Case W119
Members:PM Roach SM
Tribunal:
Administrative Appeals Tribunal
P.M. Roach (Senior Member)
These reasons for decision arise out of earlier reasons for decision delivered upon application to this Tribunal by the applicant (Case V141,
88 ATC 880). The issues arose in the following way. The Commissioner issued assessments (including amended assessments) of income tax (``primary tax'') and additional tax for incorrect returns against the applicant company - More-Co. In consequence of the Commissioner taking the view he did of the matters to be taken into account in determining the taxable income of More-Co and in imposing on that company liability to pay additional tax, the Commissioner determined that there had been an insufficient distribution for the purposes of Div. 7 of the Income Tax Assessment Act 1936 (``the Act''). As a result, he assessed Div. 7 tax as being payable in relation to the years of income ended 30 June 1976 and 1977. In calculating Div. 7 tax the Commissioner allowed for additional tax. That has since been held to be incorrect (
Healey v. F.C. of T. 89 ATC 4152).
2. More-Co objected to all of the assessments. The objections were all disallowed and, at the request of More-Co, the decisions to disallow came before this Tribunal for review.
3. The applicant's challenge to the assessment of primary tax and additional tax for 1976 was successful only to the extent that it resulted in the imposition of additional tax being set aside. Had that result been achieved initially rather than as a result of the review process, it would have been open to the Commissioner to give effect to Div. 7 of the Act by issuing a Div. 7 assessment for $3,869: an increase of $1,430 over and above the figure which he actually assessed. In relation to the year of income ended 30 June 1977, the situation was slightly more complicated in that the Tribunal directed the reduction of personal exertion income and, once again, wholly set aside the imposition of additional tax. Had the Commissioner initially issued Div. 7 assessments in accordance with the findings of the Tribunal, as they are now known, he would have issued Div. 7 assessments for $9,029, an increase of $4,950.
4. Having identified that problem (88 ATC 880 at pp. 890-891) I concluded:
``40. The questions which in consequence arise for consideration are:
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- (a) whether the calculations are accurate; and
- (b) whether the Tribunal should direct increased assessments to issue in accordance with such calculations correctly made.
As to the latter point it is to be observed that, had it not been for the circumstances that the applicant objected to the Div. 7 assessments in addition to the primary assessments and, upon those objections being disallowed, requested an independent review of the Commissioner's determinations, it would not have been possible for the Tribunal to consider authorising or directing any increased Div. 7 assessments. On the other hand, it can be argued that it is the case for the applicant as presented before the Tribunal which logically carries with it, not only a reduction in liability to primary tax and additional tax for incorrect return, but, by extension, liability to an increased amount of Div. 7 tax.
41. As these possibilities were not adverted to during the hearing and as the parties have not had an opportunity to consider the accuracy of the calculations presented in these reasons I shall direct the matter to be re-listed so that further argument may be heard on those issues in the event that the parties are unable to reach agreement as to the terms of the order to be made.''
5. Upon hearing the further argument of the parties the Commissioner's representative asked the Tribunal to direct that the assessments be remitted to the Commissioner for further consideration. It seems to have been thought that amended assessments might follow. The application was opposed by the solicitor to the applicant who contended that the Tribunal should do no more than confirm or vary (as appropriate) the decisions under review of the Commissioner in relation to the assessments of primary tax and additional tax and confirm the assessments of Div. 7 tax, by affirming the decisions on those objections. The issue raises important questions as to the jurisdiction of this Tribunal and points to the possibility of significantly different powers in the Tribunal to those previously exercised by the Taxation Boards of Review. In particular it raises the question of the power of the Tribunal to increase, or to direct the increase of, assessments.
6. Part V - Objections and Appeals - of the Income Tax Assessment Act 1936 provides by Div. 2 - Review and Appeals - for the independent review of decisions made by the Commissioner upon objections to assessments made by him. Dissatisfied taxpayers may object to assessments made by the Commissioner (sec. 185(1)) but the right of a taxpayer to object against an amended assessment is limited to ``a right to object against alterations or additions in respect of, or matters relating to'' the amendment (sec. 185(2)). Notices of assessment incorporating notice of assessment of additional tax are to be regarded as one assessment (sec. 185(3)). The Commissioner is obliged to consider such objections and may either disallow an objection or allow it, either wholly or in part (sec. 186). In the present case the Commissioner notified More-Co that its objections to both the primary company assessments and the Div. 7 assessments had been wholly disallowed. That was in 1981. More-Co responded by requesting reference to a Board of Review for review in accordance with the provisions of sec. 187(1) of the Act as it then stood.
