objection to an assessment lodged pursuant to sec. 185.
In my view, the point made by the Commissioner is correct. The terms of sec. 186 make it clear that the Commissioner's decision to allow or to disallow the taxpayer's objection is distinct from the notice which he must give to the taxpayer of the decision which he was made. That decision is complete without the notice having been given - unlike an assessment, which only comes to a head with the service of a notice of the assessment:
Batagol v. F.C. of T. (1963) 109 C.L.R. 243 at pp. 252-253, 256. Section 186 does not require the Commissioner (as does, for example, sec. 174 in relation to notice of an assessment) to serve the notice upon the taxpayer ``as soon as conveniently may be'' after the decision is made. There is no context which dictates for sec. 186 a different meaning as there is for sec. 174: Batagol v. F.C. of T. at p. 253. The taxpayer's right pursuant to sec. 187 to have the Commissioner's decision referred to a Board of Review or treated as an appeal to a Supreme Court operates from the date upon which notice of the decision is given to him pursuant to sec. 186. The mere issue of an amended assessment from which may be discovered the extent to which an objection has been allowed is not a compliance with the requirement that notice of that decision be given by the Commissioner to the taxpayer:
F.C. of T. v. W. Angliss & Co. Pty. Ltd. (1931) 46 C.L.R. 417 at p. 436;
Trautwein v. F.C. of T. (1936) 56 C.L.R. 63 at p. 101. In the present case, therefore, the taxpayer fails to establish that the Commissioner's decision to allow its objection to the original assessment occurred after his disallowance of the whole amount of the Curran scheme deduction.
But that is not the end of the issue which I have to decide. It is still necessary to determine the first part of the taxpayer's argument, that the Commissioner's decision to allow the taxpayer's objection to the original assessment
ATC 4554constitutes an acceptance by him of the grounds of that objection. As a rule of general application, this would have some startling consequences. Frequently, the grounds upon which a taxpayer relies for his objection are stated in the alternative. Sometimes they are mutually contradictory. The permutations and combinations in which they are expressed (to say nothing of their prolixity) would in most cases make it impossible to identify which particular point the Commissioner has accepted by allowing the objection: see
Comber v. F.C. of T. 85 ATC 4450 at p. 4464. The taxpayer submits that such criticisms cannot be levelled at the grounds upon which it relied in its objection to the Commissioner's original assessment. That is so (whatever might be said concerning the grounds of its objection to the Commissioner's amended assessment).
The taxpayer says that, in deciding whether or not to allow an objection, the Commissioner is restricted to a consideration of the grounds upon which the taxpayer relies. The Commissioner, the taxpayer asserts, is obliged to amend his assessment to accord with his decision to allow an objection. Unless other specific circumstances exist, the Commissioner is powerless to amend his assessment, the taxpayer submits, unless he has decided to allow an objection: sec. 170(7). Because of the narrow confines within which the Commissioner is permitted by sec. 170 generally to make such amendments, the submission continues, subsec. (7) must be read as permitting the Commissioner to amend his assessment only where he accepts the grounds upon which the taxpayer relies and only in order to give effect to them. The wording of the subsection supports that submission to a limited extent:
``(7) Nothing contained in this section shall prevent the amendment of any assessment in order to give effect to the decision upon any appeal or review, or its amendment by way of reduction in any particular in pursuance of an objection made by the taxpayer or pending any appeal or review.''
The words which I have there emphasised appear to me to demonstrate that the Commissioner cannot take advantage of a taxpayer's objection (by allowing it) in order to amend his assessment pursuant to sec. 170(7) for reasons other than his acceptance of at least one of the taxpayer's grounds. Section 170(7) would not permit a reduction of the assessment upon a ground not stated in the taxpayer's notice of objection, because it would not have been made ``in pursuance of'' that objection. This would seem to be so even where a decision by the Supreme Court or by the High Court in some other matter had demonstrated a ground for reducing that assessment if that ground had not been taken by the particular taxpayer in his objection.
