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Deputy Federal Commissioner of Taxation v. D.T.R. Securities Pty. Limited.

Judges:
Lee J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 20 May 1985.

Lee J.

On 26 July 1984 the Deputy Commissioner of Taxation issued a statement of claim against the defendant claiming income tax and additional tax for the years 1977 to 1980 pursuant to sec. 207 and 226(2) of the Income Tax Assessment Act 1936 in the total sum of $450,524.85 together with additional tax on the sum of $244,952.67 at a rate of 20 per centum per annum till payment or judgment. On 20 November 1984 default judgment was entered in favour of the Commissioner in the sum of $468,372.51. On 11 February 1985 that judgment, by consent, was set aside before Master Sharpe and a judgment, in the sum of $206,324.04 for income tax only, entered also by consent. Thereafter the defendant filed a defence to the remaining amount claimed by the plaintiff which was for recovery of additional tax under the two sections mentioned, the defence being that the action was barred by the Limitation Act 1969, sec. 18.

The Commissioner has stated in these proceedings that the claim for additional tax under sec. 226(1) is not pressed and the parties have agreed that if the plaintiff's claim for additional tax under sec. 207 is not statute barred, there should be judgment for the plaintiff for $132,965.28 but that if sec. 18(1) of the Limitation Act does apply to the claim or any part, then the amount of the judgment should be $93,710.52. The only question for decision then is whether the period of limitation expressed in sec. 18(1) applies to the additional tax claimed by the plaintiff under sec. 207.

Section 207 (in the form in which it relates to these proceedings) - (see the Act as reprinted to 31 December 1979) is to be read with sec. 204 and the two sections are as follows:

``204(1) Subject to the provisions of this Part, any income tax assessed shall be due and payable by the person liable to pay the tax on the date specified in the notice as the date upon which tax is due and payable, not being less than 30 days after the service of the notice, or, if no date is so specified, on the thirtieth day after the service of the notice.

207(1) If any tax remains unpaid after the time when it becomes due and payable, additional tax shall be due and payable at the rate of 10% per annum on the amount unpaid, computed from that time or, where an extension of time has been granted under section 206, from such date as the Commissioner determines, not being a date prior to the date on which the tax was originally due and payable:

Provided that the Commissioner may in any case, for reasons which he thinks sufficient, remit the additional tax or any part thereof.

(2) Notwithstanding anything contained in this section, the Commissioner may sue for recovery of any tax unpaid immediately after the expiry of the time when it becomes due and payable.''

Sections 10 and 11 of the Limitation Act 1969 are as follows:

``10(1) Subject to subsections (3) and (4), this Act Binds the Crown and the Crown has the benefit of this Act.

(2) For the purposes of this Act an action by an officer of the Crown as such or a person acting on behalf of the Crown is an action by the Crown.

(3) This Act does not apply to an action by the Crown -

  • (a) for the recovery of a tax or duty or of interest on a tax or duty; or
  • (b) in respect of the forfeiture of a ship.

(4) This Act does not affect the prerogative right of the Crown to gold and silver.''

