FC of T v STOKESJudges:
Full Federal Court
Spender, Burchett & Hill JJ
The appellant Commissioner of Taxation appeals from the judgment of a judge of this Court (Davies J) in which, inter alia, it was held that three purported assessments made or purporting to be made against the respondent, Kerry Matthew Stokes (``Mr Stokes'') were void.
The circumstances leading up to the Commissioner issuing the three assessments are, for the purposes of the present proceedings, agreed.
In September 1984 Mr Stokes became the owner of a large parcel of shares in the capital of West Coast Telecasters Limited (``West Coast''), a company which coincidently with Mr Stoke's acquisition of its shares, applied for the grant of a third commercial television licence in Perth. In April 1987 Mr Stokes executed a deed, to which BDC Investments Limited was the other party, for the sale to that company of the shares held by him in West Coast for a consideration of $12,500,000. On 12 June that deed was rescinded and a fresh deed
ATC 4003executed for the sale to the same purchaser of the West Coast shares. Seven days after the rescission and execution of the second deed, a commercial television licence was granted to West Coast.
In the ordinary course of events, Mr Stokes was assessed for income tax in respect of the year ended 30 June 1987 in the sum of $101,814.39. That assessment took no account of the sale by him of the West Coast shares or the events surrounding that sale. The notice of assessment was dated 4 May 1988, and issued to Mr Stokes on 6 May 1988.
Subsequently the Commissioner came to consider the events of 1987. It would seem that he formed the view that some tax should be payable in respect of that transaction and that the circumstances were such as to justify his making a determination under Part IVA of the Income Tax Assessment Act 1936 (Cth) (``the Act''). The officers of the Australian Taxation Office charged with the investigation of Mr Stokes' affairs, were conscious of the provisions of s 177G of the Act, which permit the amendment of an assessment to give effect to a determination under s 177F(1) of the Act, so long as the amendment is made before the expiration of six years from the date on which tax became due and payable under the initial assessment of May 1987. That six year period was due to expire at or around the beginning of July 1994.
A meeting took place on 31 May 1994 between officers of the Australian Taxation Office and representatives of Mr Stokes. At that meeting those representing Mr Stokes were advised that the Commissioner took the view that it would be necessary for him to issue more than one amended assessment for the 1987 year of income. It was said that this course was necessary because the Commissioner had made three determinations under Part IVA of the Act.
On or about 7 June 1994 Mr Stokes received in the mail three sets of documents. Each set contained what purported to be a notice of amended assessment for the year ended 30 June 1987, to which was attached an adjustment sheet in respect of that year and a document headed ``Determinations Under Sub-sections 177F(1) and 177F(2)''. The first set of documents notified Mr Stokes that his amended taxable income was $29,989,463 and that the tax payable by him on that taxable income was $17,108,961.67. There were notified additionally amounts for Medicare levy, what was said to be additional tax for late return, and additional tax for incorrect return. After matters such as credits for tax shown in group certificates, provisional tax and the like were taken into account, the notice of amended assessment indicated that there was payable to the Commissioner on 4 July 1994 the amount of $38,884,233.50.
The adjustment sheet disclosed the mathematical basis upon which the assessment was made, and the culpability component applied in respect of additional tax. It indicated that the additional amounts included in Mr Stokes' assessable income had been included, pursuant to s 25(1), s 26AAA(2A) and Part IVA of the Act. It disclosed that a determination had been made in terms of s 177F(1)(a) of the Act that the whole of the amount of $29,798,750 should be included in Mr Stokes' assessable income for the year ended 30 June 1987. It additionally notified Mr Stokes, pursuant to s 177F(2) that this amount was deemed to be included in his assessable income by force of s 26AAA(2A) of the Act.
The third document was the determination referred to in the adjustment sheet. That determination was dated 3 June 1994 and somewhat illegibly in handwriting at the bottom appeared the numbers and symbols ``4.20pm''.
The second set of documents included a notice of amended assessment showing a taxable income of $18,517,991, with tax payable thereon of $10,561,045.45. It asserted, after various adjustments including additional tax for late return and incorrect return, that Mr Stokes owed $23,915,657.50, which was due and payable to the Commissioner by 4 July 1994. The adjustment sheet and accompanying determination indicated that the Commissioner had made a determination under s 177F(1)(a) to include $18,327,278 in Mr Stokes' assessable income, and that this amount was deemed to be included in his assessable income by force of s 160ZO(1) of the Act for the year of income in question. The determination, again somewhat illegibly, contained the handwritten notation ``4.23pm''.
