Southwestern Indemnities Limited v. Bank of New South Wales and Federal Commissioner of Taxation.

Barwick CJ

High Court

Judgment date: Judgment handed down 9 November 1973.

Barwick C.J.: Southwestern Indemnities Ltd. (the applicant) was incorporated in Norfolk Island under the provisions of the Companies Act 1899 (N.S.W.) made applicable to Norfolk Island by the Companies Ordinance 1926-1964 of that Territory. According to an affidavit filed by it in the present proceedings, all its shareholders are natural persons resident on Norfolk Island. The applicant is said not to be a trading company and not at any time to have derived any income except in the financial year 1968-1969. In that year, according to an affidavit filed on its behalf in these proceedings, it received a sub-underwriting commission paid to it by a company incorporated and carrying on business on Norfolk Island pursuant to a contract entered into on Norfolk Island between the applicant and that company.

On 2 October this year an Investigation Officer of the Department of Taxation attended at the Norfolk Island premises of the Bank of New South Wales, the applicant's bankers, and requested access to the bank ledger cards of a number of companies whose names appeared on a list produced by the officer to the Manager of the Norfolk Island Branch of the Bank. The applicant's name appeared on that list. The officer, who was duly authorised in that behalf under the provisions of the Income Tax Assessment Act 1936-1972 (the Act), in answer to the Manager's enquiry, said that his request for access to the ledger cards was ``in terms of sec. 263 of the Income Tax Assessment Act'', i.e. the Act.

On 2 October the applicant by writ of summons commenced an action against the Bank of New South Wales and the Commissioner of Taxation endorsing a claim for declarations and orders as follows -

On the same day the applicant applied to me in chambers for an interlocutory injunction in terms of paras. 2 and 3 above. I granted leave to serve notice of motion for such relief for 2.15 p.m. the following day, Wednesday, 3 October. Upon the matter coming before me on Wednesday, 3 October, it was adjourned, suitable undertakings being given by the parties. Ultimately it was heard on Tuesday, 23 October, when, after reading further affidavits and hearing argument, I reserved my decision.

From the additional material placed before me it would appear that the respondent Commissioner does not concede the applicant's assertion that its only income is income derived from a source in Norfolk Island by a resident of that island and that, in any case, his purpose in seeking access to the Bank's records is to pursue his investigations into the liability to taxation of persons other than the applicant. It is said that there is reason to think that information to be derived from the banking records to which he seeks access, including those relating to transactions by and with the applicant, will be relevant to that investigation.

The applicant's submission is that, by reason of sec. 7(1) and its own circumstances, sec. 263 is not available to the respondent in relation to the applicant's financial records, including in that description those of its banker relating to the applicant's affairs. It is said in support of this submission that the Act has no application in relation to the affairs of a Norfolk Island resident in receipt of no other income than Norfolk Island sourced income.

For his part, the respondent submits that sec. 7(1) applies the Act as a whole to the Territory of Norfolk Island with the sole limitation that the Act shall not apply to any income derived by a Territorial resident from sources within the Territory. He further submits that the only limitation on his powers thus applicable to the Territory to seek access to any documents and other papers in any person's possession is that that access should be sought ``for the purposes of'' the Act. He points out that it is not suggested in the case, and certainly not by any evidence, that the respondent or any of his officers was seeking access to the Bank's records for any purposes other than that of investigation of the receipt of income for the purpose of assessment of income tax in accordance with the provisions of the Act.

In deciding in
Esquire Nominees Ltd. v. F.C. of T., 73 ATC 4114, that the source of certain dividends received by a company ``resident'' on Norfolk Island was within Norfolk Island, observations were made by some members of the Court upon the scope of the limitation of the Act to the named Territories effected by the words ``but shall not apply to any income derived by a resident of those Territories from sources within those Territories'' as they appear in sec. 7(1).

In my reasons for judgment, I said:

``The sole question therefore before this Court, is whether or not the proceeds of the dividend paid to the taxpayer by Mitchell Credits Ltd. was income derived by the taxpayer from sources within Norfolk Island. If yea, no part of the Act will apply in respect of the taxpayer's receipt of that sum. If nay, then sec. 44 and 99 clearly apply and no further questions arise''

(p. 4116)

``It is the source of the dividend in this case which determines whether the Act other than sec. 7 applies at all to the circumstances of the case. If that source is within Norfolk Island none of the other provisions of the Act apply, including sec. 44 and sec. 260.''

(p. 4118)

These expressions of opinion need to be read together, making it plain that it was the application of the Act to the receipt of the income in the circumstances of the case which was there under consideration. Both sec. 44 and sec. 260 are provisions of the Act relating to the receipt of income.

ATC 4174

My brother Menzies, in his reasons, said:

``The short answer to that reliance is, I think, to be found in sec. 7 itself which provides that the Act does not apply to the income upon which the Commissioner seeks to assess tax. It is not possible by means of sec. 260 to tax income which sec. 7 puts outside the operation of the Act, including sec. 260 itself.''

