Deputy Federal Commissioner of Taxation v. Truhold Benefit Pty. Ltd.
Judges:Shepherdson J
Court:
Supreme Court of Queensland
Shepherdson J.
This is an application by the plaintiff for summary judgment against the defendant.
By its specially endorsed writ dated 22 August 1984 the plaintiff has claimed from the defendant as trustee for the Maher Family Trust the sum of $10,674,033.12 being a debt claimed to be due by the defendant to the Queen on behalf of the Commonwealth of Australia and payable to and recoverable by the plaintiff under and in pursuance of the provisions of the Income Tax Assessment Act 1936.
The debt claimed consists of income tax assessed and additional tax claimed by virtue of the said Act including additional tax in consequence of alleged failure by the defendant to pay the amounts of tax within the times prescribed by the Act.
Before turning to the substantive arguments I will state my reasons for having allowed the applicant to read on the hearing the several affidavits of Mervyn Robert Murphy, Terence Neil Betts and Leonard Francis Talty each sworn on 8 October 1984.
The summons seeking judgment was filed on 25 September 1984 after the defendant had delivered its defence and counter-claim on 10 September 1984. That defence alleged, inter alia, that part of the debt claimed was not due because of an alleged extension of time for payment within the meaning of sec. 206 of the Income Tax Assessment Act having been granted on 25 November 1981. The principal affidavit supporting the summons was sworn by Mr. James Ernest Scanlan the Deputy Commissioner of Taxation at Brisbane.
In para. 12, Mr. Scanlan relied on hearsay evidence from Mr. M.R. Murphy dealing with the alleged extension of time for payment. Mr. Scanlan was entitled to rely on hearsay: O. 18 r. 2(2). He referred to a conversation between Mr. Murphy and a Mr. Bruce Martin tax agent for the defendant.
On Friday 5 October 1984 - the judgment summons was to be heard on Monday 8 October 1984 - the defendant's solicitors served on the plaintiff's solicitors an affidavit by Mr. Paul John Rogers the solicitor for the defendant. Mr. Rogers in his affidavit relied on hearsay evidence from Mr. Martin as to a telephone conversation between Messrs. Martin and Murphy and another telephone conversation between Messrs. Martin and Betts - all apparently relating to the alleged agreement.
It was after this affidavit was received that the plaintiff obtained the affidavits of Messrs. Murphy and Betts. Under O. 18 r. 2(3) I have a discretion to permit further evidence by affidavit or otherwise to be given on behalf of the plaintiff on the hearing of the application for summary judgment. It seemed to me to be only fair to allow the plaintiff to read the affidavits of Messrs. Murphy and Betts and I did so in the exercise of that discretion.
Mr. Talty's affidavit was directed to answering an allegation of a different matter which was contained in Mr. Rogers' affidavit. I allowed it in exercise of the same discretion.
The defendant's counsel, Mr. Pincus Q.C., submitted that for a number of reasons I should refuse to order a summary final judgment and he relied on the statement of the High Court in its joint judgment in
Fancourt v. Mercantile Credits Ltd. (1983) 57 A.L.J.R. 621 at p. 626 in which the Court said:
``The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried.''
In order to better understand the submissions made by both sides I shall say something of the plaintiff's claim and its bases.
The plaintiff claims to have assessed the defendant to income tax in respect of the years ended 30 June 1976, 1977, 1978 and 1979.
The assessments relied on before me were allegedly made under sec. 99 or 99A of the Income Tax Assessment Act 1936.
These assessments and the claims in the writ in respect of each were:
It will be seen that in respect of the years 1976, 1977 and 1978 the assessments were issued under sec. 99 and in respect of the 1979 year the assessment was issued under sec. 99A.
The 1976 and 1979 assessments were directed to ``The Maher Family Trust care of Ernst & Whinney Box H216 Australia Square Sydney 2000''.
The 1977 and 1978 assessments were directed to ``The trustee for the Maher Family Trust'' care of the same address as in 1976 and 1979.
