Case V35

Members:
Hartigan J

Tribunal:
Administrative Appeals Tribunal

Decision date: 4 January 1988.

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Hartigan J. (President)

This application for review comes before the Tribunal in purported reliance upon the provisions of sec. 187 of the Income Tax Assessment Act 1936 (the Act).

When this application came on for hearing Mr Brandis of counsel for the respondent Commissioner of Taxation raised the question of whether or not the Tribunal was empowered to consider the reference. He submitted that the question was raised because the decision under review was one made in relation to a notice showing nil tax payable by the applicant. Mr Brandis submitted that in this case there was not in existence a relevant notice of assessment. Before going on to consider the submissions of the respondent as to the proper construction and interpretation of the relevant words in sec. 187 of the Act I must first consider the approach that the Tribunal should take when a question such as this is raised before it at the beginning of the Tribunal's consideration of the merits of the application before it. An administrative body with limited authority such as this Tribunal cannot judicially pronounce upon the limits of its jurisdiction. What it can do when a preliminary question as to its power to determine a particular question is raised before it is to form an opinion as to the limits of its authority in a particular case and to then act in accordance with the opinion it has formed. In taking this course the administrative body is merely endeavouring to conform with the statutory requirements which apply in the particular case.

In
Rex v. Fulham, Hammersmith and Kensington Rent Tribunal; Ex parte Zerek (1951) 2 K.B. 1 a Divisional Court was considering, in an application for certiorari, the position of a Tribunal of limited authority which acted under a statute which provided that the existence of an ``unfurnished tenancy'' was a prerequisite of an exercise of the Tribunal's power to fix a rent under the statute. The power of the Tribunal to determine whether there was a ``furnished tenancy'' was challenged before the Divisional Court.

During the course of Devlin J.'s judgment this passage occurs ((1951) 2 K.B. 1 at pp. 10-11):

``In my opinion the argument on behalf of the applicant is based on a misconception of what it is that a tribunal in cases such as this is doing. When, at the inception of an inquiry by a tribunal of limited jurisdiction, a challenge is made to their jurisdiction, the tribunal have to make up their minds whether they will act or not, and for that purpose to arrive at some decision on whether they have jurisdiction or not. If their jurisdiction depends upon the existence of a state of facts, they must inform themselves about them, and if the facts are in dispute and reach some conclusion on the merits of the dispute. If they reach a wrong conclusion, the rights of the parties against each other are not affected. For, if the tribunal wrongly assume jurisdiction, the party who apparently obtains an order from it in reality takes nothing. The whole proceeding is, in the phrase used in the old reports, coram non judice. If, for example, the applicant in this case wishes, he can sue for his 35s. rent. He will be met with the defence that by the order of the tribunal it

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has been reduced to 15s. He can reply that the order is bad for want of jurisdiction, and that the defendant will have to justify the order on which he relies and so prove the facts which give the tribunal jurisdiction. This seems to me to be what is laid down by the decision in
Briscoe v. Stephens (1824) 2 Bing. 213, and to be in accordance with the opinion of Willes J., in
London Corporation v. Cox (1867) L.R. 2 H.L. 239, 262. In such an action, I apprehend, the findings of the tribunal would be irrelevant and inadmissible. They are findings in a preliminary inquiry whose only object is to enable the tribunal to decide for themselves how to act. They are findings, therefore, that cannot ultimately prejudice either party. In these circumstances, I am unable to see why the tribunal should, in making their preliminary inquiry, be restricted to any particular class of case, or how they can be restrained from investigating for their own purposes any point which they think it necessary to determine so that they can decide upon their course of action.''

