Deputy Federal Commissioner of Taxation v. Glastonbury Steel Fabrications Pty. Limited.

Judges:
Needham J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 1 August 1984.

---

Needham J.

There are two proceedings presently before me: one, a summons by the plaintiff, for the winding up of the defendant and secondly, a motion by the defendant seeking a stay of that summons until the appeal under Pt. IV of the Income Tax Assessment Act, 1936 by the defendant against assessment by the plaintiff has been determined. That appeal is due to be heard on 20 August 1984.

On the defendant's application for a stay, evidence was tendered by it seeking to show that there was substance in the case of the defendant on the appeal against the plaintiff's assessment. This evidence was objected to as being inadmissible, and it seemed appropriate to hear submissions on the point, as the substantive nature of the appeal is a ground for the application for a stay. I heard that argument yesterday and reserved my decision until this morning.

There is no doubt that, despite the provisions of sec. 201 of the Income Tax Assessment Act, the Court has a discretion to grant a stay of proceedings where the taxpayer has appealed against a disallowance by the Deputy Commissioner of Taxation of an objection to an assessment:
D.F.C. of T. v. Australian Machinery and Investment Company Pty. Limited (1945) 8 A.T.D. 133 at p. 135;
Marina Estates Pty Ltd. v. F.C. of T. (1948) A.L.J. 219 at p. 220 where the High Court said that a stay of proceedings in such a case was ``A matter peculiarly within the discretion of the primary Judge''.
Re Roma Industries Pty. Ltd. 76 ATC 4113, and
Clyne v. D.F.C. of T. (1956) A.L.J.R. 857 at p. 858.

The question to be resolved is whether, on an application for such a stay, the grounds of the appeal can be considered in order to determine, not whether the appeal will be successful, as that is the question for the Court hearing the appeal, but whether the grounds relied upon by the appellant taxpayer are substantial. This question is to be determined in the context of an application by the Deputy Commissioner of Taxation to wind up the appellant company before the appeal can be heard.

Many cases have been cited to me, but I think that the only one that I need to consider is the decision of the Court of Appeal in
D.F.C. of T. v. Mackey 82 ATC 4571. This case was relied upon by the plaintiff as establishing that in a case such as the present, the Court can not undertake any consideration of the ``merits'' of the appeal. That case was an application by the taxpayer for a stay of proceedings on a judgment obtained by the Deputy Commissioner of Taxation against him in the Common Law Division of this Court. Yeldham J. had granted the stay and the Deputy Commissioner of Taxation had appealed. It will be noted that the taxpayer was a person, and no question of a winding up of a company was involved in the case. The case related to what the Court described as an artificial tax avoidance scheme, and it is apparent that the Court was not ready to

---

ATC 4641

lend its discretionary powers to a taxpayer claiming benefits from such a scheme. The appeal was upheld and both Hutley and Glass JJ.A. expressly agreed with what was said by the President, Moffitt P. The President stated two principles, at p. 4573, as follows:

``Accepting that there is an overall discretion to grant a stay of proceedings and that great weight should be given to sec. 201 and the policy of the legislation implicit in it, I would say two things. The first is that there should not be substituted for the discretion of the Court to grant a stay some general formula dictating the decision to be come to, the formula being extracted from judicial pronouncements in other cases, often cases involving quite different considerations or, for example, a stay of a different remedy, such as a winding-up order.''

His Honour then referred to
Re Roma Industries Pty. Ltd. and Fortuna Holdings Pty. Ltd. & Ors. v. D.F.C. of T. 76 ATC 4312.

In the same statement his Honour said [at p. 4573]:

``An exercise of this discretion which heavily or merely depends on whether the taxpayer has an arguable case and where the balance of convenience lies may point to sec. 201 not really being given the force warranted.''

His Honour continued:

``There appears to be some difficulty involved in this Court entering or appearing to enter upon the very question which the Board of Review or perhaps the Federal Court will have to determine and make some pronouncement on the very questions raised.''

After a reference to Ilbery's case his Honour said:

``Unless absolutely necessary, it seems to me not appropriate that this Court make pronouncements on whether the taxpayer's case is slender or otherwise or which indicate this Court's view on the matter to be determined by the Board or a Federal Court.''

On the following page (i.e. p. 4574) his Honour added the following:

``It would be too narrow a view to grant a stay of proceedings or execution merely because an appeal is pending or merely because on examination of the pending appeal there appears to be an arguable case, or perhaps there are complex questions involved which the Board of Review or Federal Court can best determine. The policy of sec. 201 is that when an assessment has been made, the Deputy Commissioner has a right to have the tax paid, despite the pendancy of an appeal. While hardship to the taxpayer and the merits of the appeal are relevant matters, other considerations are involved, including the Commissioner's right to have the tax assessed paid. The exercise of discretion may involve, and in my opinion in the present case it requires, some examination of the nature and basis of the liability on which the disputed tax has been assessed and the nature of the dispute.''

Hutley J.A., while agreeing with the views of the President, said [at p. 4575] that:

``... the power to stay under sec. 201''

as he described it,

``should be exercised with great caution and only under special circumstances.''

He also added:

``... that speculation as to the result of appeals is not a significant factor to be borne in mind. This Court should be concerned only with the question of the impact of the assessment upon the particular person concerned and not with what is going to happen in the future to the appeal.''

Where the Court has what has been described as an open ended discretion it is not common for courts to attempt to circumscribe that discretion, whether by its limitation of the matter for consideration or otherwise. This principle is recognised by Moffitt P. in the first passage of his judgment which I have quoted. That passage would, in my opinion, be adequate authority to distinguish the case from the present, particularly as the other Judges agreed with his reasons. But Moffitt P. went further, saying that the merits of the appeal is a relevant matter. Hutley J.A. may have said that it was not a significant factor (presumably in that case) but he did agree with the President who said it was relevant. I find nothing in the decision to preclude me from including in the material relevant to the exercise of my discretion, evidence as to the substantive nature of the grounds of the appeal. The weight to be attributed to such evidence will of course

---

ATC 4642

depend in the long run upon the weight to be given to other matters going to the exercise of the same discretion.

Accordingly, I would admit evidence directed to the establishment of, not the grounds of appeal themselves, but the substantive nature of such grounds.