Federal Commissioner of Taxation v. Leckie.
Judges:Tadgell J
Court:
Supreme Court of Victoria
Tadgell J.
This is an appeal by the Commissioner of Taxation from a decision of a Board of Review pursuant to sec. 196(1) of the Income Tax Assessment Act 1936.
The issue before the Board was whether the taxpayer's objection to the Commissioner's assessment of $14,928.38 as additional tax under sec. 226(2) of the Act for the year ending 30 June 1978 should be allowed. The Board's decision was expressed as follows -
``... For the reasons herewith the Board decides to allow the taxpayer's objection insofar as it relates to additional tax and would amend the taxpayer's assessment for the year ended 30th June 1978 to exclude the additional tax of $14,928.38. Assessment dated 23 March 1979 is to be amended accordingly.''
There were two bases for the decision discernible from the reasons of the Board which accompanied it. The first was that sec. 226(2) did not apply in the circumstances of the case to subject the taxpayer to a liability to additional tax. The second was that, even if the subsection did apply, the additional tax should be wholly remitted pursuant to sec. 226(3). In so deciding the Board acceded to two distinct alternative arguments advanced by the taxpayer which, according to the first paragraph of the chairman's reasons, raised the questions:
``... Whether the provisions of sec. 226(2) apply and, if so, whether there should
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be a greater remission of the penalty imposed thereby than made by the Commissioner.''
Section 226(2) provides -
``Any taxpayer who omits from his return any assessable income, or includes in his return as a deduction for, or as a rebate in respect of, expenditure incurred by him an amount in excess of the expenditure actually incurred by him, shall be liable to pay as additional tax an amount equal to double the difference between the tax properly payable by him and the tax that would be payable if it were assessed upon the basis of the return furnished by him, or the amount of Two dollars, whichever is the greater.''
Section 226(3) provides -
``The Commissioner may in any case, for reasons which he thinks sufficient, and either before or after making any assessment, remit the additional tax or any part thereof.''
The facts, so far as I need to deal with them, were these. The respondent, a medical practitioner, entered into a partnership agreement on 31 March 1978 for the purpose of taking such advantage as he could of a scheme which was designed to generate a loss from share trading. The details are not immediately important but those who are interested will find them set out in the reasons of the members of the Board, which are reported in Case P122,
82 ATC 623. The scheme was evidently inspired or encouraged by the decision of the High Court in
Curran v. F.C. of T. 74 ATC 4296; (1974) 131 C.L.R. 409. The partnership's return for the year ended 30 June 1978 disclosed a net loss of $1,000,055.28 of which $50,002.76 was said to be attributable to the respondent. Conformably with that, the respondent's own return for the same year (dated 14 December 1978) disclosed taxable income of $15,275 represented by -
Net income from medical $
practice 68,354
Partnership loss (other) (3,076)
Partnership loss (share
trading) (50,003)
--------
Taxable Income 15,275
--------
In a letter to the Commissioner dated 17 January 1979 the respondent's accountants said -
``We refer to the Taxation Return lodged by us on behalf of the abovementioned taxpayer for the financial year ended 30 June, 1978.
The taxpayer entered partnership in the business of share trading during that year.
At the time of lodging his return the taxpayer was obliged in compliance with the declaration made on the return to include in his return details of the share of the partnership taxable loss suffered by him.
Since then it has come to his knowledge that you consider such losses to be non-allowable and therefore subject to penalty provisions of the Act. In view of this he wishes to now amend his return to the correct position which he believes you consider it to be, namely $67,214.''
The figure of $67,214 was made up as follows -
Taxable income according to $
the return 15,275
Add - partnership loss from
share trading 50,003
- partnership loss (other)
decrease from $3,076
to $1,140 1,936
------
67,214
------
By an adjustment sheet dated 23 March 1979 the Commissioner reduced the partnership loss initially claimed of $50,003 not to nil but to $10, and the notice of assessment of the same date showed that the respondent had been assessed on a taxable income of $67,204. The assessment included $14,928.38 as ``additional tax for incorrect return''. This represented 50 per cent of the tax liability referable to the adjusted partnership loss of $49,993 only. That is to say, the appellant had evidently declined to accept the letter of 17 January 1979 as effective to save the respondent from additional tax referable to the loss of $49,993 (although he remitted 75 per cent of it under sec. 226(3)) but he assessed the respondent to no additional tax in respect of the other partnership loss, initially claimed to be
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$3,076 but reduced by the letter of 17 January 1979 to $1,936.The notice of objection to the assessment, so far as it is now relevant, asserted in a variety of ways that the facts did not attract the operation of sec. 226(2) and it asserted further, as ground 11, that:
``If any amount of additional tax under sec. 226 of the said Act was incurred by the taxpayer in respect of the said year of income, which is denied, such additional tax pursuant to sec. 226(3) of the Act should be reduced to nil, or alternatively to an amount less than $14,928.38 which has been included in the said assessment.''
