CASE 21/94

Members:
J Handley SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 12 May 1994

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J Handley (Senior Member)

The issue for determination in these proceedings was whether the Tribunal had jurisdiction to review the decisions under consideration.

The applicant (``FJ'') applied to the Tribunal for review of the decisions of the respondent disallowing an objection dated 23 March 1990 against a notice of amended assessment issued on 19 January 1990 in respect of the 1988 financial year.

The applicant maintained that licence fees payable in respect of years subsequent to 1988 are deductible in the year ending 31 August 1988 pursuant to s. 51(1) of the Income Tax Assessment Act 1936. The applicant argued that a liability to pay licence fees was incurred in the 1988 financial year and the total sum payable was in these circumstances deductible in that year.

By reason of the limitation provisions in s. 14ZV of the Taxation Administration Act 1953 (``the Act''), the respondent submitted that there was an absence of jurisdiction for the Tribunal to hear the matter (s. 14ZV being a substantial re-enactment of the former s. 185(2) of the Income Tax Assessment Act 1936).

Section 14ZV provides that-

``If the taxation objection is made against a taxation decision, being an assessment or determination that has been amended in any particular, then a person's right to object against the amended assessment or amended determination is limited to a right to object against alterations or additions in respect of, or matters relating to, that particular.''

The facts of this application may be summarised as follows.

On 13 March 1989 FJ's accountants lodged an income tax return for the 1988 financial year. In that return, no claim was made for a deduction of licence fee payments paid by FJ to a Dutch based company (``VG'') in the sum of $389,650.87. This sum arose from a licence agreement entered into by FJ and VG and was payable by four instalments of $97,412.00 on 31 March 1988, 1989, 1990 and 1991. The payment under the licence agreement ensured that FJ acquired ``certain rights to use design information originating from VG in garments to be marketed by FJ in Australia and New Zealand either under the licensee's own trade marks or... under the trade mark VG'' (refer paragraph C of the licence agreement at T-2 of the T-documents). (The relevance of the licence fees will hopefully become apparent later in these reasons.)

Following the lodging of the income tax return for the 1988 year an assessment notice was issued by the respondent.

Thereafter certain audit procedures were initiated by the respondent in respect of the financial affairs of FJ. The issue of the licence fees was raised by FJ during those audit procedures.

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ATC 224

It would appear that the respondent was prepared to accept, in part, the applicant's arguments then put in respect to the deductibility of the licence fees. On 19 January 1990 an amended assessment notice was forwarded to FJ which adjusted the taxable income of the company in respect of the year ended 31 August 1988 by adding to the taxable income an amount of $998 described as ``licence fee depreciation'' but allowed, by way of deduction, the sum of $97,412 being a sum represented as ``licence fee payments''.

On 23 March 1990 FJ's accountants forwarded a detailed letter to the respondent objecting to this amended assessment. In particular they objected to the sum of $97,412 only being allowed as a deduction and claimed that the total sum of $389,650.87 was deductible.

On 11 October 1993, following FJ's accountant's letter, the respondent issued a notice of decision of objection. That notice did not alter the decision made by the amended assessment of 19 January 1990 in respect of licence fee payments.

On 18 December 1993 (and 31 January 1994?) FJ's accountants lodged an application with this Tribunal in respect of the amended assessment.

Both applications to this Tribunal substantially sought review of the decision of the respondent in respect of the licence fee payments. There were a number of other issues between the parties concerning procedural matters and some issues as to whether other amounts were deductible. All of these issues were resolved between the parties. The only preliminary? [sic] matter that remained was the jurisdictional issue as outlined earlier.

The submissions put by the representatives of the parties concerned both applications and these Reasons are to be treated as the Decision in respect of both applications.