Section 11 defines the Crown as follows:

```Crown' includes not only the Crown in right of New South Wales but also, so far as the legislative power of parliament permits, the Crown in all its other capacities.''

Section 18 of the Limitation Act 1969 is as follows:

``(1) An action on a cause of action recover a penalty or forfeiture, or sum by way of penalty or forfeiture, recoverable by virtue of an enactment, is not maintainable if brought after the expiration of a limitation period to two years running from the date on which the cause of action first accrues to the plaintiff or to a person through whom he claims.

(2)In this section `penalty' does not include a fine to which a person is liable on conviction for a criminal offence.''

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Section 63(1) of that Act is follows:

``(1) Subject to subsection (2), on the expiration of a limitation period fixed by or under this Act for a cause of action to recover any debt damages or other money, the right and title of the person formerly having the cause of action to the debt damages or other money is, as against the person against whom the cause of action formerly lay and as against his successors, extinguished.

(2)...''

Two matters arise for consideration, the first being whether the additional tax provided for in sec. 207 is within the expression ``penalty or forfeiture, or sum by way of penalty or forfeiture, recoverable by virtue of an enactment'' in sec. 18(1) and if it is, whether sec. 18 (and sec. 63) operate so as to bind the plaintiff in the proceedings which it has brought in this Court. This lastmentioned matter raises the question whether sec. 64 of the Judiciary Act operates so as to render sec. 18 applicable to the plaintiff in these proceedings, and, of course, if sec. 64 would not operate to apply sec. 18 to the proceedings even if the additional tax under sec. 207 is a penalty, one could, strictly speaking, go directly to the question raised by sec. 64. But both counsel have put their submissions in regard to the nature of the additional tax under sec. 207 and whether it can be regarded as a penalty of the kind dealt with in sec. 18 and, in my view, it is appropriate to deal with each of these matters before considering sec. 64 of the Judiciary Act.

The first matter, namely, whether additional tax under sec. 207 is a penalty within sec. 18(1) of the Limitation Act, requires a consideration of the nature of the ``additional tax'' to which sec. 207 gives rise. This section has not been the subject of express decision in any case considered by the High Court, but consideration has been given by that Court to the operation of sec. 67 of the Act of 1922 and it is appropriate to consider the decisions in regard to that section. Section 226 up until 14 December 1984 (and sec. 222 thereafter - Act No. 123 of 1984) is the successor to sec. 67 of the Act of 1922, sec. 67 having replaced sec. 59 of the 1915 Act. In the case of each of those sections (except sec. 222) the draftsman appended the side note ``Additional tax in certain cases''. Sections 67 and 226 appeared in Pt VII under the heading ``Penal Provisions''.

In
F.C. of T. v. Trautwein (1936) 56 C.L.R. 211, the claim was made that sec. 67 (the predecessor to the present sec. 221) conferred power upon the Commissioner, a non-judicial officer, to inflict a penalty, which power can only be exercised by the Courts as a judicial power, or alternatively it imposed a tax not upon income but upon a subject of taxation different from income, contrary to sec. 55 of the Constitution - sec. 55 provides that laws imposing taxation shall deal only with the imposition of taxation and (except for Customs and Excise laws), with one subject of taxation only. Section 67 of the Income Tax Assessment Act at that time was expressed as follows:

``67(1). Notwithstanding anything contained in the last preceding section, any person who -

  • (a) fails or neglects to duly furnish any return or information as and when required by this Act or the regulations or by the Commissioner; or
  • (b) fails to include any assessable income in any return; or
  • (c) includes in any return as a deduction an amount which is in excess of that actually expended or incurred by him,

shall, if a taxpayer to whom paragraph (a) of this sub-section applies, be liable to pay additional tax at the rate of ten per centum per annum upon the amount of tax assessable to him (such percentage to be calculated for the period commencing on the last day allowed for furnishing the return or information and ending on the day upon which the return or information is furnished or the day upon which the assessment is made, whichever first happens), or the sum of One pound, whichever is the greater, or, if a taxpayer to whom paragraph (b) or (c) of this sub-section applies, shall be liable to pay by way of additional tax the amount of One pound or double the amount of the difference between the tax properly payable and the amount of tax previously assessed to be paid by the taxpayer, or, if no amount of tax has previously been assessed, the amount of tax that would be payable by him if he were assessed for tax upon the basis of the return furnished by him, whichever is