(p. 4124)

My brother Stephen, in his reasons, said as to the Commissioner's reliance on sec. 260 -

``If, as I have concluded, sec. 7(1) operates to exclude from the operation of the Act this income of the taxpayer then I consider that sec. 260 cannot have any operation in relation to that income.''

(p. 4129)

I find nothing in these passages to support the view that a section such as sec. 263 cannot apply in Norfolk Island simply because the records or papers to which access is sought are those of a company which is assumed for the purposes of the submission to be in fact a resident of the Territory of Norfolk Island with no income of which the source is not within that Territory. Further, as a matter of construction of sec. 7(1), the limitation upon the application of the Act to the Territory which the ``proviso'' within the section effects is with respect to the income which falls within the terms of the proviso. That means, in my opinion, that only those parts of the Act which depend upon or deal with the receipt of income and its assessability are made inapplicable to the receipt of income which satisfies the description in the ``proviso'' in sec. 7(1).

What I have just said assumes that the assertions of the applicant as to its residence and the sources of its income are accepted. But the Commissioner is not bound to accept the applicant's assertions. According to him, he does not. Further, in my opinion, the facts as to residence and income source ought not to be determined in proceedings such as the present, unless as an incident of a claim that the purpose of the officer in making the demand for access to records was a purpose extraneous to the Act and to the Commissioner's powers and duties thereunder. No such claim is made in this case. The submission is that the applicant's circumstances deny the availability of sec. 263 at all in relation to the applicant and its affairs. In my opinion, an examination of the applicant's affairs to test its assertions as to residence and income source is within the purposes of the Act.

But, perhaps more fundamentally, the exclusion of the income of a Territorial resident from Territorial sources from the application of the Act does not mean, in my opinion, that the powers given by sec. 263 are unavailable to the Commissioner on Norfolk Island with respect to the books, documents and the papers of and relating to such a resident. Whilst on the one hand it cannot properly be said that the proviso to sec. 7(1) does no more than exclude income derived from a source within the Territory from the assessable income of the Territorial resident - and the Court's decision in Esquire Nominees Ltd. v. F.C. of T. (supra) indicates that it does do more than that - on the other hand, it cannot in my opinion be said that any part of the Act which is not concerned or dealing with the receipt and assessability of income is excluded from operation in the Territory.

In this case, however, the purposes of the Act which the respondent claims to be pursuing, include an investigation into the affairs of others than the applicant. On that footing alone, it could not be said that in making the demands on the Bank on Norfolk Island the officers of the Department of Taxation were not doing so for the purposes of the Act.

I should observe upon one other argument of the applicant. It was submitted that because of the inclusion of the words ``whether a taxpayer or not'' in sec. 264, and their absence in sec. 263, the access given by sec. 263 should be construed as limited to business places, books etc. relating to the affairs of a ``taxpayer''. It is then submitted that a Territorial resident in receipt only of Territorially sourced income is not liable to be assessed for income tax and is therefore not a taxpayer, notwithstanding the definition of ``taxpayer'' in sec. 6.

But, in my opinion, upon its proper construction, sec. 263 is not limited in its application to the affairs of a person who in

ATC 4175

fact is in receipt of assessable income. It suffices that the exercise of the power given by the section is for the purposes of the Act, which of course include an investigation into whether or not a person is or has been in receipt of assessable income. Such an investigation cannot be limited to buildings, books, etc. of a person who is liable to taxation but must extend to any person.

Section 264 authorises the giving of a notice to any person to furnish information. It was appropriate in such a provision to make it clear that the notice could be given to persons who were not taxpayers as defined in the Act. In contrast with sec. 264 in this respect sec. 263, in giving to the Commissioner a right to access, gave rise to no similar need. It was quite sufficient to use universal expressions such as ``at all times'' and ``to all buildings'', etc. No further emphasis was required. No limitation could be suggested. As I have indicated, the sole limitation or qualification is that the access should be sought for ``the purposes of the Act''.

Being of this opinion, there is no need for me to discuss the further submission of the applicant, which involved the proposition that the definition of ``taxpayer'' in sec. 6 was made inapplicable to the applicant, though in receipt of income, by the proviso in sec. 7(1). Also, I find it unnecessary to discuss the question whether the applicant, assuming it to be a Territorial resident in receipt only of Territorially sourced income, was a ``person'' within the meaning of sec. 161(1), bearing in mind the definition of ``taxpayer'', and bound to furnish a return of income upon the publication of an appropriate notice under sec. 161(1).

In my opinion, the submissions of the applicant should be rejected and those of the respondent accepted. I dismiss the motion for declarations and injunction.


Motion dismissed with costs. Action dismissed with costs.


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