7. At 30 June 1986 - the date from which the Taxation Boards of Review were abolished by the operation of the Taxation Boards of Review (Transfer of Jurisdiction) Act (No. 48 of 1986) (``the Transfer of Jurisdiction Act'') - the Commissioner had still not carried out his statutory duty to refer. In consequence, sec. 222 of the Transfer of Jurisdiction Act operated to provide:
``Where, under a relevant tax law as in force immediately before 1 July 1986, the Commissioner of Taxation had been requested to refer a decision to a Board of Review but had not done so, the request so to refer that decision shall, with effect from that day, be treated as if it were a request, under the relevant tax law as in force on that day, to refer the decision to the Tribunal.''
8. As a result, when the Commissioner attended to his statutory duty in October 1986, he referred the papers to this Tribunal for review. By force of sec. 189(2) of the Act:
``The referral of a decision on an objection to the Tribunal shall, for the purposes of the Administrative Appeals Tribunal Act 1975,
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be deemed to constitute the making by the taxpayer of an application to the Tribunal for review of the decision.''
9. As will appear, the powers of this Tribunal are not expressed in terms identical with those used for the Boards of Review. Prior to the Transfer of Jurisdiction legislation taking effect, the Assessment Act had provided (inter alia):
``192 A Board of Review shall have power to review such decisions of the Commissioner, a Second Commissioner or a Deputy Commissioner as are referred to it under this Act.
193(1) For the purposes of reviewing such decisions, the Board shall, subject to this section, have all the powers and functions of the Commissioner in making assessments, determinations and decisions under this Act, and such assessments, determinations and decisions of the Board, and its decisions upon review, shall for all purposes (except for the purpose of objections thereto and review thereof and appeals therefrom) be deemed to be assessments, determinations or decisions of the Commissioner.
193(2)...
195(1) Upon every reference to the Board, it shall give a decision in writing and may either confirm, reduce, increase or vary the assessment.
195(2)...''
All of those provisions were repealed by the Transfer of Jurisdiction legislation.
10. The questions which now arise for determination arise in the context of a procedure established for the review of particular administrative decisions. The administrative decisions here in question are decisions made by or on behalf of the Commissioner in the discharge of his responsibilities under the Act. The procedures to be followed, the authority of the Commissioner and the jurisdiction of the Tribunal are spelt out in the Assessment Act and the Tribunal Act.
11. The Assessment Act provides for the assessment:
``of the taxable income of (the) taxpayer, and of the tax payable thereon.''
(sec. 166: cf. sec. 167, 168.)
The Commissioner may amend any assessment but only to the extent authorised by sec. 170 of the Assessment Act. Every amended assessment is an assessment for all the purposes of the Act (sec. 173). Notice of the assessment must be served (sec. 174(1)) and it is only when that process is complete that any obligation in the taxpayer arises (
Batagol v. F.C. of T. (1963) 109 C.L.R. 243). Section 204(1) of the Assessment Act provides that:
``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, or, if no date is so specified, on the thirtieth day after the service of the notice.''
The due date for payment may be accelerated (sec. 205(1)) or extended (sec. 206(1)). When tax becomes due and payable, it constitutes a debt due to the Commonwealth (sec. 208(1)) and may be sued for and recovered before any court of competent jurisdiction (sec. 209). Production of a notice of assessment in appropriate form:
``shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part V on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.''
(sec. 177(1)).
12. It follows that if an assessment is to be successfully challenged, it must be challenged in accordance with the procedures set forth in Pt V. That Part provides that:
``A taxpayer dissatisfied with any assessment under this Act may,... lodge with the Commissioner an objection in writing against the assessment...''
(sec. 185(1)).
Where an assessment has been amended in any particular the right of the taxpayer to object against the amended assessment is limited to a right to object against alterations or additions in respect of all matters relating to that particular (sec. 185(2)). The Act then provides that:
``The Commissioner shall consider the objection, and may either disallow it, or allow it either wholly or in part,...''
(sec. 186).
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A. taxpayer who is dissatisfied with a decision under sec. 186 on an objection may lodge with the Commissioner:
``(a) a request to refer the decision to the Tribunal; or
(b) a request to refer the decision to the Federal Court.''
(sec. 187).
13. The powers of the Tribunal upon such a review are to be found in sec. 43 of the Tribunal Act which provides by subsec. (1):
``For the purpose of reviewing a decision, the Tribunal may exercise all the powers and discretions that are conferred by any relevant enactment on the person who made the decision and shall make a decision in writing:
- (a) affirming the decision under review;
- (b) varying the decision under review; or
- (c) setting aside the decision under review and
- (i) making a decision in substitution for the decision so set aside; or
- (ii) remitting the matter for reconsideration in accordance with any directions or recommendations of the Tribunal.''
