CASE 8/93

Members:
RA Balmford SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 17 March 1993

---

RA Balmford (Senior Member)

This is an application under sub-section 14ZX(4) of the Taxation Administration Act 1953 (``the Act'') for review of a decision of the respondent made on 2 December 1992 under section 14ZX of the Act refusing a request made by the applicant on 20 November 1992 under sub-section 14ZW(2) of the Act that an objection to the assessment of the applicant's taxable income for the year ending 30 June 1989 which was lodged on 20 November 1992 be treated as having been lodged within 60 days after the notice of the assessment to which the objection relates was served on the applicant on 28 May 1990.

2. The Tribunal had before it the documents lodged by the respondent pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 (``the AAT Act'') and numbered T1 to T19, together with affidavits by Mr Ho, managing director of the applicant, Mr Stow, accounts clerk for the applicant, and Mr Peart, a valuer. The affidavit evidence was not seriously challenged by the respondent. Statements of facts were lodged by each party, and although not agreed in their entirety, they were

---

ATC 145

reconcilable. The Tribunal was informed by the parties' representatives of certain material from the respondent's file. The applicant was represented by Mr Pascoe and Mr Parncutt of counsel, and the respondent by an officer of the Australian Taxation Office.

3. In my view, the effect of sections 114 and 116 of the Amending Act is that the relevant legislation appears in Part IVC of the Act (containing sections 14ZL to 14ZZS) which was inserted by the Act by the Taxation Laws Amendment Act (No 3) 1991 (``the Amending Act'') with effect from 1 March 1992. The Amending Act also inserted (with effect from the same date) section 175A of the Income Tax Assessment Act 1936 (``the Assessment Act'') providing that a taxpayer dissatisfied with an assessment may object in the manner set out in Part IVC. Paragraph 14ZU(b) of the Act provides that an objection must be lodged with the respondent within the period set out in section 14ZW. By virtue of paragraph 14ZW(c), the definition of ``taxation decision'' in section 14ZQ, and the former sub-section 185(1) of the Assessment Act (repealed with effect from 1 March 1992 by the Amending Act) that period, in the present case, is 60 days after notice of the assessment to which the objection relates was served on the applicant.

4. Sub-sections 14ZW(2) and (3) and section 14ZX read as follows, so far as relevant:

``14ZW(2) If the... 60 days have passed, the person may nevertheless lodge the objection with the Commissioner together with a written request asking the Commissioner to deal with the objection as if it had been lodged with... 60 days.

14ZW(3) The request must state fully and in detail the circumstances concerning, and the reasons for, the person's failure to lodge the objection with the Commissioner within the... 60 days.

14ZX(1) After considering the request, the Commissioner must decide whether to agree to it or refuse it.

...

14ZX(3) If the Commissioner decides to agree to the request, then, for the purposes of this Part, the objection is taken to have been lodged with the Commissioner within the... 60 days.

14ZX(4) If the Commissioner decides to refuse the request, the person may apply to the AAT for review of the decision.''

5. On the basis of the material before me I find the facts set out in this and the following five paragraphs, bearing in mind that the several deponents did not appear to give evidence and were not cross-examined. The applicant carries on the business of property development in the Geelong region. During 1988 it redeveloped a property in Portarlington, constructing a shop and motel at a cost of $725,674 as at 30 June 1989. At that same date the market value of the property was $520,000.

6. Late in the calendar year 1989 the directors resolved verbally to include the Portarlington property at market value in the financial statements and income tax return of the company for the year ending 30 June 1989. Mr Ho, the managing director, informed Mr Stow, the accounts clerk, of this decision. It was Mr Stow's duty to keep books of account for the company and hand them to Mr Watson of Messrs King & Whittle, the company's external accountants, for preparation of annual accounts and taxation returns. Mr Stow was, at the relevant time, a shareholder in the company. Each of Mr Ho and Mr Stow assumed that the other had informed King & Whittle of the decision relating to the value of the property. In fact neither had done so, and the property was included in the return at cost.

7. Mr Ho signed each page of the income tax return for that year, including the page on which the following question and answer appear: ``40. Trading stock valued at other than cost? No.''

8. An assessment for the year ending 30 June 1989 issued on 28 May 1990 for tax amounting to $84,072.69. The company was experiencing difficulties, and on 8 November 1990 a letter of demand was sent by the respondent for that amount plus additional tax. Letters and discussions continued, between the respondent and Mr Ho. Messrs Bowman & Knox, the applicant's solicitors, came into the matter on 7 August 1991 and several letters were written by them, all, as Mr Pascoe rightly conceded, written on the assumption that a debt was owed for the amount of the primary tax as assessed and additional tax. Various proposals were made for delayed payment or payment by instalments.