The third notice of amended assessment purporting to be for the year ended 30 June 1987, disclosed a taxable income of $29,892,095 and a tax payable thereon of $17,053,384.01. After additional tax for late return, incorrect return and various credits and
ATC 4004adjustments, the document disclosed that Mr Stokes owed the Commissioner $38,757,182.63, due and payable by him on 4 July 1994. The adjustment sheet and accompanying determination disclosed that the Commissioner had made a determination under s 177F(1)(a) to include the amount of $29,701,382 in Mr Stokes' assessable income. In accordance with s 177F(2), the Commissioner determined that this amount was deemed to be included in assessable income by force of s 160ZO(1) of the Act. The determination bore the handwritten notation ``4.25pm''.
Subsequently, on 8 June 1994, Mr Stokes received a letter from the Commissioner. That letter referred to the meeting of 31 May and the time limits prescribed for the issue of an amended assessment. It referred to an undertaking to give ``position papers'' on the adjustments made to Mr Stokes' taxable income as previously assessed, including details of the calculation of additional tax under the then s 226 of the Act. Mr Stokes was assured in the letter that action would not be taken by the Commissioner to collect the tax due and payable under more than one of the three amended assessments.
The position paper was given to Mr Stokes by a letter dated 13 June 1994. It sought to outline the reasons for the three 1987 amended assessments as well as to give details of the calculations of additional tax. It is unnecessary to set out the detail of the position paper. Suffice it to say that it emerges from the position paper that while the Commissioner in each case regarded the relevant scheme for the purposes of Part IVA to be the cancellation of the initial sale and the execution of a second deed of sale in June 1987, the Commissioner had different views as to what was the relevant tax benefit under s 177C of the Act. It was these different views, and it may be inferred the Commissioner's inability or unwillingness to choose between them, which led to the issue of the three assessments.
Mr Stokes then commenced proceedings in the High Court of Australia seeking declarations that none of the documents purporting to be amended assessments was in fact an assessment or an amended assessment for the purposes of the Act, and declarations that none of the documents accompanying the three purported amended assessments was a valid determination for the purposes of s 177F of the Act.
The Commissioner's defence says, in respect of the assessments, that:
- ``(a) the three assessments each give effect to different views of the proper legal construction of the Act in light of the proper construction of the documents and transactions leading to the sale;
- (b) he will not seek to recover on all three assessments;
- (c) the three assessments have been raised as the means by which to enliven alternative basis [sic] upon which the Plaintiff's liability may arise;....''
Similar points are made in the defence in respect of the determinations.
In the result the Commissioner claims that each of the assessments is valid and effective, as is each of the determinations.
A change of approach?
Initially the matter came before Davies J on a strike out application. His Honour suggested to the parties that it would be more convenient for everyone if the case was heard on the merits. Counsel for the parties agreed to his Honour's suggestion, particularly in the light of a comment made by senior counsel for the Commissioner that it was unlikely that there would be any evidence.
Senior counsel for Mr Stokes tendered various documents which had been annexed to the statement of claim. Upon the notices of assessment being tendered, his Honour asked whether there was any agreement about which assessment came first. To this senior counsel for Mr Stokes replied, without any objection on the part of senior counsel for the Commissioner:
``No, your Honour, all three came out together and were intended to go together, the evidence will show.''
Senior counsel for the Commissioner then tendered an affidavit from an officer of the Australian Taxation Office complying, at least in form, with the terms of s 177(1), to which reference will subsequently be made. In the course of argument the Commissioner's case was squarely put on the basis that the Commissioner had taken three alternative positions and had prepared in consequence three alternative notices of amended
ATC 4005assessment, each reflecting a particular position. It was the Commissioner's case that each of the notices of assessment was valid. However, in the course of argument, Davies J asked senior counsel for the Commissioner whether he sought to put forward an argument that either the first or last in point of time of the assessments was valid. Senior counsel for the Commissioner eschewed such an argument.
It has been necessary to refer to the way in which the case was argued below because before us senior counsel for the Commissioner sought to argue from the notations upon the determinations, somewhat illegible though they may be, that the assessments were issued in a particular order each amending the preceding one so that, at least, the last of the amended assessments was valid. We refused to permit the Commissioner to take this course.
First, it must be said that the primary judge gave the Commissioner abundant opportunity, should he have wished to take it, to put his case on the basis that the validity of the assessments depended upon the particular order in which they were issued. Indeed, his Honour dealt with the point specifically in the judgment, saying:
``... it was accepted for the purposes of these proceedings that the determinations should be treated as having been signed at the same time. No evidence was given as to the order in which the determinations were executed.''