The copies of the notices of the above assessments on which the plaintiff relied before me were each certified under the hand of Mr. J.E. Scanlan the Deputy Commissioner of Taxation at Brisbane pursuant to sec. 177 of the Income Tax Assessment Act 1936.
The plaintiff also relied on a certificate by Mr. Scanlan pursuant to reg. 53 of the Income Tax Regulations which document certified that:
``(a) TRUHOLD BENEFIT PTY. LTD. as Trustee for the Maher Family Trust of `Marian Hall', 7 Elliott Street, Bundall in the State of Queensland, is and was during the years ended on the Thirtieth day of June 1976, 1977, 1978 and 1979, a taxpayer within the meaning of sec. 6 of the above Act.
(b) Assessments of Income Tax for the years ended on the Thirtieth day of June 1976, 1977, 1978 and 1979 were duly made against the said TRUHOLD BENEFIT PTY. LTD. as Trustee for the Maher Family Trust.
(c) The particulars of the relevant assessments for the years of income ended on the Thirtieth day of June 1976, 1977, 1978 and 1979 are as stated in the certified copies of the Notices of Assessment annexed hereto and marked with the letters `C', `D', `E' and `F' respectively.
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(d) Notice of the said Assessments of Income Tax for the years ended on the Thirtieth day of June 1976, 1977, 1978 and 1979 annexed hereto and marked with the letters `C', `D', `E' and `F' were duly served upon the said TRUHOLD BENEFIT PTY. LTD. as Trustee for the Maher Family Trust by posting the respective notices on the 2 October 1981 (with respect to the 1977 and 1978 years of income) and 25 June 1984 (with respect to the 1976 and 1979 years of income) and respectively by prepaid letters post addressed to it and its address for service.
(e) An amount of $10,674,033.12 is at the date hereof due by the said TRUHOLD BENEFIT PTY. LTD. as Trustee for the Maher Family Trust to Her Majesty the Queen on behalf of the Commonwealth of Australia for Income Tax and Additional Tax for the years ended on the Thirtieth day of June 1976, 1977, 1978 and 1979.''
The affidavit of Mr. Scanlan read before me discloses:
- (a) That in respect of the 1976 and 1979 assessments objections were lodged and disallowed but there has been no request for reference to a Board of Review.
- (b) That in respect of the 1977 and 1978 assessments objections have been disallowed, referred to a Board of Review but not yet determined by the Board.
Before the judgment summons was filed the defendant had, as I have already pointed out, delivered a defence and counter-claim. The plaintiff placed a copy of that pleading before me. The defence referred to the plaintiff having on 2 October 1981 and 28 September 1983 purported to assess the defendant to tax upon part of the income of the Maher family trust to which certain named beneficiaries were entitled in the years ended 30 June 1976, 1977, 1978 and 1979.
Mr. Scanlan in his affidavit referred to assessments having been issued under sec. 98 for those years. He swore that the sec. 98 assessments were issued because the plaintiff wished to preserve his position in the event that it was ultimately held in the relevant proceedings that the assessments under sec. 99 (or sec. 99A of 1979) were not properly issued and that as yet that question has not been determined in such proceedings adversely to the plaintiff.
These sec. 98 assessments referred to by Mr. Scanlan are the ones referred to in the defence.
The defendant's material before me were two affidavits by its solicitor Mr. Rogers and exhibits thereto.
Mr. Rogers' affidavit sworn on 5 October 1984 exhibited true copies of a number of those assessments made under sec. 98. It also appears from that affidavit that one assessment issued on 2 October 1981 for the income year ended 30 June 1979 was addressed to Theresa M. Maher and issued pursuant to sec. 97 of the Income Tax Assessment Act.
It does seem that the above statement in Mr. Scanlan's affidavit has to be qualified so that the assessments in question refer to both sec. 97 and 98.
Mr. Rogers' affidavit sworn on 8 October 1984 exhibited a number of photocopy and originals of those assessments.
I shall now turn to the defendant's submissions.
1. The extension of time point
The defendant's material alleges that the tax now sued for under the 1977 and 1978 assessments and part of the 1979 assessments is not now due because on 25 November 1981 the plaintiff had granted an extension of time for payment and agreed that no action for recovery of tax be taken until objections lodged against those assessments had been disposed of and subsequent appeals determined. The defendant relies on sec. 206 of the Income Tax Assessment Act.