---

ATC 146

9. On 19 November 1992 an application, moved by the respondent, to wind up the applicant, was heard in the Supreme Court of Victoria. On that day it was indicated by the applicant for the first time that the amount of the tax was disputed. After an adjournment of the Supreme Court proceedings, the applicant lodged on 20 November a notice of objection to the assessment and an application for extension of time to lodge that objection, thereby initiating the course of action leading to the present proceedings. The covering letter to these documents referred to a mistake in that certain section 80G losses had not been transferred from other members of the Woods group of companies to the applicant. As a result of further adjournments, the Supreme Court proceedings are to resume tomorrow, on Thursday, 18 March 1993.

10. On 2 December 1992 the applicant delivered to the respondent what was described as an amended return for the year ending 30 June 1989. The section 80G question was not proceeded with. In this return the Portarlington property was valued at market value, and a deduction was claimed in respect of certain management fees. The effect of these adjustments (and, as I understand, the effect of the revaluation of stock alone) if allowed, would be to show no tax payable by the applicant in respect of the year. The implied request to amend the return was rejected by the respondent, as was the application for extension of time.

11. In
Hunter Valley Developments Pty Ltd & Ors v Cohen (1984) 7 ALD 315, Wilcox J considered the principles applicable in the consideration of an application to extend time for the lodging of an application for review under section 5 of the Administrative Decisions (Judicial Review) Act 1977. Those principles have frequently been adopted in this Tribunal as an appropriate basis for consideration of similar applications under the AAT Act and under taxation legislation. (See for example
Re Bonavia and Secretary, Department of Social Security (1985) 9 ALD 97,
Re Commonwealth Scientific & Industrial Research Organisation & Barbara (1987) 11 ALD 447, Case X75,
90 ATC 558.) His Honour said (at 319-321):

``Section 11 of the Administrative Decisions (Judicial Review) Act does not set out any criteria by reference to which the court's decision to extend time for an application for review under s 5 is to be exercised. Already there have been a number of decisions of judges of this court, all sitting at first instance, dealing with the approach proper to be taken. They differ a little, both in language and in emphasis, but I venture to suggest that from them may be distilled the following principles to guide, not in any exhaustive manner, the exercise of the court's discretion:

• (a) Although the section does not, in terms, place any onus of proof upon an applicant for extension an application has to be made. Special circumstances need not be shown but the court will not grant the application unless positively satisfied that it is proper to do so. The `prescribed period' of 28 days is not to be ignored:
  Ralkon v Aboriginal Development Commission (1982) 43 ALR 535 at 550. Indeed it is the prima facie rule that proceedings commenced outside that period will not be entertained:
  Lucic v Nolan (1982) 45 ALR 411 at 416. It is a precondition to the exercise of discretion in his favour that the applicant for extension show an `acceptable explanation of the delay' and that it is `fair and equitable in the circumstances' to extend time: Duff at 485;
  Chapman v Reilly (unreported, Neaves J, 9 December 1983, at 7).
• (b) Action taken by the applicant, other than by making an application for review under the Act, is relevant to the consideration of the question whether an acceptable explanation for the delay has been furnished. A distinction is to be made between the case of a person who, by non-curial means, has continued to make the decision-maker aware that he contests the finality of the decision (who has not `rested on his rights': per Fisher J in
  Doyle v Chief of Staff) (1982) 42 ALR 283 at 287 and a case where the decision- maker was allowed to believe that the matter was finally concluded. Compare
  Doyle, Chapman, Ralkon and Douglas v Allen unreported (Morling J, 3 April 1984, at 18) with Lucic at 414-15 and
  Hickey v Australian Telecommunications Commission (1983) 48 ALR 517 at 519. The reasons for this distinction are not only the `need for finality in disputes'

  ---

  ATC 147

  (see Lucic at 410) but also the `fading from memory' problem referred to in
  Wedesweiller v Cole (1983) 47 ALR 528.
• (c) Any prejudice to the respondent including any prejudice in defending the proceedings occasioned by the delay is a material factor militating against the grant of an extension: see Doyle at 287, Duff at 484-5, Hickey at 525-7 and Wedesweiller at 533-4.
• (d) However, the mere absence of prejudice is not enough to justify the grant of an extension: Douglas at 18; Lucic at 416; Hickey at 523. In this context, public considerations often intrude (Lucic, Hickey). A delay which may result, if the application is successful, in the unsettling of other people (Ralkon at 550, Becerra at 12-13) or of established practices (Douglas at 19) is likely to prove fatal to the application.
• (e) The merits of the substantial application are properly to be taken into account in considering whether an extension of time should be granted: Lucic at 417, Chapman at 6.
• (f) Considerations of fairness as between the applicants and other persons otherwise in a like position are relevant to the manner of exercise of the court's discretion: Wedesweiller at 545-5.

