CORPORATE BUSINESS CENTRES INTERNATIONAL PTY LTD v FC of T
Judges:Hill J
Court:
Federal Court
MEDIA NEUTRAL CITATION:
[2004] FCA 458
Hill J
When Parliament in 1992 amended the Taxation Administration Act 1953 (``the Act'') to permit, for the first time, the making, by the respondent Commissioner of Taxation (``the Commissioner'', of binding private rulings on the application of taxpayers, it may be assumed that it did so on the understanding that it was legislating for a mechanism which would provide certainty to taxpayers, particularly in the context of self assessment.
2. Part IVAA of the Act, inserted by Act No 101 of 1992 permitted applications to be made to the Commissioner for a ruling on the way in which, in the opinion of the Commissioner, a tax law, including for present purposes the Income Tax Assessment Act 1936 (``the 1936 Act'') and the Income Tax Assessment Act 1997 (``the 1997 Act'') would apply to the applicant in respect of a specified year of income and in relation to a specified arrangement: s 14ZAF. By way of an alternative, it permitted also a person, so long as that person had the written consent of another person, to apply for a tax ruling on the way a tax law would apply to that other person in respect of a year of income and in relation to a specified arrangement: s 14ZAG. The arrangement might be one that is proposed, one that was being carried out or one that had been carried out: s 14ZAI. Hence the relevant year of income could be a past year, the current year or a future year of income: s 14ZAH.
3. The procedure for obtaining a ruling was not particularly complex. An application was required to be lodged in an approved form: s 14ZAJ. It was required to contain information and relevant documents although it could be supplemented by further information where the Commissioner was of the view that such further information was necessary to permit the ruling to be made: s 14ZAM. The Commissioner was bound to comply with the application unless the case fell within certain exceptions set out in s 14ZAN. If three months passed without a ruling being made or the Commissioner notifying the applicant that the application would not be dealt with, the applicant could ask the Commissioner for written reasons for the delay: s 14ZAO.
4. Where a ruling was to be made the Commissioner was required by s 14ZAR(1) to serve a written notice of the ruling upon the applicant. Two or more rulings could be the subject of one notice. However, in general, the notice of ruling would be a response to the one ruling application. It was required to set out ``the matter ruled on'' and in so doing identify the person, tax law, year of income and the arrangement in respect of which the ruling relates: s 14ZAS. Clearly these required particulars reflect the particulars which an applicant for the ruling was required to give to the Commissioner. The requirement that they be contained in the ruling is obviously essential so as to identify the application to which the ruling is a response. The Commissioner in making the ruling was entitled to make assumptions if he was of the view that the correctness of the ruling would depend upon which assumptions were made ``about a future event or other matter'', and if he did so the ruling was required to state those assumptions: 14ZAS(2). The ruling is treated as being made when notice of it was served upon the applicant.
5. The time the ruling is deemed to be made is relevant to the provisions which permit appeals to be brought from the ruling by a person who is dissatisfied by it. Thus s 14ZAZA permits a person dissatisfied with a
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private ruling to object against it in the manner provided for in Part IVC of the Act. However, if an assessment has in the meantime been made in relation to a rulee and in relation to a relevant year of income there will be no right of objection. Clearly this is because the taxpayer will have had a right to object against the assessment itself and to appeal that assessment in accordance with Part IVC of the Act.6. There are to be found in the Act in ss 15AA and 15AB privative clause provisions similar in kind to ss 175 and 177 of the Act which operate to protect certain challenges to assessments. These sections provide:
``15AA The validity of any private ruling within the meaning of Part IVAA is not affected because any of the provisions of this Act have not been complied with.
15AB The production of:
- (a) a notice of, or a notice of the withdrawal of, a private ruling within the meaning of Part IVAA; or
- (b) a document signed by the Commissioner, a Second Commissioner or a Deputy Commissioner, purporting to be a copy of such a notice;
is conclusive evidence of the proper making of the ruling or withdrawal.''
7. One might be excused for thinking that procedural complexities ought not to arise and that an application for ruling would, unless the case was one where the Commissioner was permitted to decline to rule, in due course produce a ruling which would comply with the Act and which would, if one which dissatisfied the applicant lead to an objection, which if disallowed would give rise to an appeal by way of review to the Administrative Appeals Tribunal or an appeal to this Court under Part IVC of the Act. In such an appeal, the Court could concentrate upon determining the correctness or otherwise of the Ruling and not need to determine matters going to the validity of the ruling. That is, unfortunately, not the present case.