14. The Tribunal does not have power to make any assessment. That power is reserved to the Commissioner. So it is that sec. 200B of the Assessment Act provides:
``(1) When a decision of the Tribunal or of a court under this Part becomes final, the Commissioner shall, not later than 60 days after the decision becomes final, take such action, including amending the assessment concerned, as may be necessary to give effect to that decision.''
Whether the Commissioner in any particular case would have power to issue an amended decision would depend upon findings to be made on matters relevant to the application of sec. 170 of the Assessment Act: issues which would not be likely to be relevant to any question as to whether or not the decision of the Commissioner upon the objection should be affirmed.
15. Further, upon the issue of any amended assessment following any decision by the Tribunal, whether or not the further assessment was directed or recommended by the Tribunal, the making of the assessment would give rise to fresh grounds of objection (sec. 185) and require the Commissioner to ``consider the objection'' and to either disallow it, or allow it either wholly or in part (sec. 186), thereupon giving rise to a fresh request for reference pursuant to sec. 187 of the Act.
16. If guidance was only available to be had from a consideration of legislative provisions, I would have considered it to be quite clear that questions as to the power and duty to issue amended assessments are questions quite distinct from decisions which the Commissioner is required to make upon determining objections and also from the decisions which the Tribunal is required to make in reviewing the decisions of the Commissioner on such objections. It may be that the deliberations of the Commissioner in the course of considering objections bring to his mind the possibility of issuing increased amended assessments. It may be that the deliberations of the Tribunal upon reviewing decisions of the Commissioner upon objections brings to the mind of the Tribunal the possibility of increased amended assessments. But such deliberations do not of themselves authorise the Commissioner to issue amended assessments or confer on the Tribunal power to direct or authorise the issue of such amended assessments.
17. By the very terms of the legislation there are only three decisions open to be made by the Commissioner upon determining an objection. They are:
- (a) to disallow the objection;
- (b) to partly allow the objection; or
- (c) to wholly allow the objection.
Similarly the only courses open to the Tribunal upon reviewing a decision of the Commissioner are to exercise the powers of the Commissioner, that is to say to confirm the decision or to make any other decision the Commissioner might have made upon the objection: that is to either wholly or partly allow it.
18. However, when considering this matter I have also had the advantage of reading the decision of Deputy President Thompson in Case W59,
89 ATC 538. That case involved a farmer-taxpayer who had subdivided the farm
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and sold it. The Tribunal determined that the taxpayer had been engaged in the business of subdividing, developing and selling the land. More particularly, it decided that, when the farmland was committed to the business, its value was less than the value which had been brought to account by the Commissioner in the calculations underlying the assessments in dispute. One question which therefore arose was whether action could be taken by the Tribunal with a view to increasing the assessments. The Deputy President made a decision in the following terms (at ATC p. 555):``The objection decisions under review are varied by amending the assessments of the taxpayer's taxable income and the tax payable thereon made in respect of the taxation years which ended respectively on 30 June 1981, 30 June 1983, 30 June 1984 and 30 June 1985 by increasing the amounts of the taxable income and the tax payable thereon to the following amounts:
Year Taxable income Tax payable $ $ 1981 138,796 74,744.10 1983 320,051 182,737.27 1984 395,564 227,829.58 1985 445,096 257,452.16"''
19. In considering that decision, I realise the desirability of consistency in decision-making between members of the Tribunal and, particularly, for non-presidential members to be guided in their decision-making by presidential members. But such considerations should not lead one to defer in the interests of consistency of decision-making to decisions perceived to be wrong, particularly on a matter of considerable importance and especially on a novel point which, should the decision in question be allowed to pass unchallenged, may result in repeated error.
20. In reaching his decision in Case W59, the Deputy President based his reasoning upon an analysis of the decision in
Fletcher & Ors v. F.C. of T. 88 ATC 4834. In that case a Full Bench of the Federal Court had to consider whether the Commissioner in considering an objection, and the Tribunal in reviewing a decision of the Commissioner upon an objection, could exercise the discretion conferred upon the Commissioner by sec. 177F(1) of the Assessment Act so as to make a determination that an amount of a tax benefit be included in or deducted from, a taxpayer's assessable income (as appropriate) and to take such action as was considered necessary to give effect to that determination, even though no such determination had been made at the point of issuing the assessments under consideration. The Court said (at ATC pp. 4845-4846) that:
``In considering the objection, the question for the Commissioner is the correctness of the original decision, that question being considered in the light of the terms of the objection but taking account of all the information then available to the Commissioner regarding the amount of the taxable income of the taxpayer and the amount of the tax payable thereon. It may well happen, for example, that, between the date of the original assessment and the date of determination of an objection, new information comes to the Commissioner or that there is some change in the relevant law. Subject to the limitations imposed by sec. 170 of the Act, these are matters properly to be taken into consideration by the Commissioner, in any case, in determining whether to issue an amended assessment. As the issue of an amended assessment is a possible result of the consideration by the Commissioner of an objection to an assessment, it must be appropriate for the Commissioner to take account of such matters in determining an objection to an assessment.