It would be unfair, at this stage of the proceedings on appeal, to permit the Commissioner to argue a proposition depending upon the timing of the assessments, when this was not a matter explored below and when, had the matter been in issue between the parties, it would have been open to those representing Mr Stokes to administer interrogatories or cross- examine the officer from the Australian Taxation Office whose affidavit was read, to determine whether the assessments were issued in fact in the same order as the determinations appear to have been made. Accordingly, we indicated that the Court was not prepared to permit the Commissioner to argue this point on appeal.
The judgment appealed from
His Honour held that because the Commissioner had regarded each of the tax benefits identified by him as alternatives, he could not have made, in any relevant sense, a determination under s 177F(1)(a), or have determined the provision of the Act under which the relevant amount should be deemed to be included in assessable income under s 177F(2). His Honour's reasoning on this point is expressed in the following passage:
``... three separate pieces of paper specifying different tax benefits and different sections of the Act by virtue of which they were deemed to be included in the assessable income cannot constitute a determination. Read together as alternatives, as they must be, having regard to their intended operation as alternatives, they do not determine anything.''
His Honour then turned to consider the validity of the assessments. In his Honour's view, the three alternative assessments did not reflect a valid and complete assessment process, with the consequence that each of the notices of assessment was void. His Honour further held that the Commissioner was not entitled to rely upon s 177(1) because, in the language of Dixon J in
R v Hickman; Ex parte Fox & Clinton (1945) 70 CLR 598 at 615, the notices were not a bona fide attempt to exercise the power of assessment and were not reasonably capable of reference to the power of assessment given to the Commissioner or the Deputy Commissioner.
The statutory background
Before considering the validity of the notices of assessment, it is useful to set out the relevant statutory provisions.
Section 161 of the Act requires the lodgement of returns, containing such information as the form of return requires, inter alia, in relation to the income, profits or gains, and deductions or losses of a person. Further returns may, in a particular case, be required by the Commissioner: ss 162 and 163.
From those returns and any other information in his possession, the Commissioner is required by s 166 to make ``an assessment of the amount of the taxable income of any taxpayer, and of the tax payable thereon''. Section 6(1) of the Act defines ``assessment'' to mean relevantly:
- ``(a) the ascertainment of:
- (i) the amount of taxable income... and of the tax payable on that taxable income....''
See, too, the definition of ``taxable income'' in the same sub-section.
Where there has been a default in furnishing a return or the Commissioner is not satisfied with the return as furnished, or the Commissioner has reason to believe that there is some taxable income derived not referred to in the return, the Commissioner may act in accordance with s 167 to make what the side heading to s 167 refers to as a default assessment, that is to say, ``an assessment of the amount upon which in his judgment income tax ought to be levied''. Should the Commissioner do so, ``that amount shall be the taxable income of that person for the purpose of section 166''. As was said in
George v FC of T (1952) 10 ATD 65 at 68; (1952) 86 CLR 183 at 203-204, s 167 is not an independent power, it is epexegetical to s 166. See, too,
FC of T v Dalco 90 ATC 4088; (1990) 168 CLR 614 per Brennan J at ATC 4090; CLR 620 and per Toohey J at ATC 4096; CLR 630.
Where there has been no prior assessment for the year of income, a default assessment will naturally be the original assessment for that year. Where, as in the present case, a prior assessment has issued for the year of income, an assessment made under s 167 will, of necessity, be an amended assessment. The power to make an amended assessment and the prerequisites to the exercise of that power are to be found in s 170 of the Act. Sub-section (1) of that section provides:
``The Commissioner may, subject to this section, at any time amend any assessment by making such alterations therein or additions thereto as he thinks necessary, notwithstanding that tax may have been paid in respect of the assessment.''
Should it appear that an original assessment was too high the Commissioner may reassess the liability downwards, subject to the limitations contained in s 170(3). An amended assessment may be either an assessment made under s 166 or a default assessment.
An amended assessment will not operate as an alternative to an original assessment, for it operates to alter the original assessment by amending it. An amended assessment is an assessment for most purposes of the Act: s 173.
In addition to the power of assessment conferred in ss 166 and 167, the Commissioner has power, under s 168, to make a special assessment of the taxable income derived in a particular year or any part of it. Although the language of s 168 is not confined to an assessment in respect of a part of a year only, that is the usual application of the power conferred by the section. So if a taxpayer dies or a company goes into liquidation, at some stage during the year of income it may be necessary to issue an assessment of the taxable income for part of the year of income and the tax payable in respect of that part year. So, too, where a taxpayer ceases to be a resident of Australia, it may be necessary for the Commissioner to make an assessment in respect of the period prior to the taxpayer ceasing to be a resident.