8. On the face of it an application was made for a ruling, a ruling was issued and thereafter the Applicant in the present proceedings, Corporate Business Centres International Pty Ltd (``CBCI'') objected, the objection was disallowed and an appeal was instituted in the original jurisdiction of this Court. However, the facts are much more complicated than that. In the result there is before the Court an Application made by CBCI under Part IVC of the Act but in addition, an Application by CBCI for relief in the form of Mandamus and Judicial review (``the administrative law proceedings'') based either upon s 39B of the Judiciary Act 1903 (``the Judiciary Act'') or the Administrative Decisions (Judicial Review) Act 1977 (``the ADJR Act'') together with applications by various persons who also applied for a ruling in respect of the same arrangement and in relation to the same years of income that they be joined as parties to the administrative law proceedings. It is therefore necessary to set out in some detail the course of dealings between the parties that has led to proceedings of some melancholy complexity for which all parties must share some responsibility. However, I am bound to say that the Commissioner hardly distinguished himself with glory in the way he has approached the subject matter of the present proceedings.
The facts
9. On 7 October 2002, CBCI wrote to the Commissioner a letter headed ``Private Binding Ruling Application''. The letter was also headed with the name Mr J Arbuthnot ``being a partner of the Dixon Partnership''. Tax file numbers were given both for Mr Arbuthnot and the partnerships. Further, the heading noted that the years for which a ruling were sought were 2002, 2003, 2004 and 2005.
10. This letter was one of 54 similar letters written that day by CBCI to the Commissioner. Each letter related to a particular taxpayer. I propose to deal here only with the letter relating to Mr Arbuthnot and the correspondence which followed it so far as it related to Mr Arbuthnot. Between 27 October 2002 and 20 December 2002 there were a further 31 letters written, each dealing with a separate taxpayer and each in similar form making a total of 85 applications in all for rulings. The 85 taxpayers are hereafter referred to as ``the CBCI clients''.
11. The letter to which reference is made in paragraph 9 enclosed an application for a private binding ruling and a letter of authority from Mr Arbuthnot to CBCI authorising CBCI to apply for a private ruling on Mr Arbuthnot's behalf. It enclosed various documents including what was said to be a partnership deed, a business plan, an outline of the client's business structure and a ``Running Minute sheet for
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period ending 30 June 2002 relevant for the 2002 year.''12. The letter also set out what was said to be the ``issues to be ruled upon''. These issues were as follows:
``1. The acquisition price for each warrant or block of warrants is deductible to the partnership for the 2002 year on the basis that the proper legal characterisation of the facts herein is that the expense is incurred in the carrying on of a business and the earning of assessable income in sourcing and negotiating the provision for legal services to clients for profit;
2. Any loss of the partnership flows through to the client for the 2002 year;
3. The acquisition price for each warrant or block of warrants is deductible to the partnership for the 2003, 2004 and 2005 years is the basis that the proper legal characterisation of the facts herein is that the expense is incurred in the carrying on of a business and the earning of assessable income in sourcing and negotiating legal services for profit;
4. The cash received on the endorsement of the warrant is assessable to the partnership;
5. Any assignment of a share to a right to sue will be assessable income to the partnership;
6. Any redemption (or rebate) price received by the partnership will be assessable income to the partnership;
7. Section 82KZME will not apply because on the facts herein, the proper legal characterisation is that the client has day-to- day control over the operation of the arrangement.''
13. The enclosed application was in the standard printed form. Under Part 1 were set out the ``Applicant's details''. Here, Mr Arbuthnot's name was inserted. The address where the ruling was to be sent was nominated as being the business address of CBCI. Under Part 2 (``Rulee's Details'') was given the tax file number with the rulee being said to be ``A/ A'', meaning ``as above'' and referring thus to Mr Arbuthnot. His address was repeated to be the address of CBCI. The application stated that the years for which the ruling was sought were the years ending 30 June 2002 to 30 June 2006. In the signature box was written ``As per attached authority'', referring, presumably, to the authority Mr Arbuthnot had given to CBCI.
14. The application then proceeded to set out what is said to be an outline of the business structure and tax issues. Not all of it is comprehensible. It is quite a lengthy document. In summary it may be said that the applicant says that he is a partner in a partnership which carries on the businesses which are thereafter referred to. The document says, ``The Partnership is a business agent working with Pre-Paid Professionals in a wholesale `agency' system negotiating the provision of legal services.'' It continues:
``My partnership's business is one of negotiating access to high-level specialised legal services by means of providing those legal services for cash or in return for an assignment of some portion of the right to sue in commercial litigation. It is a form of agency for legal services within an agency system that attempts to tailor those services for one-off clients and for mass distribution. In addition, there will be specialised related services such as asset protection; debt restructuring, insurance and as a consequence facilitate the provision of these services to the market.''
15. Later, it informs the reader that the partnership Business agency:
``Purchases a series of warrants that represent the service. The warrant will have an eligible service period of 13 months. The 13 month warrant will represent the generality of cases. However, in certain cases involving larger litigation, there may be a need for 4 year warrants.''
