DFC of T v CAMERONJudges:
Supreme Court of Victoria
This is an appeal from a Master's order adjourning the hearing and determination of a summons for summary judgment against a taxpayer for the recovery of assessed income tax.
On 14th September 1989 the plaintiff issued notices of assessment of income tax payable by the defendant for the years ended 30th June 1987 and 30th June 1988. The plaintiff, by notices dated 30th July 1990, disallowed the defendant's objections to the assessments. On 5th September 1990 the writ, whereby the plaintiff sought to recover the amounts of tax due by the defendant under the notices of assessments together with certain additional taxes, was issued. On 2nd October 1990 at the defendant's request the plaintiff referred to the Federal Court his decision disallowing the defendant's objections to the assessments. By his defence dated 16th October 1990 the defendant denied his indebtedness and pleaded that the notices of assessment were not valid notices issued in accordance with the Income Tax Assessment Act and that the assessments were issued arbitrarily and capriciously. On 19th October the summons for summary judgment was issued.
On 29th October on the hearing of proceedings for directions in the Federal Court for review of the plaintiff's decision, Jenkinson, J. ordered the plaintiff to ``give particulars of the grounds of his decision'' on or before 6th December 1990.
On 13th November, the defendant having undertaken to prosecute promptly the review proceedings, the Master adjourned the application for summary judgment until after the hearing and determination of the Federal Court proceedings. The reasons for the Master having so ordered are not before the Court. However, from the several statements of counsel for both parties, it is clear that submissions in support of the order appealed against were essentially the same as those addressed by counsel for the defendant before this Court. It would therefore appear that the Master accepted and acted upon those submissions which might be summarised as follows.
In his opposition to the plaintiff's application for summary judgment, the defendant intended to rely upon the matters pleaded in his defence and to establish the grounds set out in his Notices of Objection against the two assessments. To make out those matters and
ATC 4058grounds, he required the particulars which Jenkinson, J. ordered the plaintiff to provide him. Either compliance or failure to comply with his Honour's order would demonstrate that the plaintiff's assessments were made without any factual basis, and that therefore the assessments were made arbitrarily and capriciously. In the result the notices of assessment would be exposed to be void. Some evidence that the notices of assessment were made capriciously was also to be gathered from correspondence which passed between the defendant's solicitors, requesting particulars of the amounts appearing in the adjustment sheets to the assessments for both the tax years in question, and the Australian Government Solicitor, relying upon the provisions of sec. 177 of the Income Tax Assessment Act whereby the notices of assessment are conclusive evidence of the due making of the assessments. It was contended that the plaintiff's reliance upon the provisions of sec. 177 was an indication of the factual basis necessary for the proper making and issuing of the notices of assessment did not exist; in addition, the plaintiff's adopted position was calculated to frustrate the defendant from establishing its defence to the summary proceedings for judgment.
I have concluded that the Master's exercise of his discretion adjourning the hearing of the plaintiff's summons miscarried because it was based upon an error of law. That error was a failure by the Master to give proper effect to the operation of the provisions of sec. 177(1) which read as follows:
``The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, 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.''
It is settled law that, by those provisions, a court is compelled to treat a notice of assessment as conclusive evidence that the Commissioner has made an assessment of the amount of tax due to be paid by the taxpayer, and that in making the assessment the Commissioner has complied with the formalities of the Income Tax Assessment Act. In
F.J. Bloemen Pty. Ltd. v. F.C. of T. 81 ATC 4280 at 4288; (1981) 147 C.L.R. 360 at 375, Mason and Wilson JJ. described as an explicit and correct statement of the effect of sec. 177(1) made by Taylor, J. in
McAndrew v. F.C. of T. (1956) 98 C.L.R. 263 at 281-282 that the section ``was intended to make it impossible for a taxpayer, in proceedings other than appeal against it, to challenge an assessment on any grounds''. Referring to the policy underlying sec. 177(1), their Honours stated:
``The effect of this policy is that, once the Commissioner takes advantage of s. 177(1) by producing an appropriate document, the taxpayer is precluded from contesting that the Commissioner has made an assessment or that in making the assessment he has complied with the statutory formalities. The taxpayer is entitled to dispute his substantive liability to tax in proceedings under Pt. V.''
It was further said by their Honours at ATC p. 4289; C.L.R. p. 377:
``The Commissioner may be right or wrong in his view of the facts, but it would appear to be incontrovertible that the figures on the notice of assessment which records the Commissioner's view of the taxable income evidences that a process of assessment was actually undertaken however cursory or inadequate that process may have been.''
Their Honours continued at p. 378 that ``a notice in proper form of an assessment necessarily compels the conclusion that there was an assessment made in fact'', and that by the operation of sec. 177(1) the production of a notice of assessment ``will put beyond contention the due making of the assessment so that the Court cannot find that no assessment was made or that, if made, it was made for an inadmissible purpose''.