The agreement for extension is alleged to have been made between a Mr. Bruce Martin of the firm of Ernst & Whinney and Messrs. Murphy and Betts of the Australian Taxation Office in Brisbane. Messrs. Murphy and Betts deny any such agreement. There is thus a clear triable issue on this matter.
Mr. Jackson Q.C. has submitted that if there were such an agreement it could not relate to the 1979 assessment now sued on because that assessment issued on 25 June 1984. He was also critical of the absence of an affidavit from Mr. Martin but of course the defendant can, as it did here, rely on hearsay evidence provided the source of the information is stated. Thus, in relation to the sums claimed for 1977 and 1978 I would give unconditional leave to defend.
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2. The sec. 177 point
Mr. Jackson for the plaintiff submitted that the certified copy notices of assessment under the hand of Mr. Scanlan on which the plaintiff relied were conclusive evidence of the due making of the assessments and that the amounts and all particulars of the assessments are correct: sec. 177(1) of the Income Tax Assessment Act 1936.
He further submitted that in accordance with the decision of the High Court in
F.J. Bloemen Pty. Ltd. v. F.C. of T. 81 ATC 4280; (1981) 147 C.L.R. 360 and the construction which that decision placed on sec. 177(1) the defendant cannot, other than in proceedings on appeal against the assessments, challenge the assessments on any ground. He relied on the following passage at ATC p. 4288; C.L.R. p. 375 in the joint judgment of Mason and Wilson JJ. (with whom Stephen and Aickin JJ. agreed):
``An explicit and, in our view, correct statement of the effect of sec. 177(1) was made by Taylor J. in
McAndrew v. F.C. of T. (1956) 98 C.L.R. 263 at pp. 281-282. For the reasons there expressed his Honour concluded that `sec. 177(1) was intended to make it impossible for a taxpayer, in proceedings other than appeal against it, to challenge an assessment on any ground'. He conceded that the word `excessive' in sec. 190(b) was inappropriate. However, he considered that an assessment `made in purported but not justifiable exercise of a statutory power' could properly be described as `excessive' at p. 282.This interpretation gives expression to the policy which underlies, and is manifest in, the statutory provisions. The effect of this policy is that, once the Commissioner takes advantage of sec. 177(1) by producing an appropriate document, the taxpayer is precluded from contesting that the Commissioner has made an assessment or that in making the assessment he has complied with the statutory formalities. The taxpayer is entitled to dispute his substantive liability to tax in proceedings under Pt. V.
Although sec. 190(b) places the onus on a taxpayer upon a reference or appeal of proving that the assessment is excessive, it enables him to contest his substantive liability to tax. It is then for the Board upon a reference or the Court on an appeal, within the framework of the taxpayer's objection, to ascertain whether he is liable to tax and, if so, in what amount. The Pt. V procedures accordingly protect the taxpayer and enable him to have his liability to tax determined.''
Mr. Jackson also relied on the following passage in the judgment of Murphy J. at ATC p. 4290; C.L.R. p. 379:
``Section 177(1) operates so that production of a notice or document purporting to be a copy of a notice of assessment is conclusive evidence of due making and so prevents an enquiry directed to establishing that there has been no assessment. Such production prevents any challenge to the fact, validity or correctness of an assessment, except in proceedings on appeal, when the correctness only of the assessment can be challenged. Part V provides an elaborate scheme (of objections and appeals) for questioning and establishing whether the assessment is excessive.''
The defendant in its defence has alleged:
- 1. That in purporting to make and issue the assessments relied on the plaintiff was guilty of misfeasance.
- 2. That in issuing the purported notices of assessment relied on the plaintiff was guilty of bad faith.
Mr. Jackson submitted that as a matter of law the decision in Bloemen's case precluded the defendant from raising such defences. However, Mr. Pincus submitted that the case before me was not covered by the decision in Bloemen. He submitted that in the matter before me the heart of the problem is to be found in the assessments made by the plaintiff for the 1976 and 1979 years and in using the word ``assessment'' I include assessments made under sec. 97, 98, 99 and 99A.