16. The document then continues:
``My partnership will endorse over the warrant to client who can redeem those warrants with Pre-paid Professionals for no further consideration. In return, of course the client will receive the service; eg 5 days of specialist Counsel fees in the field of trade practices law.
The warrant in the form provided herein, is not be (sic) assignable and cannot as such be held for the purposes of exchange. Rather a potential client can only have the benefit of an endorsement in their favour by the payment of the face value of the warrant or such other price negotiated by my partnership.
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All warrants that have not been endorsed by the end of the 13 month period will be cancelled by Pre-Paid Professionals with a discount refunded. As noted, the negotiated discount will vary depending on the volume and relative negotiating strength that my partnership will have acquired over time. Currently, it is the policy of Pre-Paid Professionals (subject always to their discretion) that they will refund any cancelled warrants within 13 months at a discount to purchase price paid by me of 12.5%.''
17. The document continues by alleging that the success of the business had been ``repeatedly damaged by the unlawful interference of ATO officers''. It is alleged that the officers had acted in bad faith and that the business had been severely hampered in the 2002 year and was stalled and delayed.
18. Although the document suggests that the form of the warrant was attached, it does not seem to be the case although there is a document entitled ``Grant of warrant'' under which Pre Paid Professionals is said to grant to ``the purchaser'' the right to endorse a specified number of warrants to clients and authorised agents on terms that ``non consideration'' is payable by the client to Pre-Paid Professionals in respect of the service rendered pursuant to the warrant. The right is to continue for 12 months. The endorsement referred to is to be to the effect that the client named therein is not required to pay to Pre-Paid Professionals any consideration for the service performed pursuant to the warrant. Each warrant entitles the purchaser to endorse the performance of the service for and on behalf of one client. The documents provide also that the purchaser will be entitled not more than 1 month before the date of expiry of the warrant, by written notice to Pre-Paid Professional, to redeem warrants at cost less 7%.
19. The partnership agreement is in standard form. It recites that the parties to it had agreed to become:
``active partners in the conduct of the business of acquiring and marketing wealth creation and financial and taxation services, systems, concepts and strategies to the public, and the business of designing wealth enhancing business models for the public using technological systems.''
20. Under the heading ``Purpose'' the following appears:
``The purposes of the Partnership shall be to carry on the Business in partnership with a view to profit during the term of the Partnership. The business is that of acquiring and marketing wealth creation, financial planning, financial and taxation systems, concepts and strategies to the public and the business of designing wealth enhancing models for public, using technological systems, which will include making such customisation as would best advance the business in the local area.''
21. On 16 December 2002 CBCI wrote to the Commissioner noting that the 60 day statutory period had been ``breached''. The letter said that CBCI held that the Commissioner was responsible for ``commercial losses''.
22. On 20 December 2002, the Australian Taxation Office (``ATO'') wrote to CBCI that it was ``currently'' in the process of considering the Private Binding Ruling Requests ``lodged by Corporate Business Centres International, on behalf of the partners involved in the Prepaid Professionals Partnerships... for the years ending 30 June 2002, 2003, 2004 and 2005.'' The letter says that the information provided in relation to the business activities of the partnership was insufficient to enable the applications for ruling to be considered. The letter requested further information including financial information of the partnerships, minutes of the partnerships, business agreements and any other documentation relevant to the activities of the Pre-paid Professionals Partnerships.
23. By letter dated 10 February 2003 CBCI responded, purporting to provide the additional information required. In that letter CBCI made a correction saying that a buy back discretion was at the time in the course of negotiation but in fact it had not been concluded. It asked that this matter be disregarded in the ruling application.
24. On 8 May 2003 the ATO wrote to Mr Petroulias, who presumably represented CBCI again requesting the information that had been sought.
25. On 13 May 2003 Mr Petroulias responded by letter setting out information which Mr Petroulias presumably saw to be an
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answer to the requests of the ATO. I do not find the need here to refer to that information.26. A meeting had been held between Mr Maloney, the First Assistant Commissioner and Mr Petroulias at which, among other things, Mr Maloney indicated that the ruling applications would be decided soon. It is not clear when this meeting took place. However, nothing turns upon the date of the meeting or, indeed what happened at it. The same may be said of correspondence which passed between Mr Petroulias and Mr Maloney which became somewhat heated. On 15 June 2003, following that meeting Mr Petroulias wrote to Mr Maloney and in effect threatened to bring mandamus proceedings.