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the greater, in addition to any additional tax which may become payable by him in accordance with section fifty-six of this Act:

  • Provided that the Commissioner may, in any particular case, for reasons which he thinks sufficient, remit the additional tax or any part thereof.

(2). If the Commissioner considers that the circumstances of any case warrant action being taken to recover the penalty provided by the last preceding section or by section sixty-eight or sixty-nine of this Act, such action may be taken by the Commissioner, and in that case the additional tax payable under this section shall not be charged.''

Evatt J. held that it was not the Commissioner who imposed the penalty, it was the Act itself. The power of the Commissioner was the power to remit, and that was an executive function, not a judicial function. Evatt J. (at p. 217) went on to hold that the section is:

``... clearly a penal provision. The mention of the £1 in sec. 67 ensures a minimum penalty and the full liability is dependent upon the extent to which the taxpayer's return, when sent in, was inaccurate. Sec. 55 was never intended to prevent the inclusion of incidental penal provisions in the Assessment Acts. Such provisions are an essential part of any income tax system and have always been recognized as essential in Australia and elsewhere.''

In
Re Dymond (1958-1959) 101 C.L.R. 11, the Court considered sec. 46 of the Sales Tax Assessment Act (No. 2) 1930-1936 which provided that a person who failed to furnish a return or information or particulars of goods as required by the Act should be liable (at pp. 18-19):

``... to pay additional tax at the rate of ten per centum per annum upon the amount of tax assessable to him... or the sum of One pound, whichever is the greater, or... the amount of One pound or double the amount of the difference between the tax properly payable and the tax payable upon the basis of the return lodged, whichever is the greater: Provided that the Commissioner may, in any particular case, for reasons which he thinks sufficient, remit the additional tax or any part thereof.''

At pp. 21-22 Fullagar J. said:

``It is true that the amount payable under sec. 10(2B) or sec. 46, whether it be the sum of £1 or a larger sum, is expressed to be payable `by way of additional tax'. And in
Richardson v. Federal Commissioner of Taxation (1932) 48 C.L.R. 192, this Court, dealing with the similar provision in sec. 67 of the Income Tax Assessment Act 1922-1930, held that (to use the words of Dixon J.) `... the procedure of assessment, objection, review and appeal does apply to additional tax under sec. 67' (1932) 48 C.L.R. at pp. 204-205. But all this is matter of machinery, the appropriateness of which is indicated by the words `by way of additional tax'. It does not affect the penal nature of the liability imposed. As Evatt J. said in Richardson's case (1932) 48 C.L.R. 192: `But sec. 67 is a penal provision, as is indicated by the heading to Pt. VII, and the amount of liability therein specified is an amount in the nature of a penalty. The liability is not to pay `additional tax' but to pay an amount `by way of' additional tax' (at p. 214).''

Fullagar J. went on:

``The words `by way of additional tax' mean, I think, no more than that the amount of the penalty (to the extent to which it is not remitted) is to be notified, like the tax itself, by a notice of assessment, so that the quantified penalty and the quantified tax are, subject to the right of objection and appeal, made actually payable by the same machinery. The liability is imposed by the Act not as a consequence of a sale of goods but as a consequence of an attempt to evade payment of a tax on a sale of goods. The exaction is directly punitive, and only indirectly fiscal. It is imposed for the protection of the revenue, but as a sanction and not for the sake of revenue as such. It is not a tax on the sale of goods, and it is not a tax on anything else.''

Section 226(1) uses the words ``as additional tax'' but as Fullagar J. has pointed out such words do not bear upon the penal nature of the provision.

Turning to sec. 207, it is firstly to be observed that the side note to its predecessors, sec. 43 in the 1915 Income Tax Act and sec. 56 in the 1922 Act, was ``Penal Tax'' and the side

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note to the present section is ``Penalty for Unpaid Tax''. In the case of sec. 207, unlike the case of sec. 226 and the sections which went before it, the assessment has already issued and the payment of tax at 10 per cent (the rate is now 20 per cent) is automatic once the time stipulated in the assessment for its payment has passed, or the time fixed by the Commissioner, where an extension of time is granted, has passed. Section 226 provides and its predecessor, sec. 67, provided for a minimum amount of $2 and £1 respectively to be paid and no such provision, it will be noted, is to be found in sec. 207, but this is not a distinction with any significance from the point of view of determining whether sec. 207 is to be considered a penalty, as is the ``additional tax'' dealt with under sec. 226. The mention of a minimum