As Brennan J. (then sitting as the President of this Tribunal) observed in
Re Adams and The Tax Agents Board (1976) 7 A.T.R. 87 at pp. 88-89 after noting that only a court can be invested with the legal authority to determine definitively the constitutional validity of an Act of the Federal Parliament went on to say:

``It follows that neither the Tribunal nor the Board can give a definitive answer to the question of constitutional validity. It is one thing to deny to the Tribunal and the Board the power definitively to answer the question; it is another thing to deny their competence to consider and to reach an opinion on the question. An opinion formed by an administrative body does not, however, produce any effect in point of law. It is incapable of adding to or subtracting from any authority or purported authority conferred by the challenged statute. It is incapable of affecting any legal requirement as to the exercise of an authority actually conferred upon the administrative body. Fullagar J. stated the legal sterility of an administrative opinion as to the constitutional validity of a provision purportedly conferring power when he said in
Australian Communist Party v. Commonwealth (1951) 83 C.L.R. 1 at 258:

• `The validity of a law or of an administrative act done under a law cannot be made to depend on the opinion of the law-maker, or the person who is to do the act, that the law or the consequence of the act is within the constitutional power upon which the law in question itself depends for its validity.'

An administrative body cannot therefore lawfully exercise authority merely because it is of the opinion that it has the authority. Its opinion is not the charter of its powers and discretions. It derives its powers and discretions from and in accordance with the law. It is the court's judgment and not the administrative body's opinion which defines the extent of (as well as the constitutional support for) its statutory authority...

An administrative body with limited authority is bound, of course, to observe those limits. Although it cannot judicially pronounce upon the limits, its duty not to exceed the authority conferred by law upon it implies a competence to consider the legal limits of that authority, in order that it may appropriately mould its conduct. In discharging its duty, the administrative body will, as part of its function, form an opinion as to the limits of its own authority. The function of forming such an opinion for the purpose of moulding its conduct is not denied to it merely because the opinion produces no legal effect. In
R. v. Hickman; Ex parte Fox and Clinton (1945) 70 C.L.R. 598, Dixon J., whilst denying the power of a Local Coal Reference Board to determine judicially the meaning of a statutory phrase upon which its jurisdiction depended, distinguished the Board's function of forming an opinion on the question. He said (at 618):

• I do not mean to say that the Board may not, for the purpose of determining its own action, `decide' in the sense of forming an opinion upon the meaning and application of the words `coal mining industry'. It must make up its mind whether this or that particular function on the borders of the coal mining industry does or does not fall within the conception.'''

Brennan J. then went on to cite with approval what was said by Blackburn J. in
Re

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Cilli's Objection (1970) A.L.R. 813 at p. 815, 15 F.L.R. 426 at p. 428, that an administrative body ``must satisfy itself that all its proceedings are in accordance with the law. It must therefore receive and consider, whenever the point is taken, an argument that it has no jurisdiction. To say that is, in truth, to say no more than that it must at all times act lawfully.''

In Re Adams (supra) Brennan J. (at p. 89) drew a distinction between an administrative body's exploration of the limits of its power in conformity with the will of Parliament as opposed to its declining to exercise power on the basis that the Parliament had no constitutional power to confer the relevant authority to determine the question. His Honour then went on to consider the question of invalidity in relation to the case before him.

During the course of argument my attention was drawn to the reasons of Mr C.F. Fairleigh Q.C. in Case L5,
79 ATC 20 at pp. 24-25, and the decision of Mr Roach, Senior Member, in Case U131,
87 ATC 767 at pp. 770-771. In my view the reasoning in both cases accords with the principle which can be extracted from the cases to which I have already referred. If what Board of Review No. 3 in Case K62,
78 ATC 611 was saying was that the Board in that case could not investigate for its own purpose any point which it thought necessary to determine so that it could decide upon its course of action then in my respectful view the Board fell into error. (See 78 ATC 611 at p. 612.)

In my opinion the Tribunal at this point is now required to consider the legal limits of the authority conferred on the Tribunal under sec. 187 of the Act to consider the application now before the Tribunal. The Tribunal must now ``form an opinion as to the limits of its own authority'' (Re Adams, supra, 7 A.T.R. 87 at p. 89).