27. On 11 July 2003 a letter was sent by the Deputy Chief Tax Counsel of the Brisbane Office of the ATO to the Manager of CBCI under the heading ``Application for Private Ruling''. The letter referred to letters dated 29 October 2002 and was said to concern ``your'' (presumably CBCI) application for a Private Ruling on behalf of approximately 120 Applicants. I can not reconcile the figure of 120 applicants. However, it may be the case that there were, in addition to the 85 applications to which I have earlier referred additional applications not forming part of the present litigation. Nothing, however, turns on the number of applications. The letter also enclosed what was said to be a ``Notice of Private Ruling'' together with explanatory notes. There was also enclosed what was said to be an ``edited version'' of the ruling which was to be published on the ATO web site.
28. The Notice of Private Ruling was headed ``Pre-Paid Professionals''. It commenced as follows:
``THIS RULING APPLIES TO: Corporate Business Centres International Pty Ltd.
YEAR(S) OF INCOME TO WHICH THIS RULING APPLIES: 2002, 2003, 2004 and 2005''
29. Under a heading ``WHAT THIS RULING IS ABOUT:'' the document says:
``Is a taxpayer entitled to an income tax deduction for purported partnership losses claimed to have been incurred as a result of entering into a prepaid service warrant arrangement?''
30. The ruling then sets out the ``SUBJECT OF THE RULING''
``The arrangement is generally as follows:
- A Partnership comprised of 20 partners si established purporting to be in the business of acquiring and disposing of prepaid legal and/or professional service warrants.
- This Partnership is the business agent of, and working with Pre-Paid Professionals (PPP).
- The Partnership purchases a series of warrants that will have a service period of 13 months. The Partnership pays the face value of the warrants e.g. warrants with a face value of $100K are acquired by paying $12.5K (12.5% of face value) with balance recorded as a current liability to the service provider PPP.
- Each warrant shall entitle the purchasing partnership to endorse the performance of the service for and on behalf of its clients.
- The Partnership will endorse the warrant over to a client who can redeem that warrant with PPP and receive the service.
- All warrants that have not been endorsed by the end of the 13 month period will be cancelled by PPP and a refund provided to the partnership.
- A discount is applied to the face value of the warrant so that it is effectively repurchased for an amount equal to the outstanding liability.
- The refund on any cancelled warrants is at a discount to the purchase price of 12.5%.
- The Partnerships claims that the purchase price of the warrant gives rise to a partnership deduction equal to the face value of the warrant. Similarly, where the warrant is repurchased in the second year by the service provider at a discount, the partnership would derive this amount as assessable income.
- The Partnership claims that the acquisition price for each warrant is deductible on the basis that the expense is incurred in carrying on a business and earning assessable income.''
31. The document shows a blank under the heading ``Assumptions''.
32. The ruling is in the following terms:
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``The partnership as business agents of PPP are not considered to be carrying on a business. Any losses said to result from the purported activity will not be deductible to the partnership or the individual partners.
If a business were being carried on, which is denied, the purchase of any warrants would constitute the acquisition of trading stock and would be dealt with under the trading stock provision of the ITAA 1997. As such, no loss would be available at the end of the first financial year.
The arrangement as outlined is a scheme within the operation of Part IVA of the ITAA 1936.''
33. There followed, but not as part of the ``ruling'' an explanation as to why the conclusion shown had been reached. It is not necessary here to set out what is there said. However, it may be noted that the explanation says that it will be a question of fact whether a partnership exists and whether it carries on a business. It is said that, ``there is no evidence of a purpose of profit making, of any business activity, of a business-like organisation, or that any warrants were employed in the purported business.''
34. On 14 July 2003 there was lodged with the Commissioner at his Brisbane office an objection said to be of the persons named in Schedule 1. The Schedule listed the names of various partnerships and the partners of them. It included CBCI, although there was initially a question whether the document as lodged contained a page on which the name CBCI appeared. The proceedings were adjourned to permit CBCI to file evidence to this effect. When the hearing resumed, it became clear that it did and the Commissioner made no submission to the contrary of this. Indeed it was noted that the Commissioner accepted that on the balance of probabilities, the notice of objection lodged on or about 14 July 2003 contained a fourth page of schedule 1 in the form contained in Exhibit MM1 to the affidavit of Morris Milder dated 29 March 2004. On this basis I would find that the schedule did contain the name of CBCI as a partner and therefore as an objector.
35. On 12 September 2003 a letter was written from the ATO at its Albury office to the Manager of CBCI which referred to the applications for ruling dated 29 October and the Notice of Private Ruling dated 11 July 2003. The letter relevantly says:
``Upon review of the matter it has come to our attention that the Ruling issued is invalid as Corporate Business Centres International Pty Ltd (CBCI), has been incorrectly treated as the rulee (no other rulees were identified), and the facts or arrangement stated in the ruling do not relate to CBCI.
Consequently, as the Ruling is invalid we cannot consider the objection lodged on 14 July 2003.
A notice of Private Ruling will be issued to each of those clients in the near future.
