Case R53

Judges:
KP Brady Ch
JE Stewart M
DJ Trowse M

Court:
No. 2 Board of Review

Judgment date: 15 June 1984.

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K.P. Brady (Chairman), J.E. Stewart and D.J. Trowse (Members)

The question for decision in this reference is whether there should be a further remission of the additional tax imposed on an individual taxpayer by sec. 226(2) of the Income Tax Assessment Act in respect of an incorrect claim for a spouse rebate, the Commissioner having remitted 75% of the statutory penalty in accordance with the discretion given to him under sec. 226(3).

2. For the whole of the year of income in issue, that ended 30 June 1980, the taxpayer was employed as a media officer with his home State's Education Department. In preparing his tax return (dated 28 August 1980) for that year, he claimed the full amount of a concessional rebate of $597 for his wife, and in making that claim he stated that her separate net income was nil. It so happened that the tax assessed on his salary income approximated closely the sum total of instalments deducted progressively from his salary during the year, and so he obtained a refund of an amount of $597.54.

3. Some nine months later he received a notice of amended assessment in which the amount of the rebate was added back to the tax originally assessed, on the basis that his wife had a separate net income in the year of income in issue. By the operation of sec. 159J(4), the amount of that income, $2,667, precluded any claim for rebate by the taxpayer. Further, additional tax was imposed by the

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Commissioner amounting to $298.50. The taxpayer refunded the amount of $597 but was loath to pay the additional tax, contending that at no time had he attempted to avoid payment of tax. In a letter forming part of his objection, he made the following points in explanation of his rebate claim:

``1. My wife's total income was $2,667.

2. Tax on $2,893 was state[d] to be `nil' on the tax scale.

3. I concluded that $2,667 constituted a taxable income of nil and wrote accordingly.

4. This claim for wife allowance was unfamiliar to me as for many years my wife's earnings have been taxable and I have not applied for any allowances. However, with her retirement from regular employment, her earnings fell to this level.

5. No attempt was made to conceal this income of $2,667 as it has been disclosed to your Department on a separate return by my wife - file no....

6. I have discussed this matter with your officer, Mr...., who explained my error and suggested I submit a written explanation.

7. I therefore have decided to obtain the advice of a Tax Agent in future to prevent a recurrence of this type of mistake.

8. I regret any inconvenience caused and enclose the amount of $597 to finalise the matter.''

(In point of fact, the upper income figure on which no tax was payable was $3,893 and not $2,893 as stated by the taxpayer.)

4. The Commissioner, however, was not moved to allow the taxpayer's objection, and the matter has come before this Board for review. At the hearing, the taxpayer was represented by a colleague, whilst the Commissioner was represented by one of his officers; the taxpayer gave evidence on oath.

5. The tax return of the wife of the taxpayer was tendered in evidence. It was dated 17 September 1980, some three weeks later than the date of the taxpayer's own return, and provided details of her salary income which was earned in part only of the year of income and amounted to $2,667.

6. The Commissioner's representative made the following submissions:

(a) The taxpayer in preparing his tax return for the year of income in issue signed a declaration on p. 1 of that return that the particulars shown in it, and in such documents that accompanied it, were true and correct in every detail.

(b) On p. 3 of the return form the taxpayer claimed the maximum amount of rebate for his spouse, and in making that claim he described his wife's separate net income as amounting to nil.

(c) The return form on p. 3 clearly states that a rebate otherwise allowable is reducible by $1 for every $4 by which the separate net income of a dependant exceeds $203; also that same information is contained in Notes on p. 4 to which a taxpayer is specifically directed by an annotation on p. 3. Because the taxpayer conceded that he had made claims for rebate and for concessional deductions on account of his wife over a lengthy period of years, the conclusion was inescapable that he had been negligent in making his rebate claim in the year in issue.

7. In answer to those submissions, the taxpayer stated that at no time had he sought to evade tax and that his claim, whilst made mistakenly, was made in good faith. Therefore, so he contended, it was not a situation where a penalty should have been imposed.