I now turn to the submissions of the respondent.

By a notice dated 13 November 1986 a Deputy Commissioner of Taxation advised the applicant that no tax was payable on the income shown on the return lodged for the year ended 30 June 1984 and no refund was due. The taxpayer was of the view that certain losses ought to have been allowed to a partnership of which he was a member and that his own tax position for 1984 should be adjusted to allow to him his share of the loss. The taxpayer objected and his objection was disallowed. He then sought a reference to this Tribunal under sec. 187 of the Act to review the decision. This was done within the time limits imposed by that section.

The relevant portion of sec. 187 reads as follows:

``A taxpayer who is dissatisfied with a decision under Section 186 on an objection by a taxpayer may, within 60 days after service on the taxpayer of notice of the decision, lodge with the Commissioner, in writing either -

• (a) a request to refer the decision to the Tribunal; or...''

Counsel for the respondent pointed to sec. 186 which makes it clear that the decision referred to in sec. 187 is the decision of the Commissioner made on his consideration of an objection under sec. 185 of the Act.

Section 185(1) provides:

``185(1) A taxpayer dissatisfied with any assessment under this Act may, within 60 days after service of the notice of assessment, lodge with the Commissioner an objection in writing against the assessment stating fully and in detail the grounds on which he relies.''

The submission made by Mr Brandis was that the right to object under sec. 185(1) is given in relation to an assessment. The decision of the Commissioner under sec. 186 is in relation to a decision made on the objection. The right of review under sec. 187 is in relation to a decision made under sec. 186. It follows, Mr Brandis submitted, that if notification by the Commissioner of the nil amount of tax payable in the case of the applicant is not an ``assessment'' for the purposes of sec. 185(1) then there is no decision in existence for the purposes of sec. 187(1)(a).

I was referred to the definition of assessment in sec. 6(1) of the Act. The definition reads as follows:

```assessment' means -

• (a) the ascertainment of the amount of taxable income and of the tax payable thereon; or

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• (b) the ascertainment of the amount of additional tax payable under a provision of Part VII.''

The definition is subject to the opening words of sec. 6(1) ``unless the contrary intention appears''.

The submission of the respondent was that in the applicant's case the issue of the notice dated 13 November 1986 did not amount to the making of an assessment within the meaning of that term as used in the Act and particularly as the word is used in sec. 185. In turn, went the submission, there is no right in the taxpayer under sec. 187(1)(a) to challenge the decision made by the Commissioner upon an objection made by the taxpayer against the decision set out in the notice dated 13 November 1986.

The submission went on to draw a distinction between an assessment within the terms of the definition and a mere ascertainment of an assessable income. Mr Brandis submitted that one end product of the ascertainment of an assessable income could be the assessment of tax payable or, as he put it in another way, an assessment which results in a liability against the taxpayer in favour of the Crown.

Mr Brandis submitted that the document of 13 November 1986 evidenced that there had been an ascertainment process undertaken but as there was no tax payable in the result there was no assessment in existence for the purposes of sec. 185(1)(a).

In support of these submissions Mr Brandis pointed to the decision in
Batagol v. F.C. of T. (1963) 109 C.L.R. 243; 13 A.T.D. 202 and Case M91,
80 ATC 655.

I was referred to a passage in the judgment of Owen J. in Batagol's case (supra, 109 C.L.R. at p. 255; 13 A.T.D. at p. 206):

```Assessment' is defined by s. 6(1) to mean `the ascertainment of the amount of the taxable income and of the tax payable thereon' unless the contrary intention appears, but the mere ascertainment by the Commissioner or his officers of the amount of the taxpayer's taxable income and of the tax payable thereon itself imposes no liability on the taxpayer to pay the tax so ascertained. It is merely a step towards that end. Section 174 requires written notice to be given to the taxpayer and, under s. 204, the amount of the tax so notified becomes due and payable only after the notice has been given and the date for payment specified in it has arrived or, if no such date is specified, on the thirtieth day after service of the notice. Bearing these matters in mind, an examination of the relevant sub-sections of s. 170 seems to me to show that they are concerned only with cases in which the calculation of the amount of taxable income and the amount of tax payable thereon has been completed and, at least, the notice required by s. 174 has been given.''