Each rulee will be entitled to their full review rights upon receipt of their Notice of Private Ruling subject to section 14ZAZA of the Taxation Administration Act 1953.''
36. On 15 September 2003 Mr Petroulias purported to give a notice in accordance with s 14ZYA(2) of the Act to the Commissioner requiring him to decide the objection to the private binding ruling applications lodged on the 15th July. The Commissioner replied by letter dated 26 September 2003 repeating that the Ruling issued was invalid with the consequence that the objection could not be validly considered. It was said that likewise the Commissioner could not consider the notice lodged pursuant to section 14ZYA of the Act.
37. On 30 October 2003 CBCI commenced proceedings in this Court. The proceedings purported to be an appeal against what was said to be an appealable objection decision, that being the disallowance pursuant to s 14ZY(1) of the Act of a taxation objection by CBCI against the private ruling issued to CBCI ``on behalf of the parties listed in schedule 1 (the rulees) for the year of income 2002''. The document asserts that the Commissioner was deemed to have refused the objection (see s 14ZY(1)) 60 days after written notice requesting that a decision be made was given by the Commissioner, that being the notice given by letter dated 15 September 2003 and said to have been repeated by the letter dated 26 September 2003. The 60 day period would have thus expired on 14 November 2003, that is assuming the letter of 15 September was a valid notice.
38. Included in the appeal purporting to be brought under Part IVC of the Act was an alternative application for an order for review
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pursuant to the ADJR Act. The alternative application claims that the Commissioner had a duty pursuant to s 14ZY of the Act to make a decision but that he had improperly refused to do so. It seeks a declaration that the private ruling was a valid private ruling for the purposes of the Act in respect of the income tax affairs of the rulees , or alternatively, an order that the Commissioner be directed to make a decision on the objection.39. There was filed in Court on the day the matter came before me for hearing a notice of motion seeking leave to add, or in the alternative substitute as parties a Mr Gibbs and in addition the persons named in the Schedule. Leave was also sought to amend the application so that it claimed, inter alia, either a declaration that the document dated 11 July 2003 was a private ruling in respect of the income tax affairs of the rulees (ie. presumably, the parties whose names were sought to be added), or in the alternative, an order directing the Commissioner to allow objections of the Applicants to the private ruling, or alternatively to make decisions on those objections. Although it is not stated in the Application directly it seems that in addition to the objection lodged by CBCI, the subject of the present proceedings, objections were also lodged by the 85 persons or companies being the CBCI clients. Of course, questions might arise as to whether any person was out of time to file appeals from any deemed objection decision made under s 14ZY(1).
40. It became clear on 24 February that consents had not been obtained from the persons CBCI sought to have added to the administrative law proceedings. As the matter had to be adjourned for other reasons I advised the parties that I would consider the question whether any of these persons should be joined when the matter next came before me at which time, unless their consent to being joined had been given, I would dismiss the motion to join them. On the day of the adjourned hearing it seemed that some 71 persons had consented. The joinder was opposed upon the basis that joinder was impossible because the proceedings were a nullity, there being no valid ruling. The Commissioner also opposed the joinder of the additional parties at least to the extent that they might become parties to the Part IVC proceedings. If these persons were to seek to argue that they, by joinder, thus became entitled to appeal to the Court, albeit that they were out of time, it would clearly be an inappropriate exercise of discretion to permit the joinder. Accordingly, I propose to join the 71 persons whose consent was obtained, but only for the purposes of the Administrative Law Proceedings. The names of those persons who consented and who I would thus add as parties to the Administrative Law Proceedings are set out in Schedule 1 to these reasons.
The issues
41. There arise a number of issues for decision. The resolution of some of them depends upon the resolution of others. As I see it, the issues are as follows:
- 1 Was the application lodged on 7 October an application for ruling made by Mr Arbuthnot under s 14ZAF in relation to his own affairs, or an application for ruling made by CBCI in respect of the affairs of either itself under s 14ZAF or in respect of the affairs of Mr Arbuthnot under s 14ZAG?
- 2 Depending upon the answer to Question 1, was the Ruling dated 11 July 2003 as contained in the Notice of Private Ruling, a ruling given to Mr Arbuthnot or CBCI?
- 3 Whatever the answer to question 2 may be, was the Ruling referred to in that question a valid ruling because it did not contain a description of the ``arrangement'' to which the ruling related? It may be noted that in this context the Commissioner submits that it was not because there was never sufficient information to identify the arrangement. In answer to this question the provisions of ss 15AA and 15AB of the Act may be relevant.
- 4 Depending upon the answers to the previous questions did CBCI give a valid notice under s 14ZYA(2) on 15 September 2003?
