Aoun v. Deputy Federal Commissioner of Taxation.

Judges:
Cross J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 26 May 1982.

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Cross J.

The plaintiff (hereinafter referred to as the taxpayer) was charged by summons in the Court of Petty Sessions at Campsie with an offence under sec. 227(1) of the Income Tax Assessment Act 1936 (as amended) in that he made a return of income for the 1977-78 financial year which was false in a particular, namely, that it stated his wife's separate net income to be ``NIL'', whereas she had a separate net income of over $7,000.

After a hearing, the taxpayer was convicted and fined $40 and ordered to pay court costs. By the present summons in this Court against both the prosecuting

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authority, i.e. the Deputy Commissioner of Taxation, and the presiding magistrate, the taxpayer challenges that conviction and seeks to restrain both defendants from proceeding on that conviction. The second defendant, i.e. the presiding magistrate, has made a submitting appearance; but the first defendant, i.e. the Deputy Commissioner of Taxation, has appeared by counsel and has sought to sustain the conviction.

The evidence revealed that H. & R. Block are ``income tax preparers'' with premises at Campsie. Two members of the staff were Mr. Eljuri and Mr. Hope-Robertson (the evidence suggested that the professional integrity of these two gentlemen became suspect or was considered to be so by their employer after material came to the employer's knowledge following the termination of their services). From information supplied by the taxpayer, the firm of H. & R. Block prepared contemporaneously the income tax returns of both the taxpayer and the taxpayer's wife for the year 1977-78. Those returns are Exs. A and B, respectively, in the case in this Court. The entries in those returns were made predominantly by Mr. Eljuri and partly by Mr. Hope-Robertson; and the only material in each return which was not inserted by those tax agents was the signatures of the taxpayer and of his wife on their respective returns.

In the rebate section of the taxpayer's return it is stated that his wife's separate net income for that year was ``NIL''. That statement is conceded to be false and indeed the wife's own return, which is conceded on behalf of the taxpayer to be correct, shows her net taxable income for the year as over $7,000.

It is clear, also, that though the taxpayer did not prepare his return it was ``made'' by him (for the purpose of sec. 227(1)) by his signing it with the intention that the form he so signed be lodged as his return (see
McGovern v. Chaplain & Ors. (1951) A.T.D. 351 at p. 356). It is therefore expressly conceded by counsel for the taxpayer that the taxpayer made a return which was false in a particular in that it stated that his wife's net income for the year was ``NIL'' when in fact it was over $7,000. Such an offence is an offence per se, and does not require a contemporaneous fraudulent or otherwise improper state of mind in the taxpayer as a prerequisite to conviction.

The taxpayer, then, could escape conviction only by virtue of the provisions of sec. 227(2) which provides:

``In any prosecution for an offence under this section of a person who has not previously been convicted of an offence against this Act, or against any law of the Commonwealth or of a State relating to Income Tax, it shall be a defence if the defendant proves -

• (a) that the return or answer to which the prosecution relates was prepared or made by him personally; and
• (b) that the false return or false answer was made through ignorance or inadvertence.''

(It was not suggested that the taxpayer had any prior relevant convictions.)

Now, though the answers to the questions posed in the return were not made by the taxpayer personally, the return itself was made by him (sec McGovern's case (supra)) and therefore no difficulty arises as to the taxpayer discharging the onus of proving that relevant requirement under sec. 227(2)(a).

This, then, brings the Court to the real issue in this case, namely whether the Court of Petty Sessions at Campsie was or was not bound to acquit the taxpayer by reason of the facts it found and the effect of those findings on the second limb of the statutory defence, i.e. sec. 227(2)(b), namely ``that the false return or false answer was made through ignorance or inadvertence''.

The present taxpayer's credibility may or may not have been suspect, particularly in view of a somewhat similar problem he had with the Taxation Department the year before; but the learned magistrate found - and this Court is therefore bound for the purpose of this summons to accept - the following:

The taxpayer is of Lebanese origin. He speaks only Arabic. He understands a little English but does not speak it. He cannot read it. He occupies a comparatively humble position in the economic and social hierarchy and as a result has always had to have his

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income tax returns prepared for him by others. In relation to his return and that of his wife for the year 1977-78, the taxpayer, having met Mr. Eljuri (who also speaks Arabic) on a social occasion at which Mr. Eljuri spoke favourably of H. & R. Block and its expertise, went to the tax agent's office and gave Mr. Eljuri and Mr. Hope-Robertson all documents and information necessary for the preparation and completion of his and his wife's returns. Later he and his wife attended at the tax agent's office and signed their separate returns as prepared by those tax agents. The taxpayer had ``placed faith in these people'' and ``he accepted that they would complete the returns in the prescribed manner''. When the return was presented to the taxpayer to sign, he was not able to read it, and because he believed that the tax agent ``had completed the return in the prescribed manner'', he signed it, i.e. ``He merely accepted the representative of H. & R. Block as having completed the return accurately and just signed his name on the declaration''.