Briggs v. D.F.C. of T. & Ors; Ex parte Briggs 86 ATC 4748, the Full Federal Court, answering questions referred by Sheppard J. in proceedings by a taxpayer for mandamus quashing an amended assessment and an assessment and for prohibition prohibiting the Commissioner and officers of the Taxation Office from seeking the recovery of tax allegedly due and payable pursuant to notices of an amended assessment and an assessment, held that on the admitted facts and
ATC 4059circumstances the provisions of sec. 177(1) did not operate to prevent the taxpayer from challenging the validity of the notices of assessments. It was essential to the Full Court's decision that the Commissioner and taxation officers agreed for the purpose of the questions of law referred to the Court that, inter alia, they did not carry out any or any proper investigation of the taxpayer's affairs before the making of the amended assessments and assessments, that there was no material having any rational or logical probative force to justify the issue of the notices of amended assessments and assessments, that they did not take any steps to consider facts provided by the taxpayer before the issue of the notices, and that the decision was made by them to issue the notices knowing that the same did not reflect any rational assessment of the taxpayer's liability. The Court at p. 4755 distinguished the facts of the case under consideration from Bloemen's case, where notice of assessment on its face bore nothing indicating that it was something different from what it purported to be. Their Honours added, ``But here, the respondents have admitted that the documents issued by them were not, in truth, assessments of taxable income''.
In the present case the notices of assessment contain nothing indicating or suggesting that they are anything other than the results of proper exercise by the Commissioner of his statutory duty to make assessments of the amount of the taxable income of the defendant and of the tax payable thereon by him; sec. 166.
On the hearing of this appeal, the defendant by his counsel sought to impugn the assessments based on items of increased taxable income appearing in the adjustment sheets adjoined to the notices of assessment; that is, items of income attributed by the Commissioner to the defendant additional to the income disclosed by the defendant in his income tax returns. It was asserted by him that the several items of increased taxable income were not received by him. The assertions, which were not verified by the defendant in affidavits sworn by him in opposition to the summons, do not sit comfortably with the grounds of Notices of Objection against Assessments wherein it is stated, inter alia, that the amounts were receipts of capital or receipts of a capital nature, and that if some part of the amounts was assessable as income, the whole of the sums was not assessable income. It is not without significance that there is absent from the notices of objection a denial that the defendant received any of the amounts treated by the Commissioner as income.
Moreover, in proceedings by the Commissioner to recover income tax due by a taxpayer, ``the Act... does not contemplate... a curial diving into the many official and confidential channels of information to which the Commissioner may have recourse to protect the Treasury'', per Isaacs, A.C.J. in
F.C. of T. v. Clarke (1927) 40 C.L.R. 246 at 276. The course which the defendant would seek to follow on the resumed hearing of the proceedings to recover assessed tax would be to challenge the efficacy of the assessments for the reasons stated in his grounds of objection. That course would clearly be not open to him by reason of the provisions of sec. 177(1).
It was finally said by Mr. Beaumont, Q.C., for the defendant that the lack of integrity of the assessments would provide a basis for a stay of execution of summary judgment. In
Snow v. D.F.C. of T. 87 ATC 4078 at 4093; (1987) 18 A.T.R. 439 at 458 French, J., after reviewing authorities relating to the operation of sec. 201 of the Act, expressed his conclusion that the power of the State courts to stay recovery proceedings instituted under the Income Tax Assessment Act is well established and that the courts exercising the power have regard to seven propositions which he enumerated. Proposition numbered 5 of seven propositions formulated by his Honour reads: ``A stay may be granted in a case of abuse of office by the Commissioner or extreme personal hardship to the taxpayer called on to pay''. The authorities referred to by French, J. did not include the Full Federal Court's decision in Briggs case; it would seem that the proposition numbered 5 was based on summary of a statement of opinion expressed by Hutley, J.A. in
D.F.C. of T. v. Mackey 82 ATC 4571 at 4575; (1982) 13 A.T.R. 547 at 551. However, in my view, full understanding of Hutley, J.A.'s opinion is to be gathered from reference to his Honour's judgment. There his Honour said:
``In my opinion the power to stay, under sec. 201 should be exercised with great caution and only under special circumstances. In deciding whether to exercise it,
ATC 4060there is no similarity whatsoever to the issue which faces the Court when it is asked to grant an interlocutory injunction. A person who applies for an interlocutory injunction is applying for an exercise of the Court's power in his favour, and the burden lies on him to establish his right to it.
The Commissioner starts off with rights under sec. 201 and the taxpayer is seeking on special bases to have a special discretion exercised in his favour. It is not possible to work out in advance all possible bases for the exercise of such a discretion and it would not be proper even to attempt to do so. It is an open-ended discretion.
But there are only two cases where it is clear the Court should exercise the discretion. First the comparatively rare case where the Commissioner abuses his position, for example by assessing and endeavouring to collect tax in defiance of a decision of the High Court or other superior Court precisely in point. Second, in cases of extreme personal hardship to a taxpayer called upon to pay. The obligation to pay which has been cast upon him by law is not a hardship of itself and the mitigation of the effect of inflation and the burden of interest is a matter for the legislature, not for the Court.''
The situation which Hutley, J.A. there postulated is one where the Court on the hearing of proceedings to recover assessed tax will not be constrained to investigate the facts on which the assessment has been made by the Commissioner. But should it otherwise be demonstrated that the assessment was made arbitrarily or capriciously so that the duty was discharged by the Commissioner in abuse of his power, then those matters and circumstances are appropriate to be considered in the exercise of discretion to stay the execution of the judgment. In my opinion his Honour's statement does not detract from the principle that the Court on the hearing of proceedings to recover tax as assessed is precluded from entertaining a challenge by the taxpayer to the factual basis on which the Commissioner made and issued the notice of assessment.
For these reasons the appeal will be allowed with costs, and the orders of the Master will be set aside.