It seemed to be not in dispute that the assessments made for each of those years was in respect of the same income and this is an important aspect of the matter.
The earlier assessments for 1976 were made under sec. 98 and the later assessment - the one sued on - was made under sec. 99.
The earlier assessments for 1979 were made under sec. 97 and 98 and the later assessment - the one sued on - was made under sec. 99A.
Section 97 deals with the calculation of assessable income of a beneficiary of a trust estate who is not under any legal disability and
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is presently entitled to a share of the income of the trust estate.Section 98 deals with the case where a beneficiary of a trust estate who is under a legal disability is presently entitled to a share of the income of the trust estate.
Section 99 which is headed ``certain trust income to be taxed as income of an individual'' is expressed to apply in relation to a trust estate in relation to a year of income only if sec. 99A does not apply in relation to that trust estate in relation to that year of income.
Section 99A which is headed ``certain trust income to be taxed at a special rate'' does not apply to the trust estates therein named if the Commissioner forms the opinion that it would be unreasonable that that section should apply to that trust estate in relation to a particular year of income.
Mr. Pincus submitted that the assessments under sec. 99 and 99A can only apply to the income if sec. 97 and 98 do not apply to that same income. He submitted that it is a condition of the right to assess under sec. 99 and under sec. 99A that the relevant income has not been assessed under sec. 97 or 98 and that on the material before me it appeared that that condition had not been satisfied.
Mr. Pincus relies on subsec. 99(2) and 99A(4). Subsection 99(2) (so far as material) provides:
``99(2) Where there is no part of a net income of a resident trust estate -
- (a) that is included in the assessable income of a beneficiary of the trust estate in pursuance of section 97;
- (b) in respect of which the trustee of the trust estate is assessed and liable to pay tax in pursuance of section 98;
- ...
the trustee shall be assessed and is liable to pay tax on the net income of the trust estate as if it were the income of an individual who was a resident and were not subject to any deduction.''
Section 99A(4) (so far as material) provides:
``(4) Where there is no part of the net income of a resident trust estate -
- (a) that is included in the assessable income of a beneficiary of the trust estate in pursuance of section 97;
- (b) in respect of which the trustee of the trust estate is assessed and liable to pay tax in pursuance of section 98;
- ...
the trustee shall be assessed and is liable to pay tax on the net income of the trust estate at the rate declared by the Parliament for the purposes of this section.''
Mr. Pincus submits that sec. 177(1) should be interpreted ``so as to permit the taxpayer to challenge the existence of the conditions giving rise to the existence of a power which imposes on him a new substantive liability to tax''.
He distinguishes Bloemen's case because the Commissioner has chosen to issue two assessments which he says are in substance mutually contradictory. He points for example to the 1979 year and says that it is clear that the two assessments cannot both be correct. He submits that Bloemen's case did not deal with this question - the possibility of two mutually contradictory pieces of conclusive evidence.
In reply to these arguments, Mr. Jackson has submitted that the making of an assessment albeit wrongly under sec. 98 does not deprive the Commissioner of the power to assess correctly under sec. 99 nor, he says, when a notice of assessment is produced under sec. 177 in respect of a sec. 99 assessment is the force of sec. 177 diminished in respect of that assessment by saying that there was an earlier assessment under sec. 98. He submits the short fact is that one has two notices of assessment, each having the force under sec. 177 but only one of them being sued on.
On this point in the argument I am not persuaded that, despite the plaintiff's election to sue on the sec. 99 and 99A assessments the matter is so clear that I should give summary judgment. As matters stand, if the plaintiff later chose to sue to recover tax on the sec. 97 and 98 assessments - there is no suggestion that they are not current - the defendants named in those assessments would, if Bloemen's case were applied, be unable to challenge the Commissioner's bona fides. I cannot believe that in the case where there are current two mutually contradictory assessments in respect of the same assessable income, sec. 177(1) must be construed according to Bloemen. Mr. Pincus' argument raises a serious and difficult point of law and on this point which I have called the sec. 177 point the defendant ought to be given
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unconditional leave to defend:Theseus Exploration N.L. v. Foyster (1972) 126 C.L.R. 507.
