Clyne v. Deputy Federal Commissioner of Taxation.
Judges:Cross J
Court:
Supreme Court of New South Wales
Cross J. ``To tax and to please, no more than to love and be wise, is not given to men'' (Edmund Burke)
I must confess to a measure of diffidence at being asked to examine a perfect stranger - in this case the Income Tax Assessment Act - for the purpose of determining whether one of its functioning parts has been put to proper use. However.
This is a stated case following a conviction by the appellant in a Federal Court of Petty Sessions of an offence under sec. 223 of the Income Tax Assessment Act 1936 in that he failed to furnish a return of income when called upon to do so by notice published in the Government Gazette by the Commissioner of Taxation in purported exercise of the Commissioner's powers under sec. 161(1).
Section 161(1) provides:
``Every person shall, if required by the Commissioner by notice published in the Gazette, furnish to the Commissioner in the prescribed manner, within the time specified in the notice, or such extended time as the Commissioner may allow, a return signed by him setting forth a full and complete statement of the total income (other than income upon which withholding tax is payable) derived by him during the year of income, and of any deductions claimed by him, [and also setting forth such information (if any), being information that it is necessary for the Commissioner to obtain for the purposes of the administration or operation of a State income tax law, as is prescribed]:
Provided that the Commissioner may, in the notice, exempt from liability to furnish returns such classes of persons not liable to pay income tax as he thinks fit, and any person so exempted need not furnish a return unless he is required by the Commissioner to do so...''
(The words I have bracketed above were added in 1978 and were not in the section in 1977 when the public notice, relevant to this case, was gazetted. Nothing turns on this.)
In purported exercise of the powers contained in that subsection the Commissioner caused to be published in the Australian Government Gazette No. G25 of 28 June 1977, the following notice:
``PURSUANT to the provisions of the Income Tax Assessment Act 1936 and the Regulations made under that Act, I hereby require a return of income derived during the year ended 30th June 1977 (or the accounting period, if any, adopted under that Act in lieu of that year) to be furnished to me in the prescribed manner at the appropriate place on or before 31st August 1977 by every person described hereunder.
Persons required to furnish returns.
(a) Every person (other than a company or a person referred to in (b) below) who is a resident of Australia and whose total income from all sources both in and out of Australia (other than repatriation, social security or similar benefits which are exempt from tax pursuant to s. 23AD(3) of the Income Tax Assessment Act) was in excess of $2604''
...
By information laid on 19 September 1978, the appellant was charged on the respondent's instructions under sec. 223(1) of the Act with failing to comply with the gazetted notice, the information alleging that the appellant, being a resident of Australia and a person whose total income was in excess of $2604, failed to comply with the requirement in the notice in that he did not furnish a return of income on or before 31 August 1977. (The reason why the figure of $2604 was selected was that the calculable tax payable on an income of $2604 was $544.88. When one added the Health Insurance levy at that time of $65.10 this produced a figure of $609.98. As the general concessional rebate at that time ($610) almost exactly equalled that figure no tax could be due, even in the unlikely event of a person's total income of $2604 being also his total taxable income.)
The matter came before the Federal Court of Petty Sessions at 252 Castlereagh Street, Sydney. The appellant, who appeared for himself, submitted that before a person could be charged under sec. 223 with non-compliance with the requirements of such a notice it was necessary for the notice to be brought to his individual attention; he claimed that he had not read the notice personally or otherwise had the notice brought to his attention - certainly not by
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the date before which all returns of income had to be furnished. He argued that he was not a resident of Australia; and he argued that he did not receive an income for the year in excess of $2604. He did not dispute that he had failed to furnish a return of income.The learned Magistrate found that it was not a prerequisite to a person being charged under sec. 223 that he had had the requirement of Government Gazette notice brought to his individual attention; he found that at the relevant time the appellant was a resident of Australia; he found that the appellant's income was somewhat in excess of $2604; and he found that the appellant had failed to furnish a return by 31 August 1977, as required by the notice. The learned Magistrate found the offence proved, and a fine of $200 was thereupon imposed on the appellant. The appellant asked the learned Magistrate to state a case. His Worship has done so. That stated case sets out the above findings of fact and then lists the grounds on which the appellant contended that the learned Magistrate was in error:
``(1) The notice published in the Australian Government Gazette annexure `A' did not constitute a requirement within the meaning of Section 161 of the Income Tax Assessment Act 1936 (as amended)
(2) I was wrong in finding that Section 161 of the said Act imposes an absolute liability to comply with the requirements of the said notice
(3) I was wrong in ruling that actual knowledge need not be proved to support a conviction for failure to comply with the said notice
(4) It followed from my finding that the said notice did not come to the defendant's actual notice that I was bound to dismiss the information
(5) I wrongly held that a person commits an offence against Section 161 aforesaid if he is aware that notices generically similar to the said notice are published every year and/or if he possesses general knowledge of the general and specific requirements and ramifications of the provisions of the Income Tax Assessment Act 1936 (as amended)''
It can be seen that the appellant does not challenge the findings of the learned Magistrate that he was a resident of Australia, that his annual income was in excess of $2604 and that he had failed to furnish a return as required by the notice. Further, in relation to the above stated grounds of complaint, Counsel for the appellant has not sought to argue in this Court any matters in relation to ``grounds'' (2), (3), (4) and (5) and I therefore express the view that His Worship made no error in relation to the matters referred to in those grounds. The remaining ground (1), so the argument of Counsel for the appellant revealed, really amounted to a challenge to the validity of the notice in the Government Gazette of 28 June 1977.
