Federal Commissioner of Taxation v. The Administrative Appeals Tribunal and A.C. Goode & Co. Ltd.

Members:
Jenkinson J

Tribunal:
Federal Court

Decision date: Judgment handed down 4 May 1990.

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Jenkinson J.

Application for an order of review in respect of a decision of the Administrative Appeals Tribunal [reported as Case W111,
89 ATC 875] made in the course of a review by the Tribunal of a decision under sec. 186 of the Income Tax Assessment Act 1936 by the applicant Commissioner on an objection by the second-named respondent against an income tax assessment by the applicant.

The assessment was of additional tax for failure to furnish when required to do so a return relating to the year of income ended 30 June 1985. The Tribunal found that the return was furnished on 15 February 1986 and that shortly thereafter ``an officer of the Commissioner endorsed the return as having an extended date for lodgment to 31 December 1985''. In the Tribunal's reasons for decision that finding was followed by the following passage [at pp. 880-881]:

``It was said by the Commissioner's representative that that was a long standing practice of the Commissioner.

27. Whether or not such a practice amounts to an allowance by the Commissioner of extended time, it was at least clear that in calculating penalties, the Commissioner did take the view that, in measuring the penalty to be imposed as 20% per annum of the relevant tax for the period during which lodgment was delayed, regard should be had to 31 December as a final lodgment date. In addition, as an act of grace, the Commissioner allowed a further seven days.''

These observations have reference to sec. 161(1) and 222(1) of the Income Tax Assessment Act 1936 and to sec. 227 thereof, which read thus:

``161(1) Every person shall, if required by the Commissioner by notice published in the Gazette, furnish to the Commissioner in the prescribed manner, within the time specified in the notice, or such extended time as the Commissioner may allow, a return signed by him setting forth a full and complete statement of the total income (other than income upon which withholding tax is payable), and profits or gains of a capital nature, derived by him during the year of income, and of any deductions or losses, being losses of a capital nature, claimed by him, and also setting forth such information (if any), being information that it is necessary for the Commissioner to obtain for the purposes of the administration or operation of a State income tax law, as is prescribed:

Provided that the Commissioner may, in the notice, exempt from liability to furnish returns such classes of persons not liable to pay income tax as he thinks fit, and any person so exempted need not furnish a return unless he is required by the Commissioner to do so.

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222(1) Where a taxpayer refuses or fails to furnish, when and as required under or pursuant to this Act or the regulations to do so, a return, or any information, relating to a year of income, being a return relating to or information relating to, or to the affairs of, the taxpayer, the taxpayer is liable to pay, by way of penalty, additional tax equal to double the amount of tax payable by the taxpayer in respect of the year of income.

...

227(1) The Commissioner shall make an assessment of the additional tax payable by a person under a provision of this Part.

227(2) Nothing in this Act shall be taken to preclude notice of an assessment made in respect of a person under sub-section (1) from being incorporated in notice of any other assessment made in respect of the person under this Act.

227(3) The Commissioner may, in the Commissioner's discretion, remit the whole or any part of the additional tax payable by a person under a provision of this Part, but, for the purposes of the application of sub-section 33(1) of the Acts Interpretation Act 1901 to the power of remission conferred by this sub-section, nothing in this Act shall be taken to preclude the exercise of the power at a time before an assessment is made under sub-section (1) of the additional tax.''

Both sec. 222 and 227 fall within Pt VII of the Act. Although the liability to additional tax payable for failure to furnish when required to do so a return relating to a year of income is directed by sec. 222(1) to be measured by reference to the amount of tax payable in respect of that year of income and without regard to any temporal extent of the default in furnishing the return, sec. 193(2)(a) of the Act provides:

``193(2) Notwithstanding section 25 of the Administrative Appeals Tribunal Act 1975, the Tribunal does not have power to review decisions of the Commissioner relating to the remission of additional tax payable by a taxpayer except decisions relating to the remission of additional tax under Part VII where the additional tax payable, after the making by the Commissioner of the decision, exceeds -

• (a) in the case of additional tax payable under section 222 by reason of the refusal or failure to furnish a return, or any information, relating to a year of income - the amount calculated, in respect of the period commencing on the last day allowed for furnishing the return or information and ending on the day on which the return or information is furnished or the day on which the assessment of the additional tax is made, whichever first happens, at the rate of 20% per annum of the tax properly payable by the taxpayer in respect of the year of income;''

Double the amount of tax payable by the second-named respondent in respect of the year of income ended 30 June 1985 was $1,684,234.96. If ``the last day allowed for furnishing the return'', within the meaning of that phrase in sec. 193(2)(a), be 7 January 1986, the period described in that paragraph may be, and was in fact conceived by the applicant to be, 38 days. He exercised his discretionary power to remit the whole or part of the additional tax payable by the second-named respondent by remitting, on 27 May 1986 when the additional tax payable was assessed, all but $17,534. The ``tax properly payable by the taxpayer in respect of the year of income'', to which sec. 193(2)(a) refers, was $842,117.48. The calculation $842,117.48 x 38/365 x 20/100 gives $17,534.50, and it was that calculation by which the Commissioner selected the amount of additional tax which would be payable after the making by him of his decision relating to the remission of additional tax.