amount in sec. 226 and sec. 67 ensures, as Evatt J. pointed out in the passage I have quoted earlier, from his judgment in F.C. of T. v. Trautwein, a minimum penalty whereas the need for such a provision under sec. 207 does not arise; if there is any tax, however small, remaining unpaid, it would, at the rate of 10 per cent per annum, produce the payment which the section contemplates shall be paid. Counsel for the Commissioner sought to contend that sec. 207 was no more than a section designed to produce interest on income tax after it fell due, so as to compensate the Commissioner for the non-payment, and that accordingly it was both constitutionally proper and lacked any penal import but I am not prepared to give the section this interpretation. In this regard I am wholly in accord with the opinion expressed by Smith J. in
D.F.C. of T. v. Carpenter (1959) V.R. 470 at p. 473, when that learned Judge said:

``Whether the additional tax claimed under sec. 207 is a `penalty' within the meaning of r. 4 is not so clear, but the better view appears to me to be that it is.

It is not called interest in sec. 207 and the rate of ten per cent per annum at which it is imposed is higher than would be appropriate if the intention were merely to compensate the Commissioner for delay in payment. This points to an intention to enforce the due performance of the obligation to pay tax. This interpretation is confirmed, as it seems to me, by the provisions of sec. 207 empowering the Commissioner to remit the additional tax, or any part of it, and to postpone the date from which the additional tax under sec. 207 is to be computed. Moreover, professional and expert opinions favour the view that the provision is penal. In Gunn's `Commonwealth Income Tax Law and Practice' (3rd ed.), sec. 2195, it is referred to as a `penalty for unpaid tax'; and in the form of notice of assessment for the income year ending 30th June 1957 it is called `late payment penalty'.''

Whilst it can undoubtedly be said that the rate of 10 per cent per annum stipulated in the section has been, for some years, not in excess of commercial rates of interest (indeed it has lagged behind commercial rates at times), the fact that that rate has applied since it was first introduced into the Act in 1922 leaves no doubt as to its penal purpose. The rate applicable at the present time is 20 per cent (Act No. 123 of 1982). In the result then, I am of the opinion that the additional tax provided for in sec. 207 is penal in its nature.

The next question for consideration is whether the additional tax is the kind of ``penalty'' dealt with in sec. 18(1) of the Limitation Act so as to be within the words ``a penalty or sum by way of penalty''. By virtue of subsec. (2), ``penalty'' in subsec. (1) does not include a fine to which a person is liable on conviction for a criminal offence. The cause of action to which the section refers is one which had its origin in statutes which enabled action to be taken for recovery of penalties as for civil debts. In
Atcheson v. Everitt (1776) 1 Cowp. 382 Lord Mansfield said:

``Now there is no distinction better known, than the distinction between civil and criminal law; or between criminal prosecutions and civil actions.

Mr Justice Blackstone, and all modern and ancient writers upon the subject, distinguish between them. Penal actions were never yet put under the head of criminal law, or crimes.''

He went on to say in respect of the matter before the Court which was for the recovery of a penalty payable under a statute:

``It is as much a civil action, as an action for money had and received...

No authority whatever has been mentioned on the other side, nor any case cited where it has been held that a penal action is a

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criminal case; and perhaps the point was never before doubted.''

The distinction between statutes creating criminal offences and statutes giving rise to penalties, in the true sense, was referred to in
St Helens District Tramways Co. v. Wood (1891) L.J. Q.B.N.S. 141 at p. 143, where Day J. said:

``No doubt if an Act of Parliament prohibits any act and says no more then any person doing that act commits a misdemeanour. In my judgment, no sort of crime has been created by this statute. The appellants are simply responsible in Ten pounds for the act of their servant.''

See also
Newman & Ors v. Jones (1886) 55 L.J. Q.B.N.S. 113 at p. 115 In
Huntington v. Attrill (1893) A.C. 150, the Privy Council referred to the distinction between civil rights and criminal wrongs and the equivocal meaning of the word ``penal''. It pointed out that the word can refer to violations of public law and order which are unmistakenly of a criminal complexion and went on:

``But the expressions `penal' and `penalty', when employed without any qualification, express or implied, are calculated to mislead, because they are capable of being construed so as to extend the rule (which prevents one country from executing the penal laws of another) to all proceedings for the recovery of penalties, whether exigible by the State in the interest of the community or by private persons in their own interest.''

The nature of the action for a penalty was dealt with in