The argument against the validity of the notice was twofold. The first submission is that the power given to the Commissioner by sec. 161(1) is a power which must be exercised disjunctively, i.e. a power to require all persons to furnish a return of income by a specified date and then a power to exempt certain persons, e.g. those whose annual incomes were not in excess of $2604, from the requirement; whereas the particular notice in the Gazette purports to exercise the power conjunctively, i.e. the Commissioner has called on all persons whose income for the year was in excess of $2604 to furnish a return by a specified date, the exemption and the identity of the exempted persons arising, it is said, only by implication.
To my mind this submission can be dismissed out of hand. Section 161(1) does not specify the manner by which the Commissioner may exercise his power to exempt persons from liability to furnish a return. There is nothing whatever in the section to prevent the Commissioner's exemption of certain persons arising by clear implication. It seems to me that for the Commissioner to require every person with a total income for the year in excess of $2604 to furnish a return by a certain day is precisely the same thing - but a far less cumbersome way of saying it - as to require every person to furnish a return by a certain day and then exempting from that requirement all those whose income for the year is not in excess of $2604. Counsel for the appellant sought to sustain this submission by a historical review of the Commonwealth
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taxing Acts; but nothing in that review - or in the sophisticated arguments based on it - detach me from the firm opinion that the notice in the Gazette was a valid exercise of the Commissioner's power to call on every person, other than those he exempted, to furnish a return by a certain date. This submission fails.I come now to the appellant's second submission, which is the real substance of the appellant's case. The submission is that the Commissioner's purported exercise of his powers under sec. 161(1) by publication in the Gazette of the notice of 28 June 1977, does not specify the persons exempted from the requirement to furnish a return of income with sufficient certainty as to be capable of being understood or even to be capable of being a valid exercise of those powers. The attack is not on sec. 161(1) itself. The argument is that the Commissioner's publication of the notice is in form so ineffectual as to amount to a failure to exercise the powers conferred by sec. 161(1).
In what manner is the notice imprecise or uncertain? By its use of the words ``income'' and ``resident'', says Counsel for the appellant. Take the word ``resident''. ``Resident'' is defined in the Act in such a way that no person could possibly know whether he is a resident or not, i.e. no person could know whether the gazetted notice applies to him or not. ``Resident'' is defined in sec. 6(1) as a person who resides in Australia ``and includes a person whose domicile is in Australia, unless the Commissioner is satisfied that his permanent place of abode is outside Australia''; (a similar dependence on the Commissioner being so satisfied is included in para. (ii) of the definition of ``resident''). So, argues Counsel for the appellant, how can a citizen who reads the gazetted notice know whether or not the Commissioner is going to be satisfied that the citizen's permanent place of abode is outside Australia; and as the citizen cannot know beforehand whether the Commissioner will be so satisfied, the gazetted notice is uncertain and imprecise as to the persons required to furnish a return - and so uncertain and imprecise as to be incapable either of being understood or even of being a valid exercise of the Commissioner's power under sec. 161(1). Even worse, argues Counsel for the appellant, is the use in the gazetted notice of the words ``total income''. This he submits is a meaningless phrase. It is an expression which is not defined in the Act; not even ``income'' is defined in the Act. (Section 6 defines ``taxable income''. It also defines, though in a somewhat unhelpful way, ``assessable income''; and sec. 25 sets out some matters which may be included in ``assessable income''. But ``income'' or ``total income'' is nowhere defined in the Act.)