A further passage occurs (109 C.L.R. at p. 256):

``These provisions all show that the assessment of which s. 170(1) to (6) speak is something more than the completion inside the Taxation Department of the routines and processes necessary for the purpose of deciding whether or not in a particular case there is a taxable income and tax payable thereon. It includes the taking of all such further steps as are necessary to create a liability to pay the tax so calculated.''

A Taxation Board of Review relied upon the decision in Batagol's case (supra) to hold that a nil liability notice was not an assessment. I was referred to para. 14 and 15 of the decision in Case M91, 80 ATC 655 at p. 658:

``14. The dicta in Batagol indicate that there is not an assessment unless notice (in one form or another e.g. a letter) is given to a taxpayer by the Commissioner that (i) there is a taxable income for the year in issue, and (ii) an amount of tax is imposed (whether or not that is reduced or expunged by credits).

15. The word `assessment' conveys the meaning that every necessary step has been taken to create a debt due and payable by the taxpayer to the Crown (Batagol v. F.C. of T. (1963) 109 C.L.R. 243 at p. 257 per Owen J.). In this context the word `assessment' means the levying of tax by the service of a notice of assessment (ibid. at pp. 251-252; p. 214 per Kitto J.). `Assessment' in the sense of mere calculation produces no legal effect. No step that the Commissioner may take even to the point of satisfying himself of the amount of the taxable income and the tax thereon, has any legal significance unless the taxpayer is served with a notice that the Commissioner

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has assessed the taxable income and that tax as specified is due and payable (either on the date for payment as shown on the notice, or if none be shown, then on the thirtieth day after service of the notice). Notice of assessment is essential to the existence of an assessment (ibid. at p. 252 per Kitto J.). The validity of any assessment is not affected by reason of non-compliance with any of the provisions of the Income Tax Assessment Act (sec. 175).''

Batagol's case (supra) was concerned with the meaning of the word ``assessment'' as used in sec. 170(3) of the Act. The Commissioner in that case contended that assessment was used throughout sec. 170 in a sense which made a nil assessment an impossibility.

At p. 251, Kitto J. had this to say:

``The word `assessment' is defined in s. 6 to mean, unless the contrary intention appears, the ascertainment of the amount of taxable income and of the tax payable thereon. There is nothing in s. 170 to show the contrary intention. But the definition is not sufficient by itself to answer the question before us, because `ascertainment' is a word the force of which depends upon the context. It is here used in an Act under which the service of notice of assessment is the levying of the tax. Assessment in the sense of mere calculation produces no legal effect. No step that the Commissioner may take, even to the point of satisfying himself of the amount of the taxable income and of the tax thereon, has under the Act any legal significance. But if the Commissioner, having gone through the process of calculation, serves on the taxpayer a notice that he has assessed the taxable income and the tax at specified amounts, the tax becomes by force of the Act due and payable... Thus, and thus only, there is brought about an `ascertainment' of the taxable income and of the tax, in the sense that thereafter it is possible to say what could not have been said before: that amounts have been fixed so that they can be taken for all purposes... to be the result flowing from the application of the Act in the particular case. The respective amounts of the taxable income and the tax have been rendered certain. The word `ascertainment' being understood in this sense, the definition of `assessment' means, in my opinion, the completion of the process by which the provisions of the Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case. The idea coincides with that which Isaacs J. expressed in
Federal Commissioner of Taxation v. Hoffnung & Co. Ltd. (1928) 42 C.L.R. 39... `If an assessment definitive in character is made, it assumes that, so far as can there be seen, a fixed and certain sum is definitely due, neither more nor less. In short, it ascertains a precise indebtedness of the taxpayer to the Crown' ((1928) 42 C.L.R. at p. 55). On this construction of the Act nothing done in the Commissioner's Office can amount to more than steps which will form part of an assessment if, but only if, they lead to and are followed by the service of a notice of assessment.''