Brown v. Allweather Mechanical Grouting Co. Ltd. (1953) 1 All E.R. 474. That case concerned the use of a road vehicle licensed as a goods vehicle for a purpose in respect of which a higher rate of duty than was in fact paid should have been paid, under the Vehicles (Excise) Act 1949, sec. 13(2). An excise penalty of £20, or an excise penalty equal to three times the amount of the duty chargeable, became payable under the Act for the breach. It was held that the section did not create an offence punishable on summary conviction, but merely rendered an offender liable to an excise penalty recoverable on complaint laid before justices. At p. 476 Lord Goddard C.J. said:

``Years ago, under the old statutes, a debt created by a statute was regarded as a specialty debt, and for the present purpose a special period of limitation is provided. I do not think the mere fact that the word `offence' is used there shows that it is to be regarded as a criminal offence. A failure to do something prescribed by a statute may be described as an offence although Parliament imposes in respect of it, not a criminal sanction, but a mere pecuniary sanction which is recoverable as a civil debt. Justices, as is well known, have in many cases power to order the recovery of sums of money. If one turns to sec. 65 of the Excise Management Act, 1827, one finds that excise penalties may be recovered before justices of the peace, but there is no indication in the section that the justices are able to imprison or to impose a fine. It simply gives them power to inquire into the matter and give judgment for penalties. Of course, if the penalties are not paid, there may be proceedings under the Debtors Act or other Acts - possibly, under the Summary Jurisdiction Acts - and there may be a committal to prison, but that is not a punishment for the offence itself. It is a punishment for not paying the penalty, or a means of endeavouring to compel a defendant to pay a penalty, which is a different matter.

Passages in the judgment of the Master of the Rolls in
A.G. v. Bradlaugh (1885) 14 Q.B.D. 667, to which counsel for the respondents has directed our attention, support his argument. Sir William Brett, M.R., pointed out (14 Q.B.D. 687) that where a penalty is imposed for doing a particular act, the penalty is the only sanction, and the imposition of the penalty, if it is the only consequence, does not make the prohibited act a crime. It was far more common in earlier days than it is nowadays to prohibit certain acts and to impose as the sanction a penalty which often could be recovered by a common informer. There were many Acts on the statute book till the Common Informers Act, 1951, was passed to abolish that particular form of public nuisance, which provided for the recovery of penalties. A well known class of case was created by the Sunday Observance Act, 1780, under which, if a person promoted a public entertainment or amusement on a Sunday, in certain circumstances he was liable to a penalty for which he could be

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sued, but no one ever said that that was a criminal act. Whether it would be desirable to make these penalties criminal acts, or not, I do not know, nor need I discuss the matter, but, in my opinion, an excise penalty is something quite different from a fine. It is recoverable before justices, and it ought to be recovered by way of complaint.''

The ``penalty'' which is recoverable under the cause of action presently being discussed was, in my view, correctly defined in Limitation of Actions by Preston & Newson, 2nd ed., 60 as ``a sum given by a statute to the person entitled to sue for it, by way of punishment to the defendant and not by way of compensation to the person suing'' and I can see no reason why, if the additional tax under sec. 207 is to be regarded as in its nature penal, as in my view it is, it should not be held to be within the words ``penalty... or sum by way of penalty... recoverable by virtue of an enactment'' in sec. 18(1) of the Limitation Act 1969. Section 209 of the Income Tax Assessment Act (as it applies to the present proceedings) empowers the Commissioner or his Deputy to recover ``tax unpaid'' and this would include ``additional tax payable'' under sec. 207 as well as such tax payable under Div. VII, e.g. sec. 222. (This is now expressly provided for in subsec. (2) of the present sec. 208 and 209.) The additional tax payable under sec. 207 is thus plainly ``recoverable by virtue of an enactment''. Section 18 of the Limitation Act applies to all actions for recovery of penalties whether by the Crown, common informers or ``persons grieved'' replacing as it did 31 Elizabeth Ch. 5 sec. 5 and the Supreme Court Act 1841, sec. 39 which had previously governed the matter in New South Wales and on the footing that the present action is for the recovery of ``a penalty... or sum by way of penalty'', the final question to be considered is whether sec. 18 applies to the plaintiff in the present proceedings. If it does, it will bar the plaintiff from recovering additional tax beyond the two-year period specified.