The right of the Commissioner to appeal to this Court from the decision of the Board favourable to the taxpayer depended on his establishing that the decision involved a question of law. Counsel for the Commissioner, who went first in this Court, accepted that obligation and availed himself of the procedure that Bowen C.J. in
F.C. of T. v. Mantle Traders Pty. Ltd. 80 ATC 4588 at pp. 4592-4593; (1980) 33 A.L.R. 276 at pp. 281-282 held to be open to him. That is to say, he tendered the Commissioner's file (which contained the share-trading partnership's return and the taxpayer's personal return, the letter of 17 January 1979, the assessment and the adjustment sheet, the notice of objection and the notice of the Commissioner's decision to disallow it) and the written decision of the Board and the reasons of the three members. He also tendered part of the written reasons of the chairman of the Board in another associated reference because the chairman had incorporated that part in his reasons in this one. Having tendered those documents counsel for the Commissioner closed his case, relying on sec. 190(b) of the Act to cast the burden on the taxpayer to prove that the assessment was excessive. Counsel for the taxpayer called no evidence.
There was no contest that the material so placed before this Court disclosed that the Board's decision involved a question of law, and plainly it did. There was, however, a contest as to what the Board had decided. For the Commissioner it was primarily submitted that the Board decided only that sec. 226(2) did not apply and that that decision was wrong both in point of the construction of the provision and of its application to the facts. It was argued that because the Board had decided that the taxpayer was subjected to no liability under sec. 226(2) it could not have decided to make a further remission under sec. 226(3) because there was nothing to remit. The submission was, therefore, that I should correct the Board's error and decide that sec. 226(2) did apply of its own force to subject the taxpayer to additional tax and that, having so decided, I should refer the matter back to the Board to consider the question of remission. Alternatively it was said that, if the Board is to be taken to have made a decision to remit additional tax, it proceeded on wrong principles and omitted to take all relevant matters into account. This meant, it was argued, that the decision was invalid and that the matter should be remitted in any event for reconsideration of the question whether any and if so what further remission of additional tax should be made.
Counsel for the taxpayer submitted that the decision below to allow the objection could be upheld on either of the two bases which the Board assigned for doing so - that sec. 226(2) did not apply or that, if it did, no additional tax should in the circumstances be imposed.
The submission for the Commissioner asserted in terms that what the members of the Board had said as to remitting additional tax was obiter. The chairman, Mr. H.P. Stevens (with whom Mr. J.R. Harrowell agreed without delivering detailed reasons of his own) addressed the question of the application of sec. 226(2) first. Having given reasons for his opinion that it did not apply, he turned to what he called ``the second issue of whether there should have been a greater remission by the Commissioner...''. By that I take him to have meant the second question to which he had referred in the first paragraph of his reasons from which I have quoted above. That was the question which had been raised by ground 11 in the notice of objection and upon which counsel for the taxpayer had addressed an independent argument with a view to having the objection upheld. After observing that counsel for the Commissioner had made no submission on the question of remission, the chairman said:
``In my view, if sec. 226(2) applies, the
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penalty imposed thereby should be wholly remitted. Whilst it can be said that ordinarily an `offence' is committed at the date thereof (here it would be said to be the date of lodgment of the initial return) and is `punishable' having regard to the intent etc. existing at that date, I think in taxation matters under sec. 226(2) the important element is an actual or threatened loss of taxation revenue by the normal due date thereof. `Actual' when, say, assessable income is omitted or `threatened' when, say, an overclaim is made in a return (which overclaim may or may not be detected upon assessment). In the present case there was no actual or threatened loss as the offending claim no longer existed as at the time of assessment - such time being what might be regarded as normal for the taxpayer's 1978 assessment.''
Mr. B.R. Pape, the third member of the Board, having set out some salient facts, said -
``Because I am of the view that sec. 226(2) only applies to deductions for expenditure and not for deductions for losses... the additional tax was not authorised by the section. Nevertheless if I had found that the additional tax was correctly imposed under sec. 226(2) I would still have remitted it down to nil. The decisive factor being that the taxpayer had withdrawn his claim under sec. 92(1) on 17 January 1979 some 65 days before the assessment issued.''