In considering the authorities it is, I believe, important to bear in mind the point made by Sheppard J in Wedesweiller at 531, relating to the diversity of decisions of which review may be sought under the Act:... `there will be some cases which may be decided upon considerations which affect only the immediate parties. It will be appropriate to consider whether the delay which has taken place has been satisfactorily explained, the prejudice which may be caused to an applicant by the refusal of an application, the prejudice which may be suffered by the government or a particular department if the application is granted and, generally, what the justice of the case requires. In other cases wider considerations will be involved'.

He went on to mention the reference to public interest made by Fitzgerald J in Lucic at 416.

It is in relation to the former category of cases, ie those `which affect only the immediate parties' that the approach adopted by Bray CJ in
Lovatt v LeGall (1975) 10 SASR 479 at 485 in respect of private litigation but adopted in this context in both Doyle at 287 and Duff at 485, is apposite namely: `If the defendant has suffered no prejudice, as when he was well within the limitation period of the plaintiff's claim, or where excess period of time is small, or where he cannot show that he has lost anything by reason of the delay, it may well be that the court will not find it difficult to come to the conclusion that it is fair and equitable in the circumstances to grant extension'.

By contrast, in cases involving public administration, especially day to day matters such as personnel management, the public interest may well dictate refusal of an extension even after only a short delay.''

12. Essentially, the submissions of Mr Pascoe relied on the situation that until the matter was examined by counsel in the context of the winding up proceedings, the company and its advisers had been under the impression that the Portarlington property had been valued at market value in the return. Thus the applicant had been operating under a fundamental mistake.

13. Mr Pascoe made no submission explanatory of the delay so far as it related to the management fees claimed in the amended return, and I do not propose to consider further any aspect of that claim. There is no basis on which I could find an acceptable explanation of the delay in that regard.

14. The respondent's representative sought to rely on the explanatory memorandum relating to the Taxation Boards of Review (Transfer of Jurisdiction) Act 1986 by which provisions for extension of time to lodge objections were first incorporated into the Assessment Act. However, none of the circumstances described in sub-section 15AB(1) of the Acts Interpretation Act 1901 apply to permit consideration to be given to that material and I will say no more about it.

15. Having considered the matter, I am of the view that the situation described in paragraph 12 above relating to the closing stock valuation does not constitute an acceptable explanation of

---

ATC 148

a delay of almost two and a half years in lodging the notice of objection. The managing director signed the return and signed the page on which question 40 and its answer cited in paragraph 7 above appear. When the company began, apparently on receipt of the letter of demand in November 1990, relatively soon after the issue of the assessment, to negotiate with the respondent, as a result of its difficulties, the assessment itself was not challenged: the negotiations related solely to the manner of payment. The applicant had legal and accounting advice available to it throughout. Exactly two years later, when counsel came into the matter as a result of the winding up proceedings, the assessment was examined, and possible grounds of objection discovered. This only emphasises that such an examination could have been performed by the legal or accounting advisers at a much earlier stage. I should say that I am not aware of what instructions were given, or when they were given, to those advisers, and no implication of liability in those advisers should be drawn from what I have said.

16. It is not in issue that, while the applicant was negotiating as to the manner of payment from shortly after the issue of the assessment, the possibility of challenging the finality of the assessment itself was never raised with the respondent throughout the two and a half year period.

17. The respondent's representative submitted that, if this application for extension of time were granted, given the financial difficulties of the applicant, the respondent might be prejudiced in the Supreme Court proceedings and in the recovery of moneys owing to it should the objection ultimately fail, after the inevitable further delay. I accept that submission.

18. As to the substantive issue in question, the respondent's representative relied on
(1956) 7 TBRD 314 Case No G55, in which it was held that an option to value trading stock at cost, once exercised, cannot be varied. Mr Pascoe submitted that that case was distinguishable on the present facts: the exercise of the option had not been by a conscious decision to value at cost, the intention having been to value at market value. He relied on
(1951) 2 TBRD 123 Case No B29. I do not propose, for present purposes, to say more than that there appears to be an issue for consideration.

19. I am of the view that it would not be in the public interest to grant an application for an extension of time by two and a half years to lodge an objection where the delay was due to the situation described in paragraph 11 above. As the respondent's representative submitted, the implications could be significant in the case of larger companies where more individuals are concerned with the preparation of returns.

20. For all of these reasons, I am of the view that, considering the matter in the light of the principles enunciated by Wilcox J in Hunter Valley, it is not appropriate to treat the applicant's objection as having been duly lodged. The extension of time refusal decision under review will be affirmed.