- 5 Depending upon the answer to Question 4, did Mr Arbuthnot and the other persons whose tax affairs were the subject of the applications made between 27 October 2002 and 20 December 2002 (ie the CBCI clients) give on 15 September 2003 a valid notice under s 14ZYA(2) thus entitling them to object to a ruling in relation to their own affairs if there was such a ruling?
- 6 If the answer to question 5 is in the negative, are the CBCI clients (or more accurately such of them as are joined as
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parties to the administrative law proceedings) entitled to an order in the nature of a mandamus compelling the Commissioner to consider their objections? - 7 Assuming that proceedings challenging the objection decision on the ruling are properly before the Court was the Ruling correct?
42. It is convenient now to turn to answer these questions.
Question One
43. Although the letter forwarding the application to the Commissioner was a letter from CBCI, the application itself was an application said to be by Mr Arbuthnot. He was said to be the rulee and the application concerned his affairs. I think it is difficult to conclude otherwise than that the application was an application by Mr Arbuthnot made under s 14ZAF. It is true, as CBCI says, that the letter enclosing the application had attached to it an authorisation from Mr Arbuthnot in favour of CBCI to apply for a ruling on his behalf so that CBCI could have made an application on Mr Arbuthnot's behalf. But that can not determine the issue of who the applicant was.
44. It is also not to the point for CBCI to say that the identification on the application of Mr Arbuthnot was a mistake. The question who was the applicant for a ruling is not a question to be answered by reference to the subjective intention of some person. It is objectively answered by the application itself.
45. It should be noted here that there was no application for a ruling ever made by CBCI on its own account. It may well be the case that CBCI was a partner in one of the partnerships such that it could have made an application in its own right had it wished to. It did not.
Question Two
46. It would seem that in forwarding the Private Ruling to CBCI the Commissioner treated the application, the subject of question 1, as being an application made by CBCI on behalf of its clients under s 14ZAG. That is the only way it is possible to make sense of the letter of 11 July 2003. It may also explain why the Notice of Private Ruling is expressed to apply to CBCI. Neither the letter nor the Notice of Private Ruling indicate that the Ruling is a Ruling given to Mr Arbuthnot. Rather the Ruling itself purports to be a Ruling which ``applies'' to CBCI. Even if, contrary to my view, the Ruling Application was an application made by CBCI for a Ruling concerning the affairs of Mr Arbuthnot, the Ruling given in response to such an application would be a ruling which related to the affairs of Mr Arbuthnot and not one which related to CBCI.
47. As already noted, a Notice of Ruling is required to ``identify'' the person in respect of whom the ruling relates. Yet, nowhere is Mr Arbuthnot identified as such a person. No matter could be more significant than the identification of the person affected by the ruling. Indeed it is a consequence of a ruling that it operates to the extent necessary to change the law so that any tax thereafter assessed in the year of income must be that which applies in the ruled way: s 170BB of the 1936 Act. That consequence only, however, applies to the person concerning whose affairs the Ruling relates. It does not apply to any other person.
48. In
National Speakers Association of Australia Inc v FC of T 97 ATC 5131, the ruling before the Court did not identify the arrangement to which the Ruling related. It did identify a year of income, but that year differed from the year of income to which the Application for Ruling related. Emmett J held the Ruling to be invalid. His Honour pointed out that it was an essential part of the scheme of Part IVAA of the Act that the arrangement to which the ruling related be identified. It would likewise be vital to know the year of income to which the Ruling related. It might be noted that his Honour made no reference to s 15AA of the Act which in terms, at least, appears to protect a Ruling from invalidity notwithstanding that the provisions of the Act were not complied with. It would seem that the section was not cited to his Honour. It may well be, however, that the section could not operate to turn something that is not a Ruling at all, into a Ruling. It being an essential characteristic of a Ruling that it be a Ruling about an arrangement, if no reference is made to an arrangement it can be said that what is produced by the Commissioner is simply not a Private Ruling to which s 15AA applies.
49. I am of the view that unless what purports to be a Notice of Ruling identifies the person or persons to whose tax affairs the Ruling relates, there is simply no ruling that has been made. That being so, I am of the view that s 15AA does not operate to convert what purports to be a Ruling into a Ruling. If this is correct, then that is the end of the 14ZY proceeding. There
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being no Ruling there could be nothing to which any person might object. I reach this conclusion because the significance of the Ruling, as I have noted, is that it operates to ensure that the Act will operate to bring about the consequences which are contained in the Ruling, but only so far as the person to whom the Ruling relates. If there is no such person able to be identified, then the provisions of s 170BB can have no operation:CTC Resources NL v FC of T 94 ATC 4072 at 4081; (1994) 48 FCR 397 at 407 per Gummow J. However, if I am wrong about this, it is necessary to determine what follows if s 15AA does operate to convert the subject of the Notice of Ruling into a valid Ruling. I should, however, note here that the Commissioner did not seek to tender a document complying with s 15AB so that I was not bound to find validity of the ruling to have been conclusively established.