I do not consider it right to conclude that the Board did not decide to uphold the taxpayer's objection on the basis that any additional tax to which he was liable should be wholly remitted; nor, I think, is it right to say that the Board had no authority to do so.
Of course, in strictness it is illogical to consider the question of remission of additional tax if no liability to it is attracted in the first place. But I think it would be artificial to regard the Board's consideration of the remission as so much empty noise merely because it had also expressed the view that sec. 226(2) was technically inapplicable. The taxpayer was required to specify in his notice of objection all his grounds of objection and there was nothing to prevent him from specifying and relying on two or more independent grounds any or all of which might, if successful, achieve his aim of having the additional tax assessed excluded from his assessment. What the Board was required to do, and what it evidently set out to do, was to decide upon a consideration of the grounds of objection whether the Commissioner's assessment of the taxpayer to additional tax should stand, and the decision was that it should not. In so deciding the Board was performing a pre-eminently administrative or executive function:
F.C. of T. v. Trautwein (No. 3) (1936) 4 A.T.D. 92 at pp. 95-96; (1936) 56 C.L.R. 211 at p. 216. It was exercising a power which the Commissioner had ``of imposing upon taxpayers guilty of the kinds of act or omission specified a liability to further exaction commensurate with their fault'';
Jolly v. F.C. of T. (1935) 3 A.T.D. 162 at p. 167; (1935) 53 C.L.R. 206 at p. 214. One of the functions of the Commissioner (and, in the circumstances, of the Board) was to consider ``whether any and what part of the amount prima facie imposed'' by sec. 226(2) should be remitted: Jolly's case, at A.T.D. p. 166; C.L.R. p. 213. In my opinion the Board was entitled to conclude that no additional tax should be imposed without reaching a firm conclusion that sec. 226(2) applied. Putting it in another way, the Board was entitled to assume, without deciding, that sec. 226(2) was prima facie applicable and to say that, nevertheless, no additional tax should be exacted in the circumstances. This is what I think it did. To say that, because the Board found in the taxpayer's favour on two grounds, only one of them should be selected and regarded as its decision, to the exclusion of the other, is in my opinion, therefore, unjustified. Although the analogy is not exact, the position of the Board may usefully be compared with the position when a Judge gives two reasons for his decision: it is not permissible to pick out one as being supposedly the better reason and ignore the other one; nor does it matter for this purpose which comes first and which comes second:
Behrens v. Bertram Mills Circus Ltd. (1957) 2 K.B. 1 at p. 24; and see also
Jacobs v. London Country Council (1950) A.C. 361 at p. 369, where Lord Simonds observed that -
``... there is in my opinion no justification for regarding as obiter dictum a reason given by a judge for his decision, because
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he has given another reason also. If it were a proper test to ask whether the decision would have been the same apart from the proposition alleged to be obiter, then a case which ex facie decided two things would decide nothing.''
I acknowledge that the Board was acting not in a judicial capacity but in an administrative capacity. Even so, in that capacity it was entitled to conclude for one valid reason or another that additional tax should not be exacted. To hold otherwise would produce the absurd position that, if I were to conclude that the Board had been wrong in its view that sec. 226(2) did not apply, I should have to send the matter back to it with a direction that it consider the matter of remission which it had evidently already considered. As it is, I propose to consider only the question whether the Board's conclusion that additional tax should be wholly remitted was wrong in principle; and I think I should send the case back only if I conclude that it was. That is to say, I propose to assume the correctness of the submission for the Commissioner that sec. 226(2) applies.
On that footing I turn to the alternative argument for the Commissioner, which accepted that the Board should be taken to have decided to remit the whole of the additional tax. That argument relied on the circumstance that there was no evidence before the Board that the share trading partnership's alleged loss had in fact occurred. It followed that the taxpayer's claimed share of the loss ($50,003) was similarly unproved. The transcript of evidence before the Board was not before me but in that part of the chairman's reasons in the associated reference that was in evidence here he so held. Counsel for the taxpayer did not contest that here.
It was then argued for the Commissioner that in deciding upon a total remission the Board was wrong to take into account the purported withdrawal of the taxpayer's claim for a partnership loss without taking into account all the surrounding circumstances. These circumstances, it was said, included the fact that the claim had been unfounded. Counsel submitted that the passages from the reasons of the chairman of the Board and Mr. Pape, which I have set out above, show that they subjugated this circumstance and all other relevant matters to the fact that the claimed loss had not been persisted in at the time of the assessment. The reality, counsel said, was that the so-called withdrawal of the claim had only happened because the taxpayer realised that the Commissioner had found him out. In those circumstances, it was said, any veneer of moral virtue lost its bloom. Further, it was argued, the consideration that the revenue had not been put at risk, which appears to have weighed with the chairman, was not a valid consideration: sec. 226 can operate in cases where there might be no loss to the revenue as, for example, where no tax is payable in the year in question.