Whether sec. 18 applies to the plaintiff in the present action depends upon whether sec. 64 of the Judiciary Act operates to make sec. 18 applicable to the proceedings here. Section 64 of the Judiciary Act is in the following terms:

``In any suit to which the Commonwealth or a State is a party, the rights of parties shall as nearly as possible be the same, and judgment may be given and costs awarded on either side, as in a suit between subject and subject.''

I would point out here that the parties in the present case accept that the plaintiff is ``the Commonwealth'' for the purposes of sec. 64 and in my view this is correct (
Pitcher v. Federal Capital Commission (1928) 41 C.L.R. 385;
Naismith v. McGovern (1953) 90 C.L.R. 336. See the observations of Gibbs J. in
Maguire v. Simpson (1977-1978) 139 C.L.R. 362 at p. 389). Maguire v. Simpson raised the question of the operation of sec. 64 of the Judiciary Act on sec. 14(1)(a) and 63 of the Limitation Act 1969. The case was not one in which sec. 79 of the Judiciary Act applied so as to render the provisions of the Limitation Act 1969 binding on the Commonwealth (see the reasons of Gibbs J. (as he then was) at pp. 375-376). Neither party in the present case has sought to contend that sec. 79 applies here. The facts of the case were: the Commonwealth Trading Bank of Australia was owed a substantial sum on current account by partners carrying on a business. Certain assets of the partnership were sold and the net proceeds were paid into Court by order of the Supreme Court of New South Wales, to be retained pending further order. Notice of proceedings to determine claims to the fund was given to various interested persons. The bank appeared to support its claim. The plaintiffs, Maguire and others, also made claims on the fund and submitted that the bank's claim was barred and extinguished by sec. 14(1) and 63 respectively of the Limitation Act 1969. The bank contended that the Act did not apply to it because it was the Commonwealth, or an instrumentality of the Commonwealth. The matter was removed into the High Court under sec. 40A of the Judiciary Act 1903 and a question stated upon agreed facts for determination by the Full Court as follows (at p. 374):

``Would sec. 14(1)(a) and 63 of the Limitation Act, 1969 (N.S.W.) be applicable in an action commenced in the Supreme Court of New South Wales by the Commonwealth Trading Bank of Australia in which it sought to recover the balance of a current account said to be owed to it by a customer -

  • (a) either of its own force, or
  • (b) by virtue of the Judiciary Act?''

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Gibbs, Mason, Jacobs and Murphy JJ. answered question (b) ``yes'' whilst Barwick C.J. and Stephen J. limited themselves to holding that sec. 64 of the Judiciary Act operated to apply sec. 14(1)(a) of the Limitation Act to the Commonwealth (the bank) in the proceedings and they did not consider whether sec. 63 also applied. Stephen J. in Maguire v. Simpson took the view that (at p. 392):

``Section 14(1) of the Limitation Act is clearly only procedural in character and is all that need be invoked in order effectively to bar the Bank's claim to the fund in Court; accordingly, if sec. 14(1)(a) be applicable to that claim it is unnecessary to consider whether the substantive provisions of sec. 63 of the Limitation Act may also be applied.''

The manner in which Barwick C.J. approached the matter appears to acknowledge that such a provision as sec. 14(1)(a) although regarded as procedural in nature, does affect substantive rights. In the result it appears to me that five Justices in the High Court took the view that sec. 64 of the Judiciary Act applies to substantive rights and is not limited to procedural rights.

There is, in my view, a substantial difference between the position of Commonwealth Trading Bank of Australia recovering a debt due from a customer and the position of the Commissioner of Taxation or his Deputy, recovering additional tax provided for in sec. 207 of the Income Tax Assessment Act 1936 (as amended), and the difference invites examination of the question whether the position of the plaintiff in the present case requires a conclusion different from that arrived at in Maguire v. Simpson, i.e. a conclusion that the plaintiff is not bound by the provisions of the Limitation Act 1969. The bank, in Maguire v. Simpson, was in no different position from any creditor to whom a debt is owed and there was every reason why the limitation period, ordinarily appropriate to the recovery of a debt, should apply in those circumstances. The plaintiff in the present case, however, is carrying out a function of Government and recovering, as an integral part of the enforcement of the revenue laws of this country, the additional tax provided for in sec. 207. Income tax, when due and payable is a debt due to the King on behalf of the Commonwealth (sec. 208) and ``tax'' which is made recoverable by the Commissioner or his Deputy under sec. 209 would, as I have said earlier, include additional tax under sec. 207. The question then is whether the fact that the Commissioner in discharging this all-important function of Government in bringing the present proceedings, should be held to prevent sec. 64 of the Judiciary Act operating so as to make sec. 18 of the Limitation Act applicable to the present proceedings. If it can be held that a State Act, whether seeking to apply of its own force or applied by virtue of sec. 64, can bar recovery of penalty tax after two years, then there would be no reason why such an Act could not be expressed to bar recovery after two months. Likewise, if such an Act can bar recovery of income tax after six years, pursuant to sec. 14(1)(d), it must be able to bar recovery after six months, if so expressed.

