Federal Commissioner of Taxation v. Curtin.

Judges:
Kelly J

Court:
Supreme Court of the Australian Capital Territory

Judgment date: Judgment handed down 16 December 1980.

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Kelly J.

On 4 July 1980 the Taxation Board of Review No. 3 in Case M39, 80 ATC 289 allowed an objection by the respondent to an assessment made by the appellant whereby a sum of $1,103.00 was included in the income of the respondent as assessable to income tax for the year ended 30 June 1977 pursuant to the provisions of sec. 26(d) of the Income Tax Assessment Act 1936 (``the Act''). It appears from the reasons for decision of the Board which are in evidence that the respondent took advantage of changes brought about by the Superannuation Act 1976 (Commonwealth) which came into effect on 1 July 1976 and provided for early age retirement benefits. Being eligible, he retired early and, in addition to what was referred to by the Board as ``the standard age retirement pension'', he thereupon became entitled to an additional early age retirement pension according to the formula provided for by the Superannuation Act 1976. Being entitled under that Act and in his circumstances to make an election to commute that additional pension he made it. Subsequently he was paid on account of the commuted sum an interim amount of $22,069.92. The balance due on that account was to be paid to him at a later date and was in fact paid in an amount of $4,272.69 on 18 December 1978.

The issue decided by the Board of Review was whether the interim payment of $22,069.92 was caught by sec. 26(d) of the Act whereby the assessable income of a taxpayer includes ``5% of the capital amount of any allowance, gratuity or compensation where that amount is paid (whether voluntarily, by agreement or by compulsion of law) in a lump sum in consequence of retirement from, or the termination of, any office or employment...''.

In a conclusion with which the third member of the Board agreed, the majority stated that in 80 ATC at p. 291:

``... payments of two amounts, being constituted by an interim payment and a supplementary payment, can in no way be described as a `capital amount... paid in a lump sum'. Furthermore, we can see no reason in logic why the interim payment has any distinguishing characteristics which makes it any more or less the kind of lump sum payment envisaged by sec. 26(d). In the result, this taxpayer has reaped a windfall benefit which was neither intended by him, nor in any way `engineered' so as to avoid the impost of the section.''

In my opinion, the question of whether such an interim payment constitutes a lump sum within the meaning of sec. 26(d) of the Act is a question of law.

The appellant has applied in circumstances to which I will later refer in more detail for leave to appeal against the decision of the Board.

By sec. 196 of the Act the Commissioner or the taxpayer may appeal to a Supreme Court from any decision of the Board that involves a question of law. By the combined operation of sec. 184A and sec. 184B of the Act this Court is such a Supreme Court having jurisdiction in a proceeding arising out of an assessment if at the time of the institution of the proceeding or during the whole or a part of the year of income to which the assessment relates, the respondent was ordinarily resident in the Australian Capital Territory. The evidence concerning the respondent's address at either relevant time is exiguous but I note that a letter is said to have been sent to him on 14 August 1980 at his usual place of residence and the copy letter annexed to the affidavit of Lauren Gay Honcope sworn 19 August 1980 shows that address as 3 Flower Place, Melba in the Territory. Counsel for the respondent having stated that there is no dispute concerning the usual address of the respondent, I am prepared to find residence at the relevant time and hence to hold that there is jurisdiction in the Court to deal with the application.

Section 196A provides, so far as is relevant, that:

``(1) Until regulations have been made under this Act for or in relation to the practice and procedure of a Supreme Court in proceedings to which this section applies, and so far as regulations so made do not make adequate provision, the High Court Rules as in force immediately before the date of commencement of this section under the Judiciary Act 1903-1969 apply, so far as practicable, to and in relation to a proceeding to which this

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ATC 4656

section applies in like manner as they applied immediately before that date to and in relation to the like proceeding in the High Court.

(2) This section applies to a proceeding in a Supreme Court, being -

(a) a proceeding in respect of an objection to an assessment that has, under section 187, been forwarded to that Supreme Court;

...''