Section 169 is in even more general terms. It provides:
``Where under this Act any person is liable to pay tax, the Commissioner may make an assessment of the amount of such tax.''
The general language of s 169 (and for that matter the language of s 168) does not suggest that these sections replace or are alternative to the ordinary assessing power conferred upon the Commissioner in ss 166 and 167. Examples of exercise of the power of assessment under s 169 include the assessment of a trustee under ss 98 or 99A of the Act, or an assessment of undistributed profits tax upon a company pursuant to the former Division 7 of the Act, or an assessment of business profits under the former s 136 of the Act: see
Cadbury-Fry- Pascal Pty Ltd v FC of T (1944) 7 ATD 471; (1944) 70 CLR 362 and
Lever Bros Pty Ltd v FC of T (1948) 8 ATD 388; (1948) 77 CLR 78, discussed later.
Once an assessment has been made, the Commissioner is required under s 174(1) of the Act to serve notice of it upon the person liable to pay the tax. It is service of that notice which imposes upon the taxpayer for the first time a liability to pay the tax assessed: s 204 and see
Clyne v DFC of T & Anor 81 ATC 4429 at 4437; (1981) 150 CLR 1 at 16-17 per Mason J, with whom Aickin and Wilson JJ agreed. It is the service of that notice of assessment also which enlivens the right of the taxpayer, if dissatisfied with the assessment, to object and appeal, matters now dealt with in the Taxation Administration Act 1953 Part IVC.
The notice of assessment thus brings to an end what is referred to as the process of assessment:
``... 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 tax so assessed and notified is, from the time it becomes due and payable, a debt due to the Commonwealth, payable to the Commissioner: s 208(1). It may be recovered in a suit instituted by the Commissioner or a Deputy Commissioner (s 209) and whether or not the taxpayer may have objected against the assessment or appealed against an adverse objection decision: ss 14ZZM and 14ZZR of the Taxation Administration Act. Unless a stay be ordered by a court of competent jurisdiction and subject to the exercise of appropriate judicial discretion, the tax debt created by service of the notice of assessment may become the subject of a judgment, execution may be levied on that judgment, and the judgment may found a bankruptcy notice, a bankruptcy petition, or, if the taxpayer be a company, a winding up petition.
In any proceeding to recover income tax so assessed, the provisions of ss 175 and 177(1) of the Act will be relevant. These sections provide:
``175 The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.
177(1) The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.''
The case for the Commissioner
Without reference to authority, but having regard to the statutory scheme outlined above, it is difficult to conclude other than that the Act contemplates, in respect of any one taxpayer in any one year, that there will be only one assessment of taxable income and one amount of tax payable thereon. In saying this it would be assumed that an amended assessment does no more than act to amend the original assessment and does not produce an alternative or conflicting assessment. Given the statutory framework outlined it would not lightly be assumed that Parliament contemplated that there should be extant at any one time three conflicting and inconsistent assessments of a taxpayer's taxable income and the tax payable thereon in a particular income tax year. Section 177(1) of the Act would have a somewhat schizophrenic operation if three inconsistent assessments for one income tax year were tendered in recovery proceedings. The section clearly reinforces the view that the Act contemplated one only assessment for income tax of a taxpayer for the year of income operative at any one time. However, it is the Commissioner's submission that the Act indeed authorises him to issue alternative and inconsistent assessments creating alternative and inconsistent liabilities and that in such a case the Commissioner may nominate which of those liabilities is to be enforced and which may remain outstanding.
The Commissioner's submission proceeds thus.
- (1) It is clear that two assessments may issue against different taxpayers in respect of the same year of income, including in the assessable income of each taxpayer the same amount of income:
DFC of T v Richard Walter Pty Ltd 95 ATC 4067; (1994-1995) 183 CLR 168;
Richardson v FC of T (1932) 1 ATD 332; (1931-1932) 48 CLR 192.
- (2) More than one assessment may issue under different sections of the Act in respect of the same year of income against the same taxpayer: Cadbury-Fry-Pascal and Lever Bros (supra).
- (3) Where the Commissioner issues an amended assessment, there are two assessments extant, the original assessment and the amended assessment, both in respect of the same taxpayer in respect of the same year of income:
FJ Bloemen Pty Ltd v FC of T 87 ATC 4096 per Enderby J.
- (4) In any event, each of the three assessments is entitled to the protection of ss 175 and 177 of the Act, which sections must operate to defeat any challenge, except in
ATC 4008proceedings under Part IVC of the Taxation Administration Act. Further, it is said, the present case does not fall within any of the exceptions contemplated by Dixon J in Hickman.