Kitto J. adverted to the use of the word in sec. 185 to 202 which dealt with the existing provision relating to review and appeals. Those provisions in essence are similar to those with which I am presently concerned. His Honour had this to say (109 C.L.R. at p. 253):

``I shall not refer in detail to ss. 185 to 202 inclusive, which deal with reviews and appeals, but the language of those sections cannot, I think, be reconciled with any other view than that without a notice of assessment fixing a taxable income and a tax there is no assessment.''

I refer to the decision of Isaacs J.
The King v. D.F.C. of T. (S.A.); Ex parte Hooper (1925-1926) 37 C.L.R. 368 at p. 373 and the decision of a Board of Review in reference M71-76/1956 reported at Case H46
(1958) 8 T.B.R.D. 192. The views expressed by Isaacs J. were placed in context by what Owen J. said in Batagol's case (supra at pp. 256-257). In the Board's decision Case H46 (1958) 8 T.B.R.D. 192, though an argument was mounted based on the view expressed by Isaacs J. in Ex parte Hooper (supra) the decision turned on the point that the taxpayer had not proved that any ``assessment'' had been made. Finally I mention the observation of Bryson J. in
Re Beavis Bros Construction Pty. Ltd. (in liq.) 87 ATC 4660; (1987) 75 A.L.R. 85. The case was concerned with a liquidator's rejection of a proof of debt by the Commissioner before notices of assessment were issued. Bryson J. (at

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ATC p. 4662; A.L.R. p. 86) observed that a notice of nil tax payable was not an assessment nor a notice of assessment.

In my opinion what was said in Batagol's case (at p. 253) states the position in relation to the construction and interpretation of the word ``assessment'' as used in sec. 185 to 202 of the Act. The notice of 13 November 1986 showing a nil amount of tax is payable does not fix an assessable income and does not fix a tax payable. The notice does not comply with the requirement identified by Kitto J. that without a notice of assessment fixing taxable income and a tax there is no assessment. Kitto J. concluded that the view that he took of the meaning of the word ``assessment'' for the purposes of sec. 170 was also appropriate when the word was used in relation to the review and appeal provisions of the Act. It is desirable that a word in a statute be given the same meaning in the same or related parts of the statute. The review and appeal provisions of the Act are included to give relief from assessments under the Act. It is desirable that use of the word in related parts of the Act be construed if possible in a consistent way. I find no compelling reason why the word ``assessment'' as used in sec. 185 of the Act should be construed differently from the construction which has been adopted in relation to its use in sec. 170.

The applicant was not represented by legal or other advisers though he was invited by me to take that step in view of the legal argument with which he had to grapple. In the event he chose not to make submissions on the point. I have given consideration to a view that Batagol's case (supra) was concerned with and the reasoning should be limited to the question of ``when'' an assessment was made rather than with the question that a notice setting out that nil tax is payable is not an assessment for the purposes of sec. 185-187. However, the passages which I have set out above and the reference by Kitto J. to the use of the word in sec. 185 to 202 seem to me to have sufficient persuasive force in favour of the conclusion which I have reached.

Accordingly I accept the submissions made on behalf of the respondent Commissioner of Taxation that the Tribunal in this case ought not to make the decision sought by the applicant. The basis why it should not do so is that there is in the Tribunal's view no reference for review before it made in accordance with sec. 187(1)(a) of the Act. The necessary requirement that the reference relate back to a decision on an objection to an ``assessment'' as that word is used in sec. 185 is not made out. I do not consider that the Tribunal is lawfully empowered to consider this application further. I direct that the application before the Tribunal be removed from the list of matters awaiting determination before the Tribunal.