No relevant regulations appear to have been made under sec. 196A. The rule which governs the filing and service of a Notice of Appeal from the Board's decision is O. 65, r. 13 which provides:

``(1) Within thirty days after the Board's decision the party desiring to appeal from the decision shall -

(a) file the Notice of Appeal in the Registry at the place where it is desired that the appeal be heard;

(b) serve a copy of the Notice of Appeal upon the opposite party; and

(c) serve a copy of the Notice of Appeal upon the chairman or other proper officer of the Board from the decision of which the appeal is brought.

(2) Service of a copy of a Notice of Appeal under this rule may be effected by sending the copy in a prepaid letter through the post properly addressed to the person to be served at his usual or last known place of residence or business, or, in the case of a chairman or other proper officer of a Board, at his proper office.

(3) A copy of a Notice of Appeal served by post under the last preceding sub-rule shall be deemed to have been served at the time when the letter containing it would be delivered in the ordinary course of post.''

Subrules (1) and (2) of O. 60, r. 6 of the High Court Rules provide,

``(1) A Court or Justice may enlarge or abridge the time appointed by these Rules or fixed by an order of the Court or a Justice for doing an act upon such terms, if any, as the justice of the case requires.

(2) An enlargement of time may be ordered although the application for it is not made until after the expiration of the time appointed or fixed.''

Instructions for the appeal were given by the appellant in good time but, due to an oversight, the required notices were not filed and served. On 14 August 1980 the Notice of Appeal was filed in this Court. On the same day there was forwarded by priority paid mail to the respondent a letter which advised that the appeal had been filed and enclosed a copy of the Notice of Appeal by way of service. The letter went on to say,

``The Commissioner has instructed me to advise you that he is prepared to bear your reasonable legal costs regardless of the outcome of the Appeal. In this regard I propose briefing experienced junior counsel from the Sydney Bar and the Commissioner's undertaking in regard to payment of your legal costs would extend to comparable representation.''

A copy of the Notice of Appeal was also forwarded to the chairman of the Board of Review. Service by post is an appropriate method of service under the provisions of O. 65, r. 13 of the High Court Rules.

By Notice of Motion dated 19 August 1980 the appellant moved for an order that the time for filing the Notice of Appeal in the matter be extended to 14 August 1980 and that the time for serving copies of the Notice of Appeal on the respondent and on the chairman of the Board of Review be extended to 18 August 1980. The evidence is that service on the respondent of the Notice of Appeal must be deemed to have been effected on 18 August 1980 and there is evidence that the Notice of Appeal was in fact received in the office of the Taxation Board of Review No. 3 on that date.

There is evidence which I accept that on 11 August 1980 the respondent telephoned Mr. Keith Beddoe, an Acting Senior Assistant Commissioner of Taxation, and had a conversation with him about a number of matters. During the course of that conversation it appears that the respondent referred to an intimation that had been given him in mid-July that the Commissioner of Taxation intended to appeal against the decision of the Board of Review and asked whether the Commissioner had so appealed.

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ATC 4657

The respondent advised Mr. Beddoe that he had not been served with any appeal papers as at the date of the conversation. Mr. Beddoe informed the respondent that the Crown Solicitor had been instructed to appeal against the decision and that he did not know why the respondent had not been served with the papers in the appeal.

Mr. Beddoe swore two affidavits in these proceedings. He deposed on knowledge information and belief that in the period between 1 July 1976 and a day in December 1978 more than 13,200 persons to whom the Superannuation Act 1976 applied retired due to age or ill health. He deposed too that each of those persons received an interim payment of part only of the benefit payable to them under the Superannuation Act 1976 comparable to that paid to the respondent in this matter which gave rise to the assessment objected to and dealt with by the Board of Review. He stated further that in the normal course of administration of the Act those persons would have been assessed as liable to the payment of taxation in respect of 5% of the amount of the interim payment made to them.