But surely absence of statutory definition is not inconsistent with the validity of a concept or phenomenon or with the capacity of persons to understand everyday words? Surely citizens know and can state what their income is? Not so, argues Counsel for the appellant; for ``income'', though not defined in the Act, is referred to in the Act and it includes matters incapable of being determined by citizens. The Act prescribes that numerous matters be included in income at the discretion of the Commissioner. The citizen cannot know how the Commissioner will exercise that discretion. Therefore the citizen cannot know what is or is not income. Take sec. 36(6), for example. The decision as to whether the particular amounts referred to in that subsection are to be included in assessable income depends on ``if the Commissioner so determines''. How can a citizen know in advance if a Commissioner is going so to determine? As the citizen cannot know, he is unable to say whether a particular amount is or is not income. The discretion of the Commissioner in sec. 36(6) - and that type of discretion exists in various provisions of the Act - means that the word ``income'' in the gazetted notice is incapable of definition; it is uncertain and imprecise, and so uncertain and imprecise that the gazetted notice is not a valid exercise of the Commissioner's powers under sec. 161(1). Further, at least incipiently, sec. 161(1) is, a penal provision. If appropriate and valid gazetted notices pursuant to it are subsequently breached, a prosecution lies under sec. 223. The rights and duties of citizens and their liability to penal sanctions would depend on their failure to comply with requirements which are couched in terms so vague and uncertain that a citizen cannot be aware whether he is caught by the
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requirements. The Commissioner has not defined with sufficient certainty the persons who are obliged to furnish returns. Therefore the notice is invalid.Counsel for the appellant sought to reinforce these submissions by the citation of authority. Davies v. Davies (1887) 36 Ch. D. 359 is, of course, a clear case of a covenant in a contract being couched in terms too vague to be enforceable. Counsel for the appellant submitted, however, that if covenants in contracts are to be held to be fatally flawed if too vague or uncertain, a fortiori the same should apply to gazetted public notices, failure to comply with which attracts penal provisions.
In relation to statutes, regulations and notices, Counsel for the appellant referred to
King Gee Clothing Co. Pty. Ltd. & Ors. v. The Commonwealth & Anor. (1945) 71 C.L.R. 184 where at p. 197 Dixon J. (as he then was) said:
``It needs no imagination to see that in drafting an order for the fixing of prices for an important trade many difficulties must be encountered and it would be impossible to avoid ambiguities and uncertainties which are bound to arise both from forms of expression and from the intricacies of the subject. But it is not to matters of that sort that I refer. They depend upon the meaning of the instrument and they must be resolved by construction and interpretation as in the case of other documents. They do not go to power. But it is another matter when the basis of the price, however clearly described, involves some matter which is not an ascertainable fact or figure but a matter of estimate, assessment, discretionary allocation, or apportionment, resulting in the attribution of an amount or figure as a matter of judgment. When that is done no certain objective standard is prescribed; it is not a calculation and the result is not a price fixed or a fixed price. That, I think, means that the power has not been pursued and is not well exercised.''
These sentiments are echoed in
Cann's Pty. Ltd. v. The Commonwealth & Anor. (1946) 71 C.L.R. 210, particularly by Latham C.J. at p. 219:
``I agree that, to take an example, when a man is charged with being drunk and disorderly, the court decides whether he was drunk and disorderly, and that is the end of the matter, although there may be room for genuine differences of opinion with respect to it. An answer to this contention is, in my opinion, provided in the present case by the decision in the King Gee case ((1945) 71 C.L.R. 184), namely, that the power given by the regulation to fix price is well exercised only when it really fixes a price, either in figures or by reference to a standard which excludes subjective differences of opinion.''
These principles were approved by Barwick C.J. in
The Council of the Upper Hunter County District v. Australian Chilling & Freezing Co. Ltd. (1967) 118 C.L.R. 429 at p. 436.