Having made these findings of fact, the learned magistrate referred to McGovern's case (supra). (And it is to be noted that the second paragraph on p. 5 of the learned magistrate's judgment is not part of the learned magistrate's reasoning, but part of the quote from McGovern's case.) His Worship's reasoning then proceeded as follows: H. & R. Block were responsible for the false entry. That false entry by those tax agents ``could not be considered to have been made through ignorance or inadvertence''. McGovern's case decides that the return, having been prepared by the tax agent, becomes the return of the taxpayer (?). The ignorance or inadvertence referred to in sec. 227(2)(b) relates to the person who actually made the false entry and ``the (false) entry of the agent is the entry of the taxpayer''. There being no ignorance or inadvertence by the person making the entry, i.e. the agent, ergo there is no ignorance or inadvertence by the taxpayer. Though this is ``unfortunate for (the taxpayer's) particular position because of his inability to read or understand the content of the document, he nonetheless in my view, at law, has to bear the responsibility for the document for it is his document''.

His Worship therefore concluded that the taxpayer ``is not entitled to avail himself of the satutory defence in relation to ignorance or inadvertence, that is, of the agent of H. & R. Block''. His Worship found the offence proved.

With every deference to the learned magistrate, it would appear that he fell into error. The taxpayer was not charged with making a false answer under sec. 227(1), nor was any representative of H. & R. Block charged with making a false answer under sec. 227(1). The taxpayer was charged under that subsection not with making a false answer but with making a return which was false in a particular. He was therefore entitled to be acquitted if he satisfied the Court that it was through his own ignorance or inadvertence he made (i.e. in this case signed) the return which contained the false particular. True, the taxpayer knew he was signing, i.e. making, a return; he was in no way ignorant or inadvertent as to that; he was aware that he was making a return. But the charge was not that he made a return. He was charged in that he did make a return which was false in a particular; and the question is whether he was ignorant or inadvertent in making such a defective return, i.e. a return false in a particular.

The circumstances surrounding the taxpayer's signing of the defective document must be considered separately from the circumstances surrounding the agent's answering of the particular question as to the wife's separate net income. The relevant aspect of the decision in McGovern's case (supra) was that even though a tax agent prepares a taxpayer's return, the return is made by the taxpayer and not by the agent if the taxpayer, not the agent, actually signs the return with the intention that it be lodged as his return. That decision does not make an improper or inexcusable answer by the agent in the return an improper or inexcusable making of the return by the taxpayer. That case does not decide that an inexcusable (under the section) answer by the agent in a return automatically renders the subsequent signing of the return by the taxpayer inexcusable.

In my opinion, the learned magistrate was in error in not differentiating between what he found to be an inexcusable (under the Act)

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answer by the agent to a question - a matter which in any case was not the gravamen of the charge against the taxpayer - and the possible excusable action by the taxpayer in making, i.e. signing, a defective return (in the sense that it was false in one particular) in circumstances where, as the learned magistrate found, the taxpayer was totally unaware of the presence of the false particular.

It is, of course, true that the decision of the learned magistrate may be invulnerable even if his reasoning is not. And this Court also realises that the onus of proof of the statutory defence under sec. 227(2) lies on the taxpayer. But in the present case the favourable exculpatory findings of fact by the learned magistrate led inevitably, in my opinion, to the conclusion that the taxpayer's prima facie offence of signing a return which contained a false entry arose through the taxpayer's innocent ignorance of that false entry, and he was entitled - on the learned magistrate's own findings of fact - to be acquitted.

The conviction is therefore set aside and so far as is necessary, the first and second defendants are hereby restrained from proceeding upon the conviction of the plaintiff made by the second defendant on 3rd April, 1981. The first named defendant must pay the plaintiff's costs of these the proceedings.