It follows that, in determining an objection to an assessment, the Commissioner is entitled to make a determination under sec. 177F of the Act; and thereafter to give effect to that determination by an appropriate decision under sec. 186.
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By force of sec. 43 of the Administrative Appeals Tribunal Act, the Tribunal has all the powers and discretions that are conferred by sec. 186 of the Income Tax Assessment Act upon the Commissioner. In exercising those powers and discretions the Tribunal was bound to consider the facts as they were proved in evidence before the Tribunal, making the decision which, upon that evidence and at that time, was the correct or preferable decision to be made in considering the objection. The Tribunal was not confined either to the material which was before the Commissioner, as primary decision maker, or the events which had occurred up to that time: see Drake at p. 419,
Nevistic v. Minister for Immigration and Ethnic Affairs (1981) 34 A.L.R. 639;
Commonwealth v. Ford (1986) 65 A.L.R. 323 at p. 328;
Freeman v. Secretary, Department of Social Security (Davies J., 18 August 1988, not reported).Once it is understood that, in exercising his powers under sec. 186, the Commissioner would have been free to exercise a discretion under sec. 177F of the Income Tax Assessment Act, it follows that, in reviewing the Commissioner's decision under sec. 186, the Tribunal is free to exercise that same discretion if, upon the material then before it, it seems proper to take that course.''
21. I find nothing in the reasons of their Honours to suggest that sec. 186 of the Assessment Act is to be construed as conferring a power in the Commissioner, or the Tribunal in his place, to authorise an increased amended assessment in addition to the specified possibilities of wholly allowing the objection; of partly allowing the objection; and of disallowing the objection. Certainly, their Honours did say that the issue of an amended assessment:
``is a possible result of the consideration by the Commissioner of an objection to an assessment.''
So it is. It may ``result'' in the sense that the deliberations of the Commissioner may lead to its issue. But that is not to say that the issue of an amended assessment is one of the possible courses open upon the determination of an objection. Such an amended assessment may be brought into existence by reason of the decision of the Commissioner, but it is not brought into existence by reason of any decision to wholly allow, partly allow, or to disallow the objection.
22. In my view if an amended assessment is to issue, it should issue on the initiative of the Commissioner and in its reasons for decisions the Tribunal should be alert to the possibility that in time the Tribunal may be called upon to sit in judgment upon a later decision of the Commissioner disallowing in whole or in part the assessment which was so issued. The present case illustrates the point. Questions could arise as to whether the amendment was within time; and whether or not it was to correct a mistake of law.
23. I am confirmed in that view by considering the interrelationship between the objections to the assessments of the primary tax and the assessments of liability to Div. 7 tax. It might have been that there were no proceedings on foot before the Tribunal in relation to assessments of Div. 7 tax and it might have been that the proceedings upon the objections to primary tax had the result which has obtained here. In such circumstances, in my view it is beyond argument that the Tribunal could not have directed the issue of any amended assessments of Div. 7 tax. Similar problems sometimes arise in relation to other assessments of primary tax. One simple example is where a taxpayer proves an assessment of taxable income for a particular year to be excessive by showing that the assessable income attributed to that year had in fact been derived in an earlier year: a year not the subject of any reference to the Tribunal.
24. The Tribunal has power to set aside decisions under review and, in appropriate cases, to remit matters for reconsideration in accordance with its directions or recommendations. In exercising that power in the cases in which it is found to be appropriate to do so, the Tribunal needs to ensure that it does not surrender its responsibility to decide the issues before it. It follows that, when, as in a case such as this, the Tribunal is of the view that the decisions of the Commissioner upon the objections to assessment of Div. 7 tax were correct, it should do nothing other than to confirm the decisions upon the objections.
25. For those reasons the orders of the Tribunal will be that the decisions of the
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Commissioner upon the objections under review shall be:- (a) varied as to assessments of income tax for the years of income ended:
- (i) 30 June 1976 by wholly remitting additional tax for incorrect return;
- (ii) 30 June 1977 by reducing taxable income by $1,913 and by wholly remitting additional tax for incorrect return;
- (iii) 30 June 1,978 by reducing taxable income by $2,123 and by wholly remitting additional tax for incorrect return;
- (iv) 30 June 1979 by reducing taxable income by $9,611 and by wholly remitting additional tax for incorrect return; and
- (b) confirmed as to assessments of Div. 7 tax for the years of income ended 30 June 1976 and 1977.
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