Mr. Beddoe, in the first of his affidavits sworn 28 August 1980, deposed that the information contained in the affidavit of Lauren Gay Honcope sworn 27 August 1980 was to the best of his knowledge and belief true and correct. In para. 3 of that affidavit Ms. Honcope stated that she had been advised by Mr. Beddoe and verily believed that at least 18 persons had received payment of part only of the benefit payable to them under the relevant provision of the Superannuation Act 1976 and, having been assessed as liable to taxation in respect of 5% of the interim amount so paid, had objected to being so assessed. Six of the objections made by those 18 persons await determination by the Commissioner of Taxation. The Commissioner has disallowed the remaining twelve objections and each of the persons affected has requested that the decision of the Commissioner of Taxation on his or her objection be referred to a Taxation Board of Review.

I can only conclude on the evidence that only a tiny proportion (approximately.136%) of those affected by the view the Commissioner takes in respect of the interim payments have objected to the inclusion in their assessment of 5% of the interim payment made under the Superannuation Act 1976 as assessable to income tax while the question of law which is in issue may yet be dealt with by a proceeding such as might have been taken in this case had the appeal been brought in time.

It seems to me, therefore, that the Commissioner can have only two purposes in bringing this proceeding. He may, in the first instance, wish to have a decision on the question of law by a Supreme Court or by the Federal Court on appeal. Despite the suggestion made by counsel for the Commissioner, I am unable to accept that that question of law may not be decided on any one of the remaining cases where objections have been made and either await determination or have been referred to a Taxation Board of Review. The Commissioner's second purpose must be to ensure that each of the 13,200 persons pays tax assessed on 5% of the interim payment. This, no doubt, is on the very proper basis that the Act should be administered with an even hand. With that approach one can sympathise, even describe it as admirable.

The question then is whether, in the exercise of my discretion, I ought to enlarge the time for making the appeal. Although I would interpret subrule (1) of O. 60, r. 6 so as to relate the clause ``as the justice of the case requires'' to the fixing of the term referred to in the subrule, it seems to me that the discretion reposed in the Court is a discretion to extend the time with the view to the avoidance of an injustice. I therefore reach, by a slightly different route, the same conclusion that was reached by McInerney J. in
Hughes v. National Trustees Executors & Agency Co. of Australasia Ltd. (1978) V.R. 257. At pp. 262 and 263 he said of O. 64, r. 6 of the Rules of the Supreme Court of Victoria, a rule which does not differ in substance from O. 60, r. 6 of the High Court Rules:

``Under O. 64, r. 6, the power is exercisable, even after the expiration of the time appointed, on such terms `as the justice of the case may require'. (
Ratnam v. Cumarasamy (1965) 1 W.L.R. 8; (1964) 3 All E.R. 933).

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The object of the rule is to give the Court a discretion to extend the time with the view to the avoidance of an injustice - cp.
Schafer v. Blyth (1920) 3 K.B. 140 at p. 143 per Lush, J., - an observation directed, however, to the terms of O. 64, r. 7 of the rules there under consideration on the hearing of an application to set aside a judgment entered in default of appearance.

One object of fixing times under the rules is to achieve a time table for the conduct of litigation in order to achieve finality of judicial determinations. A successful litigant has an interest in knowing that a claim against him has been determined and that he is no longer `at risk', to use the language of Lush, J., of this Court in
Bourke v. Kecskes, (1967) V.R. 894 at p. 898. I repeat, however, what I said in Goldie v. Johnston, (1968) V.R. 651 at p. 654 that `the significance of the fact the defendant has been kept at risk will often depend on the extent to which that risk is a personal one'. Here the risk to the defendant is not a personal one but is a risk only of having to meet a claim only out of the testatrix's estate.

Higinbotham, J., referred to the interest of litigants in achieving finality of determination when he said, in
Youngman v. Melbourne Storage Co. Ltd. (1885), 7 A.L.T. 53 at p. 54: `When the time has been allowed to elapse that gives the defendant a vested interest in the judgment, and this vested interest ought not to be disturbed unless there is some good reason for disturbing it.'