Whether each assessment was a tentative assessment
It has been recognised, ever since the decision of the High Court in
FC of T v S Hoffnung & Co Ltd (1928) 1 ATD 310; (1928) 42 CLR 39, that an assessment made tentatively and so as not to create a definitive liability was not an assessment for the purposes of the Act.
Hoffnung concerned the War Time Profits Tax Assessment Act 1917-1918 (Cth). The case proceeded upon agreed facts, one of which was that the Commissioner had intimated when making an assessment that an adjustment remained to be made and that pending such adjustment, payment of tax was to remain in abeyance. The date for payment was crossed out on the notice of assessment. The taxpayer had not objected against this assessment and, if valid, tender of the notice would have been conclusive evidence of its due making. The question arose as to whether the assessment was an ``assessment'' contemplated by the Act, with the consequence that if it was not, the notice of assessment was not a notice of assessment authorised by the Act. Isaacs J, at ATD 318-319; CLR 54-55, said:
``... In the first place, the notice itself does not on its face bear out those requirements. It describes the matter as `tentative'. The `assessment' and the notice of assessment required by the Act to fix the taxpayer with liability for a Crown debt carrying interest and penalties must be definite and certain, or, as it has been described throughout the argument, `definitive', as opposed to `provisional'. There is no evidence, or at all events no satisfactory evidence, to displace the self description in the notice. The facts as admitted and the correspondence taken as a whole confirm the apparently provisional character of the assessment and notice.''
Later (at ATD 319; CLR 55-56) his Honour said:
``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. But if an assessment is made which recognizes that one matter is unsettled and remains for settlement, and until it is settled - and probably to the advantage of the taxpayer - then, if that is the basis of the assessment, it is not the assessment contemplated by the Act. Every assessment, of course, contemplates that it may appear thereafter that an alteration or addition is necessary. But that is a different thing - there is no then existing matter known to be a presently necessary factor and put aside for future adjustment.''
Higgins J said (at ATD 321; CLR 58):
``... The Act contemplates an assessment which is definitive, so as to bind the taxpayer subject to the power of the Commissioner to make all such alterations in or additions to any assessment as he thinks necessary (s. 23). Here, the notice of original assessment itself... is accompanied by a paper giving details, but headed thus:- Tentative - War-time Profits Tax - Assessment. If the notice is `tentative' merely, how can the taxpayer be expected to lodge an objection within thirty days, or be for ever silent (see s. 28)? The course which the Commissioner has adopted, that of a `tentative' or experimental assessment or alteration of assessment may be convenient in certain circumstances; but it does not put the taxpayer under an obligation to pay within thirty days after notice of the assessment (ss.32 and 34), or within thirty days after notice of the amended assessment.''
Starke J was to similar effect. At ATD 326; CLR 65 his Honour said:
``... the facts establish that he [the Commissioner] never made a complete and final assessment - or perhaps I should say any assessment - under the Act, until the so-called amendment of July, 1925. Everything else was `tentative' or subject `to further revision' or `remained to be finalized at an early date.' Only in July 1925 was a final, or what was called during argument a `definitive', assessment made according to the true meaning and intent of the taxing Acts....''
This case provides the origin of the phrase ``definitive assessment'', a phrase used in many later authorities to emphasise that the Act
ATC 4009requires a definitive determination of a taxpayer's liability to tax.
It is interesting to note while considering Hoffnung that Isaacs J discussed (at ATD 318; CLR 54) the question whether two assessments existed where there had been an original assessment followed by an amended assessment. His Honour said:
``... An `alteration or addition' is not something extraneous to a standing assessment. When an alteration or addition is made the assessment henceforth exists as altered or added to, and not as previously existing plus independent alteration or addition.''
To the extent that his Honour's views are inconsistent with those of Enderby J in Bloemen, those of the High Court are to be preferred. When Enderby J refers to the possibility of there being more than one assessment on foot, his Honour was concerned with a case where an objection to an original assessment had been referred to a taxation board of review, and an objection to an amended assessment had been referred to the Court. But the fact that issues arising from the assessment and issues arising from the fresh liability assessed in the amended assessment must be argued in different proceedings does not require the conclusion that the Act authorises more than one assessment of a taxpayer's taxable income for the one income tax year.
Hoffnung's case was considered by the High Court in
FJ Bloemen Pty Ltd v FC of T 81 ATC 4280; (1980-1981) 147 CLR 360, so far as that report relates to the appeal of Mr Simons, heard together with the appeal lodged by FJ Bloemen Pty Ltd.