8. The reg. 35(1) statement which formed part of the taxpayer's file tendered to us stated that the taxpayer became liable to pay additional tax under sec. 226(2) because of the incorrect statement he made in showing the separate net income of his wife to be nil when making claims for the spouse rebate. That provision, since expanded to cover rebates of tax in respect of unrecouped expenditure, was in the following terms in the year of income in issue:

``Any taxpayer who omits from his return any assessable income, includes in his return as a deduction for, or as a rebate in respect of, expenditure incurred by him an amount in excess of the expenditure actually incurred by him or, in relation to a claim to be entitled to a rebate under section 23AB, 79A, 79B, 159J, 159K or 159L, includes in his return information that is false in any particular, shall be liable to pay as additional tax an amount equal to double the difference between the tax properly payable by him and the tax that would be payable if it were

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assessed upon the basis of the return furnished by him, or the amount of Two dollars, whichever is the greater.''

(It is of interest that the above stricture as to the correctness of information in respect of claims for rebate under sec. 23AB, 79A, 79B, 159J, 159K and 159L was only inserted in the Act by Act No. 149 of 1979 and came into effect within the year of income in issue from 21 July 1979; previous to the enactment, a taxpayer who made a false claim for a rebate for a spouse or other dependant was subjected only to prosecution action under sec. 227.)

9. The taxpayer's representative contended that the information furnished in his client's return as to his rebate claim was not false; it was merely incorrect arising from human error.

10. In the very recent case of
F.C. of T. v. Turner 84 ATC 4161 (the decision being handed down only two days prior to the date of the instant hearing), the Supreme Court of Western Australia had cause to examine the meaning of ``false'' as contained in sec. 227. The year of income in issue in that case was that ended 30 June 1978, and sec. 227 was then in the following terms:

``(1) Any person who makes or delivers a return which is false in any particular, or makes a false answer whether orally or in writing to any question duly put to him by the Commissioner or any officer duly authorized by him, shall be guilty of an offence.

Penalty: Not less than $4 or more than $200 and, in addition, the court may order the person to pay to the Commissioner a sum not exceeding double the amount of tax that would have been avoided if the return or answer had been accepted as correct.

(2) 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.

(3)...''

11. At pp. 4163-4164, Olney J. stated as follows:

``As a matter of ordinary English usage, the word `false' is capable, depending upon its context, of meaning either erroneous or deceitful and for this reason I turn to the context in which the word appears in the statute. A comparison of sec. 227 with sec. 229 and 230 suggests that when Parliament has intended to proscribe deceitful conduct it has used the words `knowingly' and `wilfully' which tends to suggest that in sec. 227 `false' should be given some other meaning, namely its more common meaning of erroneous or incorrect. The matter is, however, put beyond doubt when the full text of sec. 227 is considered. By subsec. (2) it is provided that it shall be a defence in any prosecution under the section of a person not previously convicted of an offence against the Act or against any Commonwealth or State law relating to income tax if the defendant proves that the return to which the prosecution relates was prepared or made by the taxpayer personally and that the false return was made through ignorance or inadvertence. On the argument advanced for the defendant a return that is incorrect in a particular through ignorance or inadvertence would never be false and so the occasion for the provision of subsec. (2) to operate would never occur. That proposition has only to be stated to demonstrate that it is not valid. In my opinion a proper construction of sec. 227 both in the context of similar sections in the same Act and as a separate statement of the law relating to a particular subject matter leads to the conclusion that the word `false' is used to mean incorrect or erroneous and accordingly on the facts deemed to be admitted on the pleadings the plaintiff was entitled to a judgment of conviction of the offence of making a return that was false in a particular.''

(Emphasis added.)

(As briefly alluded to by the learned Judge, the taxpayer's counsel conceded certain facts which he admitted effectively disposed of the defence provided for in sec. 227(2), and so the taxpayer was found guilty of an offence under subsec. (1) of that provision.)