The phrase `good reason' imports, I think, a consideration of whether justice as between the parties is best served by granting or refusing the extension sought. The conduct of the applicant may here be relevant. Obviously an applicant is less likely to be granted an extension of time where he has indicated that he proposes not to appeal and that indication has been acted on - see Esdaile v. Payne (1889), 40 Ch.D. 520 - than where, although he has allowed time to elapse, he has throughout the relevant period plainly indicated that he intends to appeal.''

Subject to the very minor difference of approach on the question of interpretation to which I have referred, I agree, with respect, entirely with that passage.

His Honour then went on to discuss what might have been the situation had there been a provision for the grant of special leave. He said, at pp. 263 and 264,

``It is clear, however, that whether the applicant seeks `special leave' or merely `leave', consideration alike of the question of possible injustice to the applicant if the application be refused and the judgment left undisturbed, and of possible injustice to the respondent resulting from the disturbance of his seemingly vested interest in the maintenance of the judgment involves a consideration of the prospects of success of the appeal if the extension be granted. For it would be unjust to the respondent to put him to the trouble and expense of an appeal if the judgment sought to be attached is plainly right - compare the observations on a similar point by Sholl, J., in
Bayview Quarries Pty. Ltd. v. Castley Development Pty. Ltd., (1963) V.R. 445 at p. 446 citing
Evans v. Bartlam, (1937) A.C. 473; (1937) 2 All E.R. 646 and
Collins Book Depot Pty. Ltd. v. Bretherton, (1938) V.L.R. 40.

From this point of view the inquiry seems generally to have been expressed in terms whether the judgment attacked is attended with sufficient doubt to justify the granting of leave - see
Norton v. Taylor (1905), 2 C.L.R. 291;
Johansen v. City Mutual Life Assurance Society Ltd. (1904), 2 C.L.R. 186.''

The competing considerations seem to me therefore to be:

• For the appellant -
• (a) The desirability of even-handed administration of the Act;
• (b) The desirability of a ruling by a Supreme Court on a point of law which obviously has affected many thousands of assessments and, no doubt, will affect many more in the future;
• (c) The respondent was well aware, before the time for lodging an appeal had expired, that the appellant intended to appeal;

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  ATC 4659

• (d) The point is, in the appellant's submission, clearly arguable;
• (e) The respondent will not be required to bear any costs in respect of the appeal (except, no doubt, solicitor and client costs).
• For the respondent -
• (a) He is entitled to retain the benefit of the conclusion in his favour by a competent tribunal when the time for taking an appeal against that conclusion has passed;
• (b) He has not ``engineered'' the situation which has come about and it cannot therefore be suggested that his attitude is that of one wishing to take advantage of a ``tax avoidance'' scheme. In saying this I express no view one way or another on such schemes but merely adopt what seems to me to have been the attitude of the majority of the Taxation Board of Review to the respondent's ``windfall''.

While I express no concluded view on the point of law the appellant wishes to raise, it seems to me that it is certainly arguable. I note, in saying this, that there have been a number of decisions by Boards of Review in the area which support the decision against which it is desired to appeal. I do not think it appropriate to express even any tentative view except that, as at present advised, I am not satisfied beyond doubt that the point must fail.

I have not overlooked the strictness with which the High Court has viewed failure to file an appeal in time. See
Ibbitson v. Dunlop Tyre Service (Strathfield) Pty. Limited (1970), 44 A.L.J.R. 126 and
Vilenius v. Heinegar (1962), 36 A.L.J.R. 200. That strictness is well known but I do not think that the view taken of its procedure by the highest Court in Australia is necessarily appropriate as the view of a Court which, although an appellate court in the circumstances I am considering, is properly to be regarded as a Court of the first instance which ought to maintain a high degree of flexibility in its approach to its own rules where discretions are reposed in it.

In all the circumstances I am satisfied that I ought to exercise my discretion in favour of the appellant and grant the orders sought.

They will be subject to his undertaking to abide by the offer contained in his letter to the respondent dated 14 August 1980 of which the relevant passage is quoted at p. 4,656 above or to a condition to the same effect. The appellant must pay the respondent's costs of and incident to the Notice of Motion including, of course, those costs which he has already been ordered to pay.