Thus far it would be enough for me to conclude this judgment and give the defendant unconditional leave to defend. There were however other matters raised and in deference to counsel and because of the arguments I will deal with them.
3. The application to the Federal Court
This concerns all four years. On 5 October 1984 the defendant caused to be filed in the registry of the Federal Court of Australia at Brisbane an application for an order to review certain decisions of the plaintiff. A copy of that application shows that the application was in two parts:
- (a) for a declaration that the present plaintiff on or about 25 November 1981 gave an extension of time in relation to the assessments for the years ended 30 June 1977 and 1978;
- (b) for a review of a number of decisions including the decision to issue the writ in the matter now before me.
This application was not heard at the time I reserved my decision on the current matter. It was to be heard on 10 October 1984. It has come before Spender J. in the Federal Court at Brisbane and I have been furnished with a copy of the transcript of orders which he then made. In summary his Honour ordered that an objection to competency be filed by a certain date and thereafter affidavits and other steps preliminary to trial should be taken.
The application to the Federal Court is made under the Administrative Decisions (Judicial Review) Act 1977. By sec. 3 of that Act ``Court'' means the Federal Court of Australia.
The application has been made under sec. 5 of that Act, the defendant claiming to be a person aggrieved by a decision to which that Act applies made after the commencement of the Act.
It is unnecessary to go further to the definition sections in the Act because before me the plaintiff accepts, for the purpose of the proceedings before me, that the decisions referred to in the defendant's application to the Federal Court are ``decisions to which this Act applies'' within sec. 3 of the Administrative Decisions (Judicial Review) Act 1977.
Mr. Pincus has relied on sec. 9(1) of that Act which so far as material provides:
``9(1) Notwithstanding anything contained in any Act other than this Act, a Court of a State does not have jurisdiction to review -
- (a) a decision to which this section applies that is made after the commencement of this Act...''
Subsection 9(2) contains certain definitions for the purpose of sec. 9. These definitions include ``review'' to which I shall later refer.
In the matter before me it is clear that I have no power to enter on a review of the decisions which are referred to in the defendant's application to the Federal Court. What the outcome of that review will be one cannot of course say. Mr. Jackson has put forward a number of submissions directed towards showing that it is impossible to say that the Federal Court will enter into any consideration of the questions relating to the extension of time for payment of the 1977 and 1978 assessments - the application in respect of that decision is out of time.
As to the review of the decision to institute the action before me, Mr. Jackson has referred to a decision of Beach J. in the Supreme Court of Victoria in
D.F.C. of T. v. The Hell's Angels Ltd. (No. 1) 84 ATC 4545.
The reality of Mr. Pincus' submissions on this point is as I understand it this - there is an application to the Federal Court for review under the Administrative Decisions (Judicial Review) Act 1977 and that application deals with matters which that Court has exclusive jurisdiction to entertain; but as I am really concerned with deciding whether or not the defendant has shown cause why judgment should not be entered against it in the action before me, I should, because the application to the Federal Court concerns a review of the decision to commence the very action before me and because such a review may favour the defendant, decline to give judgment in favour of the plaintiff.
In my view such a submission cannot be adopted. It is a submission of general application. To accede to it would effectively bar the progress of an action by the plaintiff to recover tax due (sec. 204 and 201 of the Income Tax Assessment Act) by a taxpayer, such action having been brought in a Court of competent
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jurisdiction. I do not consider that recalcitrant taxpayers are to be provided with an Alsatia in the guise of an application for a review under the above Act of a decision to sue for recovery of tax.One must not overlook the power of the Federal Court on such an application to ``review'' - that includes the granting of an injunction, a power exclusively that of the Federal Court and not this Court (see sec. 9). I see no reason why the State Court's powers should be curbed by the prospect that the Federal Court may at some stage in the future grant such a review.