50. There can be no objection against a ruling unless there is a person who is a rulee who is dissatisfied with the ruling. Assuming there is a valid Ruling it is necessary to decide who the rulee is and if so, whether that rulee is a person dissatisfied. The word ``rulee'' is defined in s 14ZAA (1) to be the person to whom the application of a tax law is the subject of the ruling. That clearly includes Mr Arbuthnot. Does it include CBCI? The Commissioner says no, because even if there was a valid ruling, CBCI was not identified as being the rulee either in the Application for Ruling, nor in the Ruling itself. The submission ignores the reference made to CBCI in the Ruling itself. However, I do not think that the reference in the Ruling to CBCI establishes that it is a rulee. Although as I have noted the definition of rulee refers to the person to whose tax affairs the ruling relates, it seems to me that that person must be the person not only referred to in the Ruling itself, if the application is made under s 14ZAG, but identified as the ``other person'', if the application is made under s 14ZAF.
51. It follows in my view that while the so- called Ruling does refer to CBCI, that company is not a rulee. That being the case, it can not be a rulee who is dissatisfied with the Ruling. No doubt CBCI may be dissatisfied in a commercial sense by the ruling. That would not, however, in my view be enough. To be dissatisfied in the present context, it would require the person to be such that a successful objection would place that person in the same position vis-a-vis the operation of the taxation law as that person would have been in. This is the sense in which Gummow J understood the word ``dissatisfied'' meant where it appeared in s 14ZZ of the Act, in the context of dissatisfaction with an objection decision: see CTC Resources at ATC 4082; FCR 408. As his Honour said: a mere curiosity or interest in having a formal ruling by the Commissioner for some collateral commercial purpose of the applicant is not sufficient to amount to ``dissatisfaction'' in the relevant sense. In the same case, I said at ATC 4100; FCR 432:
``... the word must bear more than its ordinary dictionary meaning of `displeased with' or `not contented with'. More is required than mere lack of satisfaction with the objection decision. It can hardly be said that a university lecturer, learning of the disallowance of an objection by a public company of which he or she was neither a director or shareholder, could, because he or she was not happy with the objection decision, refer the matter to the Court...''
52. In the context of objections against assessments of income tax a person ``dissatisfied'' would seem, as Gummow J indicated in CTC, to mean a person in receipt of an assessment which leads to the creation of a debt in favour of the Commonwealth which has ``an immediate and direct effect in a legal sense upon the taxpayer'' (at ATC 4079; FCR 405). In saying that, his Honour was not looking to state an exhaustive test of what the word meant. However, in
McCallum v FC of T 97 ATC 4509 at 4522-4523 Lehane J with whose decision Whitlam J agreed, relied upon this passage in concluding that a bankrupt would be likely to lack standing to apply to the AAT for a review of an objection decision. The Commissioner's debt had become a right to prove in the bankrupt estate and accordingly the bankrupt would be unable to object against the assessment. It is not necessary to go so far here. The point is that CBCI could not be a person dissatisfied with a ruling unless that ruling had some legal effect upon the tax affairs of CBCI. It would not do so unless the Ruling related to the affairs of CBCI. It follows that CBCI, even if a rulee, can not be a rulee who is dissatisfied.
53. So long as the ruling related to the tax affairs of Mr Arbuthnot he would be both a rulee and a person who was dissatisfied by the ruling. For the purposes of the Part IVC
ATC 4440
proceedings before me, all that need be decided is that CBCI is not a rulee who is in the relevant sense, dissatisfied. Mr Arbuthnot is not a party to the Part IVC proceedings.54. It is, however, relevant to the Administrative Law Proceedings. On the view I take, Mr Arbuthnot has applied for a ruling in respect of his affairs. No such ruling has been issued. He is, accordingly entitled to an order by way of mandamus requiring the Commissioner to give a ruling in accordance with his request. So too are the other clients of CBCI who have consented to be joined in the proceedings.
Question Three
55. Having regard to my answer to the preceding question it is unnecessary to answer this question. However, in case the matter should proceed further I will shortly indicate my view as to the answer to this question.
56. For the reasons given by Emmett J in Speakers Association, it is necessary that a Ruling (and for that matter the application for a ruling) contain a description of the ``arrangement'' to which the Ruling relates. A ruling that does not do so would not be a valid ruling. The purported ruling does so and thus complies with the Act. If the Application for a ruling did not do so when submitted, the Commissioner could decline to deal with it or he could request additional information as he did in the present case. The defect would, no doubt, be cured if the additional information given is read back into the application. It is difficult for the Commissioner now to argue that the Ruling he gave was invalid on the basis that it did not contain a description of the ``arrangement'' when it purported to do so. I can sympathise with the submission that the Application, as originally submitted, was, to say the least, rather obscure in the way it went about describing the ``arrangement''. However, I think it can be said that the Application, as supplemented, was sufficiently clear to permit the Commissioner to understand what the arrangement was and that the Ruling, when it issued, sufficiently described the arrangement so that it could not be said to be invalid.