12. In our view, because of its subject matter and placement in Pt. VII, sec. 226(2) is a provision similar to sec. 227 within the context

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in which the learned Judge was examining the word ``false'', and therefore the meaning to be given to the word when interpreting the former section is simply erroneous or incorrect. Accordingly, the argument of the taxpayer's representative that his client's error was not deceitful is beside the point, and is no bar to the imposition of a penalty. As was stated by the Federal Court in
F.C. of T. v. Rabinov & Anor. 83 ATC 4437 at p. 4439, it is the failure to make a full and true disclosure of relevant information that attracts the additional tax; an absence of malice does not excuse the taxpayer.

13. The rationale of the literal meaning to be given to the word ``false'' as used in sec. 226 and 227 (and here we paraphrase what was said in
Attorney-General v. Till (1910) 5 T.C. 440 at p. 464) lies in the need for absolute truth and correctness in income tax returns because upon them is raised the greater part of the country's revenue (see also
F.C. of T. v. Trautwein (1936) 4 A.T.D. 92 at p. 97; (1936) 56 C.L.R. 211 at p. 217; and
Broome v. Chenoweth (Deputy Commissioner of Taxation) (1946) 8 A.T.D. 218 at p. 224). However, a fair balance is sought to be maintained between the public interest and the interests of individual taxpayers by giving the Commissioner a discretionary power under sec. 226(3) to remit in whole or in part the additional tax levied by the operation of sec. 226(2). Section 226(3) states as follows:

``The Commissioner may in any case, for reasons which he thinks sufficient, and either before or after making any assessment, remit the additional tax or any part thereof.''

Through the operation of sec. 193(1), the same power to remit reposes in Boards of Review (see also
Jolly v. F.C. of T. (1935) 3 A.T.D. 162 at p. 168; (1935) 53 C.L.R. 206 at p. 215).

14. The Commissioner's representative pointed out that the amount of additional tax to which the taxpayer became liable was $1,194, and that the Commissioner had remitted 75% of that amount leaving a balance payable of $298.50. Despite the strenuous arguments of the taxpayer's representative, we do not consider that we should remit any further amount. In fact, we believe that the remission effected by the Commissioner was generous. For the taxpayer's evidence was that he had prepared his own income tax returns for some 30 years, and it seems that at times during that period his wife had terminated her employment within identifiable years of income giving rise to considerations of how her separate net income would have affected his claim for concessional deductions and/or concessional rebates. In the light of that background, his belief that he had a claim for rebate in the year of income was held carelessly, and so deserving of a penalty, however nominal the amount of that penalty might be.

15. Before making the necessary Order, it is appropriate to briefly allude to a further submission made on the taxpayer's behalf. That submission was to the effect that the Commissioner does not have the constitutional authority to impose penalities and, in particular, he does not have the authority to impose a penalty for an incorrect return. However, as was pointed out at the hearing, it is the Assessment Act itself which imposes the penalty and the notice of assessment incorporating such penalty as is imposed is issued by the Commissioner as part of the general administrative powers accorded to him by sec. 8 of the Act. The matter is succinctly stated by Evatt J. in F.C. of T. v. Trautwein (supra), where at A.T.D. p. 96; C.L.R. p. 216 he says:

``(1) The doctrine of the separation of powers has not so full an application under the Australian Constitution as under that of the United States (
Victorian Stevedoring and General Contracting Co. Pty. Ltd. v. Dignan [(1931) 46 C.L.R. 73 at pp. 115-121]). But the Federal Parliament cannot vest what is strictly judicial power, except in the courts mentioned in sec. 71 of the Constitution.

(2) But the Commissioner does not, under the section challenged, impose a penalty at all. The statute imposes the additional tax in the nature of a penalty and the amount of that is fixed precisely by the statute. The power of the Commissioner is the power to remit, a power which belongs essentially to the executive and not to the judicial power.''

Accordingly, that submission made on behalf of the taxpayer lacks substance.

16. For the reasons detailed above, we uphold the Commissioner's decision on the objection and confirm the assessment.

Claim disallowed