Ms Booth, on behalf of FJ, relied on s. 14ZV of the Act and argued that her client was entitled to bring these proceedings because the original assessment had been amended and the objection was against that amendment. In support of her contentions, she relied on the decision of Hill J in
ANZ Savings Bank Limited v FC of T 93 ATC 4370. At p. 4395 Hill J. said-

``In the present case there can be no doubt but that the inclusion of an amount in assessable income and the disallowance of a deduction are two separate `particulars'. The matter which is the subject of objection by the taxpayer and the subject matter of the objection decision is the inclusion of an amount in income. The matter of the allowance of the deduction is not a matter in respect of which the taxpayer is dissatisfied and it is not before the Court. For the Commissioner to raise the allowability of the deduction it would first be necessary for the Commissioner, if the prerequisites of s. 170 permit, to amend the assessment to disallow the deduction. Once the amended assessment issued, the taxpayer would then be permitted to object under s. 185(2) to the particular altered. The Commissioner could consider this further objection and then if still of the belief that the deduction should not be allowed should disallow the objection and thereupon the matter would be properly before the Court.''

On behalf of the respondent, Mr Sest agreed that the assessment in respect of FJ's income for the 1988 year had been amended to allow a deduction of $97,412 in respect of licence fees. Implicitly, he said, a decision was made by the respondent to disallow the amount of licence fees payable over the four subsequent years in the total sum of $389,650.87.

He submitted that the application of FJ was defective because:

• i) FJ was limited in its right of objection in respect of amended assessments to the extent of any decision arising from that amended assessment which was adverse to it. In this matter, the amended assessment was not adverse to the taxpayer;
• ii) FJ sought to raise, by way of objection, the deductibility of the licence fee payments, which it failed to claim initially when the tax return was lodged. FJ also failed to raise the issue of the licence fees in an objection to the original assessment.

Mr Sest also relied on the decision of Hill J in ANZ Savings Bank Limited v FC of T, where, at p. 4393, Hill J. said-

``Once the assessment has been amended in a particular adverse to the taxpayer, the taxpayer may then, within 60 days of service of the notice of amended assessment, object

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against it, but the right so to do is limited by s. 185(2) to a right to object against alterations or additions in respect of, or matters relating to that particular.''

In the context of the above passage, Mr Sest submitted that ``that particular'' referred to the matter which altered or was additional to the original assessment and which, by its nature, was adverse to the taxpayer. The right to object therefore originated only in that adverse particular.

He argued that the objection lodged by FJ was in relation to the alteration or addition of that particular but because that alteration or addition allowed a deduction (albeit in part) of the licence fee, it could not be said to be a ``particular adverse'', to the taxpayer. The licence fees themselves, he said were never claimed originally as a deduction.

In the alternative, the fact that the respondent allowed, after informal audit discussions, a deduction of $97,412, when that sum (nor any other) was originally claimed in respect of licence fees, could not be considered adverse to FJ. The amended assessment in fact benefited FJ.

Mr Sest argued that in respect of the peculiar basis upon which objections to amended assessments may be brought before the Tribunal, any issue of what the taxpayer should have been allowed is not permissible and is not an issue open for review in these proceedings by this Tribunal.

I am satisfied that the submissions of Mr Sest are sound and are to be preferred.

The amendment to FJ's original tax assessment, in so far as it related to the licence fees, was of benefit to the company because licence fee deductions were never originally claimed. The reasons why it was not originally claimed remain a mystery. Nonetheless, its allowance by the respondent in the amended assessment cannot rationally be labelled as adverse.

Section 14ZV clearly limits the right of objection in respect of amended assessments to additions or alterations thereto and is predicated upon a dissatisfaction with an assessment.

The amended assessment altered the original assessment by adding a deduction of $97,412. This hardly imposes an adverse effect on the taxation liability of the applicant.

The attempt by FJ to incorporate an appeal against the disallowance of the sum of $389,650.87, by it being labelled the alteration or addition (whether by reference to s. 51(1) or otherwise) as adverse to the taxpayer is not contemplated or allowed by s. 14ZV of the Act.

I am satisfied that the applicant has been unable to demonstrate that the decision in issue is reviewable by this Tribunal. The application therefore will be dismissed, pursuant to s. 42A(4) of the Administrative Appeals Tribunal Act 1975, without proceeding to a review of the decision.