In order to determine whether a liability imposed by sec. 222 to pay additional tax has been incurred by a taxpayer in respect of a year of income, so that the existence of an obligation to make an assessment of such additional tax may be recognised and the obligation discharged, it is necessary that the applicant ascertain whether a return in respect of that year of income has been required of the taxpayer and, if it has, the date when the return relating to the year of income was required to be furnished, and whether such a return has been furnished and, if it has, when it was furnished. It was common ground, and the Tribunal found, that the Commissioner had by

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notice published in the Gazette on 2 July 1985 required the second-named respondent, in exercise of the power conferred on him by sec. 161(1), to furnish a return in respect of the year ended 30 June 1985 on or before 31 August 1985. But the parties seem to have conducted the review before the Tribunal, as the applicant Commissioner conducted the proceeding in this Court, on the assumption that the applicant's assessment of additional tax on 27 May 1986 had been preceded, either on the endorsement of ``an extended date for lodgment'' on the return, or on 27 May 1986, by an exercise of power, conceived to be conferred by the words ``or such extended time as the Commissioner may allow'' in sec. 161(1), to substitute for the date specified in the Gazette notice, 31 August 1985, a later date, that is 7 January 1986 (or, as the Tribunal considered, 31 December 1985), as the end of the period within which the respondent was required to furnish that return. Underlying such an assumption is a construction of sec. 161(1) which treats the power of the Commissioner to allow an extended time as exercisable after as well as before the expiration of ``the time specified in the notice'', and after as well as before the return to which the extension relates has been furnished. I will assume, but without expressing an opinion upon, the correctness of that construction.

On the hearing of the review by the Tribunal the applicant denied that his decision that 7 January 1986 should be allowed by him to be the end of the extended time within which the second-named respondent's return ought to have been furnished was part of the process of making the assessment to which the respondent had objected; and he denied that on the Tribunal's review of his decision on the objection the Tribunal was authorised to exercise the discretionary power of extending that time if and as the Tribunal thought fit. The applicant did not suggest that, if a decision concerning extension of the time were part of the process of assessment, the Tribunal would lack the authority itself to substitute for the applicant's decision the decision which the Tribunal thought right: the applicant's only submission was that a decision for which sec. 161(1) provided authority was not a part of the process of assessment. In thus framing his submission the applicant was in my opinion correct. Section 43 of the Administrative Appeals Tribunal Act 1975 confers on the Tribunal all the powers and discretions that are conferred by any relevant enactment on the person who made the decision, exercisable for the purpose of reviewing the decision. If the power conferred by sec. 161(1) is a power exercisable as part of the assessment process, it is exercisable by the applicant also upon consideration of an objection against the assessment and therefore exercisable also by the Tribunal for the purpose of reviewing the applicant's decision on the objection.

The Tribunal's conclusion [at p. 884] was ``that, in the circumstances of the present case, the decision whereby the Commissioner elected to treat as `late' that which he might have accepted as being within time was an integral part of the assessment process'', and that the decision so characterised was subject to review by the Tribunal. The Tribunal's reason for characterising the Commissioner's exercise of the power conferred by sec. 161(1) in the terms I have just quoted may be gathered from the following passage from the Tribunal's written reasons [at pp. 883-884]:

``... I am well satisfied that there are many circumstances in which decisions by the Commissioner as to the due date for lodgment of returns are purely administrative decisions which form no part of any process of assessment. I instance decisions such as the decision to select 31 August as the due date for lodgment to be gazetted; decisions as to Standard Lodgment Programs for agents; and decisions as to Alternative Lodgment Programs. It would be open to persons dissatisfied with such decision to seek judicial review pursuant to the ADJR Act if they were so advised. Further, those decisions would not be open to challenge before this Tribunal by the procedures of objection and review provided for by Pt V of the Act.

36. But the decision now sought to be reviewed was an integral part of the process of raising the assessment. If the return was `late' in the relevant sense the statute made automatic provision for additional tax: additional tax which in the circumstances in the case amounted to $1,684,234.96. That statutory provision was of course subject to the power of the Commissioner to grant remissions. But for all that it was a liability to which the taxpayer was exposed if the

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return was `late' and whether the return was late by one day, one year or a decade; and whether the lateness occasioned substantial loss to the revenue or, as here, none. In order to determine whether the return was `late' in the relevant sense, it was necessary that the Commissioner should apply his mind to the question as to what would be a sufficient or acceptable date for lodgment of the return. He did so. He determined on 31 December 1985 as the appropriate date. Having so determined and having found the return to have been lodged thereafter, there immediately arose, subject to remissions, a liability in the taxpayer to $1,684,234.96. Had he determined that the date of actual lodgment was an acceptable date for lodgment, there would have been no liability at all to additional tax for late return.''