Question Four
57. The answers I have already given make it likewise unnecessary to answer this question. Given that there was no ruling given to which CBCI could object it could not give a notice under s 14ZYA. Likewise since neither Mr Arbuthnot nor any other of the persons who were CBCI clients had received any ruling relating to their affairs it follows that there was nothing for them to object to and likewise they could not give a notice under s 14ZYA.
Question Five
58. See answer to question 4.
Question Six
59. Unless Rulings have, since the present proceedings commenced, issued to each of the CBCI clients each would be entitled to an order in the nature of mandamus compelling the Commissioner to act in accordance with their Ruling Applications and give a ruling relating to their taxation affairs. There is nothing in the material before the Court which suggests that requests by the Commissioner for information concerning the arrangement remain unanswered such that the Court would not make such an order.
Question Seven
60. I think that it is preferable that I not answer this question as to do so would not operate to bind any of the companies which are the CBCI clients and since CBCI could not properly institute proceedings under Part IVC of the Act challenging any ruling relating to its own affairs since no such ruling was ever applied for by it. That answer must await other proceedings.
The new issue - have rulings now issued?
61. Towards the end of the hearing on 31 March, I was told by senior counsel for the Commissioner from the bar table that his client had in fact issued rulings to all or substantially all of the persons who sought to be joined as parties in the administrative law part of the proceedings. Senior counsel for CBCI then told me likewise from the bar table that on his instructions no documents purporting to be rulings had been served.
62. No attempt had been made by the Commissioner to file evidence of what was said to be the fact of service of notices of rulings.
63. I directed the respondent Commissioner to file and serve any evidence on this matter on or before 2 April. He did not do so until 4 April, although my associate received faxed copies of affidavits that presumably were to be filed. No affidavits were filed by the several applicants seeking administrative law relief until 15 April.
ATC 4441
I then sought to have the matter listed for further hearing in the week commencing 19 April. That seemed impossible.64. From the point of view of both the parties and the Court, the situation is that, unless the present application is finalised by the end of April and judgment given by then, the matter would have to be adjourned for at least five months as I will be on long leave for 3 months and have no free sitting days at the moment in the month thereafter. It was open to the Commissioner to have filed the evidence before the hearing on 31 March. It would have been an answer to the mandamus issue. Yet he did not do so.
65. I propose therefore to deliver judgment without deciding what really is a factual issue raised at the hearing after evidence had closed. I would, however, frame the order of mandamus conditionally, that is to say, I would compel the Commissioner to issue rulings to the persons now parties to the application but only if the Commissioner has not, at the date the orders are made, not already given to the applicants notices of rulings. The question whether rulings in fact did issue being a question which arose after the present proceedings were issued will thus necessarily now fall to be decided to the extent it can not be resolved in new proceedings.
Costs
66. Since CBCI was not a rulee who was ``dissatisfied'' and thus had no right to object, CBCI could not properly appeal to the Court on any objection decision. That part of the Application must accordingly be dismissed.
67. The normal order in such a case would be that CBCI pay the Commissioner's costs of the Part IVC proceedings. However, it is clear that the difficulties of procedure in the present case have resulted from the Commissioner purporting to make a ruling which the Commissioner stated was applicable to CBCI but which was not a valid ruling at all. It seems to me that in the circumstances I should make no order as to the costs of the Part IVC proceedings. As to the mandamus proceedings, there was, as I have already noted, no evidence before the Court at the time of either the first or second day of hearing which showed that the Commissioner had given rulings to the CBCI clients. Indeed, the possibility that such rulings had issued since the hearing commenced was only adverted to on the second day of hearing but there was no admissible evidence before the Court whether this was the case. It seems to me to follow, therefore, that the Commissioner should bear the costs of the administrative law part of the Application.
THE COURT ORDERS THAT:
1. The application under s 14ZZ of the Taxation Administration Act 1953 be dismissed.
2. The 71 rulees whose consent for joinder was obtained be joined to the administrative law proceedings, but not joined to that part of the application as was brought under 14ZZ of the Taxation Administration Act 1953.
3. In the event that rulings identifying the rulees have not been issued to and served upon the rulees, a writ of mandamus issue against the Respondent requiring the Respondent to comply with s 14ZAR of the Taxation Administration Act 1953 in relation to the applications for rulings made by or on behalf of the applicants.
4. The Respondent pay the costs of the Applicant in respect of the administrative law proceedings, but there be no order as to costs in the Pt IVC proceedings.
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