While these submissions, critical of the Board's approach to the question of remissions, were made in this Court, it is notable that no submissions for the Commissioner on the question of remissions were made before the Board. Furthermore, even in this Court counsel for the Commissioner did not suggest that the facts could not have sustained a case for total remission of additional tax by the Board.
I do not consider that the Board was wrong to take the letter of 17 January 1979 into account when deciding to remit. Indeed counsel for the Commissioner stopped short of saying that it was. Rather, he said that the Board appeared, in giving weight to it, to have ignored the circumstances in which the letter was written and to have concluded that, because the revenue was not ultimately put at risk, a total remission was justified. I do not think the Board can have been wrong to have taken into account the fact that the revenue was not, in the end, put at risk. Nor, in my opinion, does it appear that the Board relied on that matter in isolation from the surrounding circumstances. Certainly the reasons of the Chairman and of Mr. Pape upon the matter of remission, were succinct, but I do not conclude from them that they ignored the circumstances in which the taxpayer made his claim for a partnership loss and then purported to withdraw it. The mere fact that the reasons do not, in the passages quoted above, specifically say that their authors took these circumstances into account in forming a view on the question of remission does not lead to a conclusion that they passed them by.
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In
Yendall v. Smith Mitchell & Co. Ltd. (1953) V.L.R. 369 at p. 379, Sholl J. was concerned, in reviewing a decision of a magistrate, to ascertain whether the decision was vitiated for failure to take into account relevant matters that had not been specifically mentioned by the magistrate in his reasons for his decision. His Honour declined to conclude that ``non-reference'' in the magistrate's expressed reasons ``necessarily meant non-consideration''. The principle which his Honour applied is, I think, of some assistance here. He said (and I include an emendation which his Honour formulated):
``The true principle, I think, must be, not that everything relevant which a magistrate does not refer to is to be taken to have been overlooked, or on the other hand, that it is to be taken to have been considered but that, if something which should have been considered is not referred to, and the nature of the decision suggests some error, which may have been due to the matter not having been considered as it should have been, or if the magistrate's observations indicate, on a comparison of what he said with what he did not say, that the matter in question has not been considered as it should have been, the appellate tribunal may properly draw that inference, and the magistrate will have no cause to complain if it does so.''
This passage can, I think, usefully be borne in mind upon a consideration of the validity of the exercise of the Board's discretion to remit. Of course the test posed by Sholl J. can be no more than a useful pointer here, for the obligation of magistrates and Boards of Review to provide reasons for their decisions are not equivalent. A Board of Review is required by sec. 195 of the Act on request to state in writing its findings of fact and its reasons in law for its decision. A magistrate, while he ought generally to give reasons for his decision, has no such statutory obligation. One might expect, therefore, that a Board's prepared written reasons would commonly be fuller and more explicit than those of a magistrate. If the Board does not, following an appropriate request, state its reasons adequately to enable a proper understanding to be had of the basis, for example, for an exercise of its discretion, its decision is likely to be ruled invalid: cf.
Pettitt v. Dunkley (1971) 1 N.S.W.L.R. 376 at p. 382; and see, e.g.,
Brittingham v. Williams (1932) V.L.R. 237.
In this case the members of the Board set out in their reasons all the relevant facts and the discretion to remit appears to me to have been exercised against the background of the whole of them. In fact the Chairman, in forming a view of the taxpayer's desserts, seems to have considered the moral obliquity of his conduct. In the passage of his reasons which I have last set out he talked in terms of punishment of an offending taxpayer, having regard to his intent. Moreover, in a passage to which I have not so far referred the Chairman noticed a submission of counsel for the taxpayer ``that a penalty of 50% of the tax was disproportionate in relation to the `offence' in the light of the published guidelines concerning penalties''. Insofar as the criticism levelled at the Board alleges a failure to consider all relevant matters, and in particular the circumstances of the making of the claim for the partnership loss and its purported withdrawal, I am not ultimately persuaded that it is justified. I reach my conclusion the more readily because of the relatively unspecific nature of the criticism and because counsel for the Commissioner before the Board made no attempt to direct the Board's attention to any particular matter which it ought to have considered. The validity of the Commissioner's present complaint is to be evaluated in that light.
I am not required to pass upon the intrinsic correctness of the Board's decision to remit but upon its validity. For the reasons I have expressed I do not conclude that the decision was invalid. The appeal therefore fails and I dismiss it with costs.
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