An adjustment sheet, which had accompanied the notice of assessment issued to Mr Simons, read ``Your assessment will be reviewed upon determination of the objection against your assessment for 30 June 1977''. The question raised for decision by the High Court was whether the notice of assessment was valid. The principal judgment was that of Mason and Wilson JJ, with whom Stephen J agreed. Their Honours said (at ATC 4290; CLR 378):
``The Simons notice, if read with the adjustment sheet, is more debatable. However, we read it as a definitive assessment by the Commissioner intended to create a legal liability to pay the tax specified, coupled with an intimation that the Commissioner will review the taxpayer's liability in a certain event. If it be assumed that the Commissioner lacks power to amend the assessment in the circumstances contemplated, this does not affect our conclusion. It merely means that the Commissioner is mistaken in supposing that he has power to review. Accordingly, the notice of assessment will, on production, bring sec 177(1) into play.''
In other words, their Honours did not regard the notice of assessment in Simons as indicating a tentative assessment in the sense that those words are used in Hoffnung. Subject to the time constraints in s 170, each assessment issued is subject to a power in the Commissioner to review that assessment and amend it. So that fact alone does not operate to make an assessment tentative in the Hoffnung sense.
Aickin J in Bloemen referred to what had been said in Hoffnung earlier and continued (at ATC 4291-4292; CLR 381-382):
``... In that case [referring to Hoffnung] it is important to observe that, as well as the fact that the paper accompanying the original assessment described it as tentative, in the notification of the amendment of the assessment made in August 1923 the Commissioner struck out the printed words on the notice which specified the time within which an objection could be lodged.
In the present case the notice of assessment had attached to it a paper headed `Adjustment Sheet' which has been correctly treated as part of the notice of assessment. It bore the note `Your assessment will be reviewed upon determination of the objection against your assessment for 30 June 1977'. That notification conveyed no more than that there was an outstanding objection in respect of the preceding year of income, the determination of which might require an amendment of the assessment notified by the notice of assessment, including the alteration sheet. It does not convey the meaning that the notice or the assessment are tentative or that payment of tax should remain in abeyance. There is in my opinion no warrant for having regarded the assessment as other than `definitive'. The notification did no more than inform the taxpayer of what its
ATC 4010officers no doubt knew, namely that the determination of its objection for the previous year might affect its liability for tax in that year and therefore possibly give rise to a credit prior to the due date for payment of the current assessment. These circumstances fall far short of the situation dealt with in Hoffnung's case.''
Once it was concluded, as it was, that there was nothing to indicate that the assessment notified to Mr Simons was tentative, it followed that upon the tender of a notice of the assessment, s 177 did its work in putting that making of the assessment beyond challenge. The notice in proper form of the assessment necessarily compelled the conclusion that there was an assessment made in fact (see per Mason and Wilson JJ at ATC 4289; CLR 378).
The operation of s 177 was subsequently discussed by the High Court in Richard Walter. Brennan J in that case expressed (at ATC 4082; CLR 199-200) the Hoffnung principle in the following terms:
``... If it appears, either on the face of a notice of assessment... or from elsewhere... that the Commissioner has not attempted in good faith to determine the taxable income... or has not made an assessment definitive of the tax liability of the taxpayer, the assessment does not attract the protection of s 175.''
For this proposition his Honour cites both Hoffnung and Bloemen. See, too, per Dawson J at ATC 4093; CLR 219 and per Toohey J at ATC 4098; CLR 229.
The taxpayer failed to have the assessments in Richard Walter set aside because the mere existence of two assessments issued against different taxpayers, by which the same amount was included in the assessable income of each, did not compel the conclusion that the assessments were tentative in the relevant sense. Thus McHugh J (at ATC 4103; CLR 237), discussing the facts, said:
``On its face, each of the documents issued to the taxpayer is in the form of an assessment within the meaning of s 6 of the Act. It specifies that a fixed sum is definitely due and payable by the taxpayer. There is nothing tentative or provisional about the tax liability that it assumes.''
But the present case is quite different. It is impossible to determine what the fixed sum is that is definitely due and payable by the taxpayer in respect of the particular year of income. This is recognised by the Commissioner who accepts that only one amount need be paid. Why that should be the highest amount is a matter known only to the Commissioner. These matters, together with the admissions made in the Commissioner's defence and the acceptance that each assessment is based on one of the positions in the Commissioner's ``position paper'', lead inexorably to the conclusion that none of the assessments purports to fix a definitive liability. The consequence is that none of the assessments is an assessment or ``ascertainment'' of tax. Another consequence is that because the assessment process has not been completed by the production of a definitive assessment, the notices of assessment are not valid notices of assessment as required by the Act.