The limitation which I have introduced to the proposition for which the taxpayer contends should not, however, be overlooked. It is necessary that the Commissioner should have accepted at least one only of the grounds of the taxpayer's objection. In most cases, as I have already sought to point out, it would be impossible to identify which ground the Commissioner had accepted by deciding to allow the objection. In the present case, the taxpayer asserts that, such is the particularity of the grounds of its objection to the original assessment, it is clear that an acceptance of the objection necessarily denies any basis upon which the Commissioner could have disallowed the Curran scheme deduction. To that assertion of the taxpayer I will turn later. Before the necessity to deal with that assertion arises, I must deal with three other issues which have been raised.
Section 170(1) permits or authorises the Commissioner, subject to the terms of the section, to make such alterations or additions to the assessment ``as he thinks necessary''; he cannot be compelled to exercise that power:
Ex parte The Carpathia Tin Mining Co. Ltd. (1924) 35 C.L.R. 552 at pp. 553-554. The Commissioner, it is assumed, will do right both to the Crown and to the taxpayer; this would necessarily involve an amendment to his assessment, but his action is none the less voluntary:
Commonwealth Agricultural Service Engineers Ltd. (in liq.) v. C. of T. (S.A.) (1926) 38 C.L.R. 289 at p. 294. It would be most improper for the Commissioner to continue to claim the tax identified in his original assessment following his decision to allow an objection, and it must in my view be assumed that in all cases he will in fact amend his assessment to accord with his decision. It is, therefore, safe to proceed upon the basis that the terms of sec. 170(7) limiting the Commissioner's power to amend his assessment dictate the acceptance by him of at
ATC 4555least one of the grounds stated in the taxpayer's notice of objection when he decides to allow that objection.
The Commissioner, however, complains that the taxpayer's argument attempts to impose upon him an estoppel, when no conduct on his part can operate as an estoppel against the operation of the Act:
F.C. of T. v. Wade (1951) 84 C.L.R. 105 at pp. 116-117. He also says that, as he is also permitted or authorised by sec. 170(2) to amend an assessment to overcome an avoidance of tax where the taxpayer has not made a full and true disclosure of all the material facts necessary for his assessment, it would be wrong in any particular case to infer from his action in amending his assessment that he accepted any of the grounds stated in the taxpayer's notice of objection.
These two issues may be disposed of together, so far as they are applicable to the present case. The taxpayer disclaims any intention to rely upon an estoppel. It says, simply, that the Commissioner's October 1984 letter stating that its objection to the original assessment had been allowed is an acceptance by the Commissioner of the state of affairs asserted in the grounds stated in its notice of objection. The taxpayer says that the Commissioner, by allowing that objection and thereby being permitted by sec. 170(7) and thus obliged to amend his assessment to accord with his decision (even if he cannot be compelled to comply with that obligation), cannot escape the consequences of his decision by asserting that he acted upon some other basis provided by sec. 170 when he issued his amended assessment: compare
Danmark Pty. Ltd. v. F.C. of T. (1944) 7 A.T.D. 333 at pp. 344, 352, as discussed by Kitto J. in F.C. of T. v. Wade at p. 116. That, the taxpayer says, is not asserting an estoppel - as Kitto J. makes clear. Thus, even though the Commissioner may have acted upon some other basis provided by sec. 170 in amending his assessment, he must at least in part have acted also upon the basis provided by sec. 170(7) to amend the assessment to accord with his decision to allow the taxpayer's objection. The credit of $41,943 given by the Commissioner in the alteration sheet accompanying his amended assessment could perhaps have been explained as no more than part of his disallowance of the Curran scheme deduction when he amended his assessment upon some other basis provided by sec. 170, such as subsec. (2), but it cannot be so explained in the light of his decision to allow the taxpayer's objection to the original assessment. He has conceded that that credit represents his allowance of that objection.