In
Television Corporation Ltd. v. The Commonwealth (1962-3) 109 C.L.R. 59 at pp. 70-71, Kitto J. referred to the requirement of certainty in the exercise of statutory powers:
``What is the alternative to the view I have expressed? It is that any stipulation at all concerning the conduct of the licensee company is within the Minister's power to impose, even though it fail to give the company any sure guidance as to what is required of it. To take an example, suppose the Minister were to impose a condition that the licensee should conduct its business in all respects with good taste. Surely a construction of the Act that would make that condition within power would be so unreasonable that it ought not to be adopted if any more sensible construction is fairly open. After all, the power given to the Minister is to prescribe the conditions of his own authority to deprive a licensee of its licence. Is it really to be supposed that the Parliament intended that he might prescribe conditions in words of such dubious import that no one but himself would be sure how far he meant them to go? The Parliament did not give the Minister power to suspend or revoke licences at will. The course it took was to require him to describe in advance, by the formal method of imposing conditions upon a
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licence, what conduct of the licensee would expose the licence to suspension or revocation. I can see no justification for so loose an interpretation of the Act that a form of words which by reason of vagueness fails to perform that function may be held a condition within the intended scope of the authority.Judged by this test, the so-called conditions set out in the Minister's notices to the plaintiffs are in my opinion unsupportable as conditions which the Minister has power to impose. The point is not that the proposed conditions offend against a general principle that uncertainty in executive instruments spells legal invalidity, for there is no such general principle: see King Gee Clothing Co. Pty. Ltd. v. The Commonwealth (1945) 71 C.L.R. 184; Cann's Pty. Ltd. v. The Commonwealth (1946) 71 C.L.R. 210. The point is that a requirement of certainty in the sense I have described is inherent in the provisions by which the Minister's power is created: cf. per Diplock L.J.,
Mixnam's Properties Ltd. v. Chertsey Urban District Council (1963) 3 W.L.R. 38, at p. 53.''
Further illustrations of the application of the principle are the judgment of Jordan C.J. in
Ex parte Zietsch; re Craig & Anor. (1944) 44 S.R. 360 at p. 365, and the judgment of Anderson J. in
Velachoutakos v. City of Port Melbourne (1972) V.R. 720. (See also
Clyne v. Cardiff (1964-65) 65 S.R. 213).
Counsel for the appellant developed his submission with reference to the well-known line of authority concerning the construction of penal clauses in statutes, regulations or notices, e.g.
Tuck & Sons v. Priester (1887) 19 Q.B.D. 629 at p. 638 (per Lord Esher M.R.);
Dyke v. Elliott (1872) L.R. 4 P.C. 184 at p. 191 (per James L.J.); Ex parte Zietsch (1974-5) 44 S.R. 360 at pp. 364-5, and
L.N.E.R. v. Berriman (1946) A.C. 278 at pp. 312-3. He submitted that the need for reasonable precision and clarity in penal clauses is such as to render the gazetted notice in this case invalid, and all the more so when the notice requires the citizen, as this notice does, to divulge confidential information. (See
Rogers v. Jordan (1965) 112 C.L.R. 580 at pp. 585-6.)
That, then, was the argument of Counsel for the appellant. But I am of the opinion that the determinants of this appeal lie outside the principles contained in the authorities he cites.
As a preparatory observation may I say that it appears to me not unreasonable for a Court in construing an instrument affecting the requirements of citizens to furnish returns of income for the financial year of 1976-7 to seek to give that instrument validity. The economic consequences of the Court striking down that notice as invalid could be grave. Of course, if the Court is driven to a firm conclusion that the notice is invalid, the Court must so hold. But the judicial arm should not lightly seek to frustrate legislative intent in essential statutes by harsh interpretations of challenged provision. It should seek to assist the enforcement of the people's (indirectly) expressed will unless that will, as expressed in the statute, regulation or notice, is so unclearly and uncertainly stated as not to amount to a valid expression of such will at all.
Particularly is this so where one is dealing with a necessary power which the Commonwealth possesses under its most important revenue-raising statute and with the purported exercise of that power. It is to be remembered that sec. 161(1) of the Act - and the exercise of the Commissioner's power under it - goes only to the necessary first administrative step taken to enable the taxing authority to assess whether or not a citizen is liable for tax and then to determine that amount. This first step of requiring citizens to furnish a return of income is not the actual determination of a person's liability to pay tax or a determination of the amount of such tax. In relation to those matters a citizen may make submissions to the taxing authority, may argue with it and may appeal against any adverse decision by that authority. But as to the desirability (in practical terms) of the requirement for citizens to furnish returns of their income to enable the State to investigate whether or not they are liable to tax and, if so, how much, there can be little room for argument. Nor is sec. 161(1) grossly penal. The maximum fine of $200 must be contrasted to the very serious penalties attracted by furnishing false returns. I see no reason for this Court not to
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attempt to give the gazetted notice validity unless its contravention of established principle is clear.In the light of that approach I am of the view that the submission of Counsel for the appellant fails. Possibly no statute in this country has given rise to so much litigation involving interpretation as has the Income Tax Assessment Act. It does not at first sight, or at more sights after that, appear to conform with Aristotle's dictum that ``It is best that laws be so constructed as to leave as little as possible to the decision of those who judge''. But it seems to me that we make the area of dubiety, which is already too great to be tolerable, enormously greater if we give excessive scrutiny to the language used in public notices designed to convey in lay language to ordinary citizens what their obligations under that Act are.