That the process of assessment is one which must produce a definitive liability in a fixed and certain sum, with the corollary that if it does not the process has not been concluded, emerges from numerous statements to that effect by members of the High Court, in addition to those in Hoffnung. It is true that in none of the cases to which reference is hereafter made was the present question in issue. However, the statements represent dicta of the highest authority and dicta which accord completely with the policy of the legislation. Reference will suffice to merely a few of the many comments to this effect.
In Batagol, Kitto J (at ATD 204; CLR 252), with whose judgment Menzies J agreed, spoke of the process of assessment as one bringing about the consequence that the amounts of taxable income and tax payable ``have been fixed'', so that ``The respective amounts of the taxable income and the tax have been rendered certain '' (emphasis added). Owen J in the same case, with whose judgment Menzies J also agreed, referred to the process of assessment as being a ``fixation operation'' (see at ATD 207; CLR 257).
In Bloemen, Mason and Wilson JJ spoke of the process of ascertainment, that is to say the process of assessment, as involving the rendering certain of the amounts of taxable income and tax payable thereon (see at ATC 4286; CLR 372). In Richard Walter, McHugh J (at ATC 4103; CLR 237), spoke of a definitive
ATC 4011assessment as being one under which ``... a fixed and certain sum is definitely due, neither more nor less''.
FC of T v Prestige Motors Pty Ltd 94 ATC 4570; (1994) 181 CLR 1 the joint judgment of Mason CJ, Brennan, Deane, Gaudron and McHugh JJ (at ATC 4573; CLR 13) cites Batagol as determining that service of the notice of assessment `` fixes the ascertainment of the amount of the taxable income and the amount of the tax payable by the taxpayer'' (emphasis added).
The significance of Cadbury-Fry-Pascal and Lever Bros
In Cadbury-Fry-Pascal the Commissioner had made an assessment under s 104 of the Act and separately under s 105 of the Act. These sections, which have no present counterpart in the legislation, operated to impose tax on undistributed amounts of private companies. There had, in addition, been an ordinary assessment of the taxable income and tax payable by the company made under s 166. It was held that each of ss 104 and 105 authorised separate and independent assessments of tax additional to the tax assessed under s 166. Of the last mentioned section, Latham CJ said, in a passage quite contrary to the Commissioner's submissions before us, that s 166 authorised ``one assessment only'' (see at ATD 482; CLR 381). The Chief Justice in that case was of the view that the assessments authorised by ss 104 and 105 were assessments made under s 169. Speaking of that section, his Honour said (at ATD 482; CLR 381-382):
``This provision confers a power additional to that created by s 166. It authorises an assessment of the amount of any tax where any person is `liable to pay tax' under the Act. Section 169, unlike s 166, contains no reference to taxable income, because the provisions to which it refers cannot be applied by ascertaining the taxable income of the taxpayer and applying provisions as to the rates of tax to that income regarded only as the taxable income of the taxpayer. The amount of tax payable may be determined in these cases by the tax which would be payable in circumstances which do not actually exist and by persons other than the taxpayers, as is in the case of s 104 and s 105. In my opinion, s 169 confers an authority to make an assessment wherever it is declared by the Act that a person is liable to pay tax and therefore enables the Commissioner to make separate assessments to tax under s 104 and s 105 - ie, assessments additional to any assessment made under s 166.''
The present is not a case where any provision of the Act authorises a liability to tax separately and distinct from the ordinary liability to pay tax on taxable income as assessed under s 166. None of the present assessments could be supported as an assessment under s 169.
Lever Bros is likewise of no assistance to the Commissioner.
In that case, ordinary assessments had been made in respect of a number of years of income under s 166. Subsequently, the Commissioner made assessments under s 136 of the Act, in respect of the same years of income. Section 136 of the Act operated, notwithstanding any other provision of the Act, to create a liability in a taxpayer to pay income tax upon a taxable income of such amounts of the total receipts of a business as the Commissioner determined, where the prerequisites to the section were otherwise satisfied. In addition, the Commissioner made assessments of undistributed profits tax authorised by s 169. It was held that the assessments authorised by s 136 (the assessing power was thought to be s 169) were original assessments and not amended assessments, so that the time limits in the Act for making amended assessments were not relevant to the making of the assessments authorised by s 136.