Both parties are agreed that there were no authorities directly in point. Reference was made to
The Liverpool and London and Globe Insurance Co. Ltd. v. F.C. of T. (1927) 40 C.L.R. 108 p. 113 and to
W. & A. McArthur Ltd. v. F.C. of T. (1930) 45 C.L.R. 1 at pp. 8-9, but those cases provide no guidance in the present case. I am therefore satisfied that, where it can be deduced from the nature of the ground or grounds stated by a taxpayer in his notice of objection that (by his decision to allow the objection) the Commissioner has accepted a particular ground or particular grounds, the Commissioner must be taken as having accepted the state of affairs asserted in those grounds - at least until material facts not previously disclosed are discovered.
In the present case, the two grounds stated in the taxpayer's notice of objection are specific and non-contradictory. They refer directly to the Curran scheme, and the Commissioner could not have failed to gather from them that the taxpayer was asserting the validity of its claim for a Curran scheme deduction: cf. Comber v. F.C. of T. at p. 4463. They assert that such a deduction was properly allowable. No other ground is stated. The Commissioner allowed that objection. It would seem from those facts (taken in isolation) that he could have done so upon no basis other than his acceptance of the state of affairs which those two grounds asserted.
What then is the effect of the Commissioner's decision to allow the taxpayer's objection to his original assessment? Should the Commissioner's decision be taken as amounting to an allowance of its objection against his amended assessment as well because it, too, is based solely upon his disallowance of the Curran scheme deduction?
Had that decision stood alone, there could be no doubt that the Commissioner would have to be regarded as having accepted the Curran scheme as a valid one and that he could not subsequently - unless authorised by sec. 170(2) - disallow the Curran scheme deduction. But, so far as the evidence before me is concerned, that decision may not have
ATC 4556stood alone. So far as that evidence discloses, that decision could well have been taken at the same time as the Commissioner's decision to disallow the Curran scheme deduction. His basis for that decision has not been investigated in the present application. That issue was deliberately left to be determined at the hearing of the taxpayer's appeal. In those circumstances, I am unable to say upon the evidence before me in these proceedings that the Commissioner by his allowance of the taxpayer's objection to his original assessment should be taken as having allowed its objection against his amended assessment as well.
That I am unable to make any findings upon the evidence before me is a necessary consequence of the procedure adopted for the determination of the taxpayer's application. It was apparently hoped by both parties that the disposal of such an application, if in favour of the taxpayer, would have avoided a full hearing of its appeal. With the application for a declaration was heard a motion in the taxpayer's appeal which was intended (notwithstanding its radically different form) to raise the same issue. The preliminary hearing of that motion was fixed for hearing before the appeal itself apparently with the assent of the Commissioner. The proceedings for a declaration were commenced when the Commissioner declined to consent to an amendment to the motion filed in that appeal in order to raise this point more precisely. The application has unfortunately turned out to be a short cut which did not work, as so often is the case; cf.
Tilling v. Whiteman (1980) A.C. 1 at p. 25;
Love v. Mirror Newspapers Ltd. (1980) 2 N.S.W.L.R. 112 at pp. 125-126. But it should be made clear that my rejection of the relief sought by the taxpayer is not a decision on the merits. I have made no findings of fact relating to the effect in the present case of the Commissioner's decision to allow the taxpayer's objection to his original assessment. All I have done is to say that I am unable to determine that question in these proceedings. That question will have to be litigated in the taxpayer's appeal. The taxpayer's application for a declaration and his motion in the appeal must consequently be dismissed.
In 808 of 1985, I dismiss the plaintiff's summons. I order the plaintiff to pay the defendant's costs. I direct the entry of judgment accordingly.
In 726 of 1985, I dismiss the applicant's motion. I order the applicant to pay the respondent's costs. I direct the parties to relist the appeal before Lee J. (as the Judge administering the Administrative Law Division) for further directions.