The word ``income'' in the gazetted notice is an ordinary everyday word and, in my view, is to be given its ordinary everyday meaning. ``Income'' is not defined in the Act and, if it were, that would be only for the purpose of construing the Act (see sec. 6(1)). The discretion of the Commissioner (in say, sec. 36(6)) to have included in assessable income moneys of certain types as to which argument might arise as to whether such moneys should normally be regarded as income, does not go to the everyday meaning of the word ``income'' or to the capacity or incapacity of citizens to understand what the word means. To them, I should think, income means such things as salary, rents from properties, net profits of business, etc. That general meaning of the word - and the community's understanding of it - is not affected by the fact that in relation to certain moneys in rather special cases the Commissioner has by statute a general discretion to determine whether such moneys should also be included in the general meaning of the word.
It would seem to lie ill in the mouth of a citizen with, say, a net annual business profit of $100,000 to claim that by reason of statutory discretions vested in the Commissioner as to the classification of other moneys of a type which he and his business may or may not have ever attracted, he is unaware whether or not his $100,000 net business profit is income within the meaning of the word.
The word ``income'' is not incapable of interpretation. The Full Court of the Supreme Court of South Australia in
Frazer v. Barclay (1920) S.A.S.R. 157 was able to give definition to the word (as used in sec. 28 of the Act 1915-16); and the Full Federal Court found no difficulty or barrier to the construction nowadays of the word ``income'' in
F.C. of T. v. Sherden 80 ATC 4140, where at p. 4147 their Honours, after noting that the word ``income'' is not defined in the Act, proceeded to ascertain its meaning by applying ordinary rules of construction. And so in the present case.
The other challenge is to the word ``resident'' in the notice. Here again, ``resident'' is an ordinary English word with an ordinary everyday meaning. True, the word has a slightly wider defined meaning by the statute; and true, differences of opinion might arise in borderline cases as to whether one is a resident or not. In a contested case a court may have to decide whether, on the established facts, a particular person is or is not a ``resident''. But that does not prevent a meaning being given to the word ``resident'' or make the meaning of the word so uncertain as to render the gazetted notice invalid for lack of precision. Absurdity would be reached if the vast majority of citizens, i.e. those who were born in Australia and have lived here all their lives, could successfully argue that the gazetted notice was invalid and that they had no obligation to furnish a return of income, merely because in relation to a very, very small percentage of citizens an argument might arise for determination by the Commissioner, or ultimately by the courts, as to whether or not a person, on the particular facts relating to him, is or is not a resident. I am of the view that the use of the word ``resident'' in the challenged notice is not so uncertain or imprecise as not to define with reasonable clarity the persons to whom the requirement under the notice is addressed.
The Commissioner's gazetted notice called on all residents whose total income was in excess of $2604 in the financial year to furnish a return by a certain date. In my opinion almost every citizen would have no doubt as to whether or not he was a resident and whether his total income was or was not in excess of $2604. (Total income here, of course, obviously means gross income, as it
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is not for the taxpayer to be his own assessor as to the validity of any deductions he wishes to claim. (See Frazer v. Barclay (1920) S.A.S.R. 157 at pp. 161-2).) The fact that in a very small number of cases a bona fide dispute might arise as to whether or not a person is a resident or whether or not his total income for the year was in excess of $2604 does not make the meaning of the word ``resident'' or ``income'' in the Act or in the gazetted notice so uncertain or incomprehensible as to render the notice an invalid exercise of the Commissioner's powers under sec. 161(1).I am of the view that the challenge to the validity of the gazetted notice of 28 June 1977, fails. In relation to ground (1) of the stated case, I express the view that the learned Magistrate made no error. As I have already said, the other grounds in the stated case were not argued and I formally hold that the learned Magistrate was not in error in relation to those grounds. I refer the matter back to the learned Magistrate with those expressions of opinion. The appellant must pay the respondent's costs of this stated case.
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