(
Balnaves v. D.F.C. of T. 85 ATC 4592; (1985) 8 F.C.R. 589 provides an exposition of ``Standard Lodgment Programs'' and ``Alternative Lodgment Programs''.)

The originating application for an order of review described the decision in respect of which the order was sought as ``the decision of the Administrative Appeals Tribunal... that it had power or jurisdiction to review the decision by the Commissioner... as to the date allowable for lodgment of the relevant income tax return of a taxpayer in the course of a review under Pt V of the Income Tax Assessment Act 1936''.

The opinion which the Tribunal formed of the power to review that decision of the Commissioner was given effect by the making of a decision to exercise the power and, to that end, by the giving of a direction that the parties to the proceeding in relation to which the opinion was formed were to be afforded an opportunity to adduce evidence and to address argument to the Tribunal on the matter thus laid open to review. The decision to exercise that power was in my opinion a decision to which the Administrative Decisions (Judicial Review) Act 1977 applies. (Cf.
Lamb v. Moss & Anor (1983) 76 F.L.R. 296.)

In Balnaves v. F.C. of T. (supra) at ATC p. 4596; F.C.R. p. 593 a Full Court of this Court held that ``a decision to grant or withhold an extension of time for the lodgment of a return is made by the Commissioner in the course of discharging his administrative functions, and is remote from the process of assessment of tax''. But the decision of the Commissioner in question in that case was made before the return had been furnished and the reasoning of the Full Court in support of its conclusion, which it formed in rejecting a submission by the respondent Commissioner that his decision was one ``forming part of the process of making, or leading up to the making of'' an assessment of tax, within the meaning of those words in para. (e) of Sch. 1 to the Administrative Decisions (Judicial Review) Act 1977, reflected the Court's consciousness of that circumstance. Thus the Full Court noted that in
D.F.C. of T. v. Clarke & Kann 84 ATC 4273 at p. 4276; (1983) 52 A.L.R. 603 at p. 607:

``the Court also observed that a decision is not a decision leading up to the making of an assessment unless the making of an assessment has followed or will follow from the decision. The making of a decision to grant or withhold an extension of time for the lodgment of a taxation return will not necessarily be followed by the making of an assessment. In many, perhaps most, cases such a decision will be followed by an assessment but in other cases it will not. In some cases an assessment may issue although no return has been lodged: see sec. 166 of the Act.

In our opinion the decision sought to be reviewed in the present case, whilst being a decision which will normally precede the making of assessments, is not properly characterized as a decision forming part of the process of making assessments or leading up to the making of assessments. In
Minister for Industry and Commerce v. Tooheys Ltd. (1982) 42 A.L.R. 260 at p. 271 a Full Court of this Court approved a statement by Ellicott J., at first instance in that case, that ``the words leading up to the making' are intended to point to decisions which have to be made or in the circumstances it is appropriate to make before the actual process of assessment or calculation can begin'.

That is not this case. The lodgment of a return and, a fortiori, the grant of an extension of time for its lodgment is so remote from the Commissioner's assessment

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activities as not to form part of or lead up to those activities. Accordingly, it is not a decision of a class referred to in para. (e) of the First Schedule to the Judicial Review Act.''

But in a case such as this, where the decision concerning extension of time is made after the return has been furnished, it may be fairly said that the only purpose served by the making of the decision is to enable the question to be answered whether a liability under sec. 222 is to arise. A decision whether to extend the time for furnishing a return which has at the time of the making of the decision been furnished cannot easily be described as ``remote from the Commissioner's assessment activities''.

However, to decide in exercise of a power conferred by sec. 161(1) what the date shall be on or before which the obligation to furnish a return must be discharged is in my opinion to make a decision about a matter affecting liability to additional tax under sec. 222(1), whether the decision be made before or after the return is furnished, and is not a decision dealing with the calculation - or, in the language of the definition of ``assessment'' in sec. 6 of the Act, ``the ascertainment'' - of the amount of additional tax payable. To fix upon that date is to prescribe by administrative decision one of the circumstances upon which the liability to additional tax will depend: it is not to ascertain the existence of a circumstance on which such a liability depends in the course, and for the purpose, of assessment. (Cf.
Tooheys Ltd. v. Minister for Business and Consumer Affairs (1981) 54 F.L.R. 421, esp. at p. 436.) In my opinion the decision of the applicant fixing that date formed no part of the assessment which he made of the second-named respondent's liability to additional tax, and was accordingly not a subject of reconsideration by him in making his decision on the second-named respondent's objection against the assessment, nor a subject of consideration by the Administrative Appeals Tribunal in its review of the latter decision.

There will be a declaration that a decision of the Commissioner of Taxation allowing A.C. Goode and Co. Ltd. an extended time for furnishing a return of income derived by it during the year of income ended 30 June 1985 is not subject to review or alteration by the Administrative Appeals Tribunal in the proceeding No. VT 87/801 [reported as Case W111, 89 ATC 875.