The case is authority for the proposition that there could, in respect of the year of income, be at least three assessments, one, made under s 166 of the taxable income and tax payable thereon, one made under s 169 deriving its authority from s 136, and one made under s 169 of undistributed profits tax. But that does not mean that there could be three alternative assessments made under s 166, each of the taxable income and tax payable thereon of a particular income tax year. It is important also to notice that the making of the s 136 assessment operated to replace the assessments originally made under s 166. The assessment authorised by s 136 did not operate as an alternative to the assessment under s 166. Clearly an assessment of Division 7 tax, by reference to an inadequate dividend distribution, would likewise not be an alternative to an assessment under s 166.
The relationship between the s 136 assessment and the s 166 assessment appears in the following passage in the judgment of Williams J (at ATD 391; CLR 82):
``... The assessment of the taxpayer on his notional taxable income under s 169, as the Board said, replaces the assessment of the taxpayer on his actual taxable income under s 166, and the moneys paid under the earlier assessment must be refunded or set off against his liability under the new assessment.''
The Hickman exceptions
Since, in the present case, there was no assessment and thus no notice of assessment attracting the protection of s 177, it is strictly unnecessary to consider whether the doctrine in Hickman as discussed in Richard Walter has any present operation. Because s 75 of the Constitution precludes the legislature excluding the jurisdiction of the High Court to review the exercise of statutory power by an officer of the Commonwealth, sections such as ss 175 and 177 must be read down if they are to be valid. The consequence, as enunciated by Dixon J in Hickman at 615 is, in the present case, that s 177(1) will be given effect only to the extent that there has been a bona fide attempt to exercise the power of assessment, that that exercise relates to the subject matter of the Act and that it is reasonably capable of reference to the power of assessment.
The learned trial judge was of the view that there was not, in the present case, a bona fide attempt by the Commissioner to exercise the power of assessment. We agree. In so saying, it is not suggested that in the present case the Commissioner in making the assessment acted mala fide. Nothing in the correspondence or material before his Honour would justify such a conclusion. What is meant is no more than to say that because the Commissioner had not exercised the function of assessment so as to create a definitive liability, a fortiori there had not been a bona fide exercise of that function. No separate matter thus arises from his Honour's initial conclusion that the assessments were tentative.
The alternative determinations
At the heart of his Honour's view that the determinations made under Part IVA of the Act were void was the acceptance of a submission from the taxpayer that it was not possible to have a tentative or ``alternative position'' determination.
Sections 177F(1) and 177F(2) of the Act, under which the purported determinations were made, authorise the Commissioner, inter alia, to make a determination in a case where a tax benefit has been obtained, that an amount be included in the assessable income of the taxpayer and, at the same time, under sub-sec (2) determining the provision of the Act, pursuant to which that amount is deemed to be included in the assessable income. Where a determination is made, the Commissioner is directed to take such action as he considers necessary to give effect to that determination. At least in the normal case that will involve the Commissioner making an assessment under ss 166 or 167:
FC of T v Jackson 90 ATC 4990 at 5003; (1990) 27 FCR 1 at 17-18. Certainly this would, of necessity, be the case where the consequence of making the determination was to increase the amount of the taxpayer's taxable income in excess of that already assessed under an assessment made at an earlier time. The use of the word ``necessary'' suggests, that there might be occasions when no action at all was required to give effect to a determination. Whether this is so need not be considered.
It is unnecessary, however, to consider whether it is possible, as a matter of construction of s 177F(1) in the context in which it appears, for the Commissioner to make alternative determinations in respect of the same events affecting the same taxpayer. If it is, the determinations must ultimately culminate in one definitive assessment. If there is but one assessment which, on its face and by reference to external circumstances is definitive, that assessment will attract the provisions of s 177. Absent any of the exceptions to the Hickman principle, the underlying validity of that assessment will be protected by s 175, whether or not alternative determinations may be relied on to support it. It will then be for the taxpayer, appealing against an objection decision, to show that the assessment made was excessive. In that appeal the question of the validity of the determination will be open to challenge. If, however, as in the present case, there is no assessment, then the validity of the alternative determinations does not arise. It suffices that the Court declare that the three notices of assessment were not valid notices of
ATC 4013assessment, pursuant to the provisions of s 174 of the Act.
For these reasons, the Court makes the following orders:
- 1. That the orders made below be varied by substituting for the declaration included therein a declaration that three notices of amended assessment dated 3 June 1994 referred to in cl 10 of the statement of claim are not valid notices of assessment under s 174 of the Income Tax Assessment Act 1936.
- 2. That the appeal be otherwise dismissed.
- 3. That the appellant Commissioner of Taxation pay the respondent's costs of the appeal.
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