4. Deficiencies in the affidavit
Mr. Pincus argued (rather faintly I thought) some technical objections to Mr. Scanlan's affidavit in support of the application for summary judgment. He submitted that it did not verify the facts of which the claim is based: see O. 18 r. 1(1). He was particularly critical of para. 5 in that affidavit which read:
``5. The abovenamed defendant is justly and truly indebted to the Queen on behalf of the Commonwealth of Australia in the sum of Ten Million Six Hundred and Seventy-four Thousand and Thirty-three Dollars and twelve cents ($10,674,033.12) as set out in the statement of claim endorsed on the writ herein.''
However, Mr. Jackson correctly pointed out that elsewhere in the affidavit Mr. Scanlan had in para. 9 and 10 detailed the chronological history of each assessment. Further there was Mr. Scanlan's certificate under reg. 53 which is prima facie evidence of the facts stated in the certificate. I have already set out the contents of that document. Mr. Jackson also relied on the copies of the notices of assessment signed by Mr. Scanlan to which I have already referred.
On this alleged deficiencies point alone I should not have been prepared to dismiss the summons.
5. The notices of assessment
Mr. Pincus submitted that the 1976 and 1979 assessments on which the plaintiff has sued are invalid. Each is addressed to ``The Maher Family Trust''. Mr. Pincus relied on sec. 166 of the Income Tax Assessment Act 1936 which provides:
``166. From the returns, and from any other information in his possession, or from any one or more of these sources, the Commissioner shall make an assessment of the amount of the taxable income of any taxpayer, and of the tax payable thereon.''
This section, he said, empowered the Commissioner to issue assessments only to a taxpayer. These assessments were he said to a trust, the Maher Family Trust and that trust was not a taxpayer. Mr. Pincus referred to the definition of ``taxpayer'' - ``means a person deriving income'': sec. 6. He submitted that a trust was not a legal entity and referred to Principles of the Law of Trusts by Ford and Lee at p. 39 where the authors say:
``... when a trust is created it is not accorded legal personality. The trust is no more than a collection of duties, disabilities, rights and powers in relation to some specific property imposed upon or accorded to an existing legal person, the trustee.''
As Mr. Pincus pointed out the Maher Family Trust is a thing quite distinct from the trustee of the same trust. The material shows that indeed it is the defendant who was at the material times a trustee of the Maher Family Trust. The defendant was the taxpayer. The trustee of the trust necessarily earns the income:
Octavo Investments Pty. Ltd. v. Knight (1979) 144 C.L.R. 360 at p. 367.
What the plaintiff seeks to do is to have the Court infer that the assessments were properly issued to a taxpayer. This inference, if it is to be drawn, it seems to be can only be drawn from the file number of each assessment and the fact that it is addressed to the firm of accountants who it may reasonably be supposed could identify the taxpayer concerned. The address of that firm of accountants may well have been the address for service of the taxpayer: see reg. 27 of the Income Tax Regulations. However, here I am guilty of speculation.
The relevant assessments were also issued under sec. 99 and 99A which relate to trust estates. In each of those sections one finds the legislature directing that ``the trustees shall be assessed''. Now quite plainly that was not done in the 1976 and 1979 notices of assessment.
Although Mr. Scanlan's certificate under reg. 53 certifies that the notices of assessment were served by post upon the defendant as trustee of the Maher Family Trust I have difficulty in seeing from the notices of assessment that in each case the plaintiff has made an assessment
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of the taxable income of a taxpayer: see sec. 166. It may be that by the application of reg. 59 of the Income Tax Regulation service of the notice of assessment by prepaid letter post at the address for service is sufficient. However reg. 59 refers to service ``by posting it by prepaid letter post addressed to him at his address for service''. Again, the question is raised - is it addressed to ``a person''.This is a basic point in the plaintiff's case in respect of these two assessments. In its defence, the defendant has put the validity of the notices of assessment in issue. Because, for reasons already given I propose to give unconditional leave to defend I do not express any final view on this point. I will say however that the defendant has raised a serious question of law and one which could have been avoided by a little care and thought at the time of preparation of the notice of assessment.
In the result and for the foregoing reasons I dismiss the summons and give the defendant unconditional leave to defend.
I will hear the parties on costs.
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