It is apparent that the matter cannot be approached upon any narrow view by putting sec. 63 of the Limitation Act 1969 to one side and asking whether sec. 18 is ``procedural'' or ``substantive'' for quite plainly, if it applies in the present case, it denies to the Commonwealth the right to receive the additional tax which the Income Tax Assessment Act makes payable. In
John Robertson & Co. Ltd. v. Ferguson Transformers Pty. Ltd. (1972-1973) 129 C.L.R. 65 Walsh J. at p. 83 said:

``A law limiting the time within which an action may be commenced is regarded as a law relating to procedure. But it may have a far greater importance than other procedural laws and may affect more directly the substantive rights of the parties.''

If sec. 18 applies to the plaintiff, it prevents recovery of substantial moneys and this is a clear infringement of the Commonwealth's rights in respect of such moneys.

It is to be observed that sec. 64 of the Judiciary Act states that the rights of the parties shall ``as nearly as possible be the same... as in a suit between subject and subject'', and these words were considered by Stephen J. in Maguire v. Simpson. As his observations took him to the cases where the question has been considered, it is appropriate to set out his remarks in full (pp. 393-395):

``Quite apart from the debate whether sec. 64 applies only to matters of procedure or extends also to substantive law there exists

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some uncertainty concerning the content of the qualifying phrase `as nearly as possible'. In The Commonwealth v. Baume Griffith C.J. described it as meaning `as far as the provisions the aid of which is invoked are applicable to such a party as the Commonwealth' (1905) 2 C.L.R., at p. 417; his Honour regarded as not so applicable a provision which required affidavits to be sworn by a party in person. O'Connor J. took a like view (p. 418). However it was not only the fact that the Commonwealth was not a natural person, and hence incapable of swearing an affidavit, that the Chief Justice thought might bring into operation the qualification involved in `as nearly as possible'; any inconsistency with `the notion of a sovereign State' would have a like effect and the Chief Justice instanced process for contempt as something accordingly excluded from possible application to the Crown (p. 417). In
The Commonwealth v. Miller (1910) 10 C.L.R. 742, at p. 756 Isaacs J. gave to `as nearly as possible' the effect of excluding from application to the Crown `all coercive action incompatible with the dignity of the Crown and unwarranted by the express words of the enactment'; his Honour would thus have viewed this qualifying phrase as excluding from application to the Crown any provision inconsistent with its dignity. He regarded the furtherance of public justice, which is concern of sec. 64, as obliged to give way in face of `the still higher consideration of the general welfare' (p. 756) - and accordingly also regarded the qualifying phrase as preserving an adequate measure of Crown privilege in the discovery of documents. Higgins J. regarded sec. 64 as not carrying the process of assimilation of Crown to subject so far, as to take away, in the case of orders for discovery, the `privilege of the Crown's officers as to affairs of State, etc.' (p. 758). In
Marconi's Wireless Telegraph Co. Ltd. v. The Commonwealth (No. 2) (1913) 16 C.L.R. 178 the Court was unanimous in concluding that Crown privilege against discovery was not abrogated by the effect of sec. 64. The Chief Justice regarded a claim to privilege as examinable but if, on examination, it proved to be well founded the Crown might still take advantage of it (p. 186). Barton J. appears to have taken a similar view; Isaacs J. took the opportunity of repeating what he had said in Miller's Case (p. 756) and of emphasizing that the privilege of public interest remained available to the Crown.

More recent cases throw little further light upon the effect of the qualification, `as nearly as possible'. In
Asiatic Steam Navigation Co. Ltd. v. The Commonwealth (1956) 96 C.L.R. 397 the joint judgment of Dixon C.J., McTiernan and Williams JJ. suggests that where `purposes or functions peculiar to Government' are in question, sec. 64 may have but limited application (p. 417) - and see the reference to ships of war (p. 420). On the other hand Kitto J. speaks (p. 427) of sec. 64 as making the law as between subjects applicable `as completely as possible' to the Crown, any `special position of the Crown' being put out of account (p. 428). This would appear to give a relatively narrow field of operation to the words `as nearly as possible'. In
South Australia v. The Commonwealth (1962) 108 C.L.R. 130, at p. 140 Dixon C.J. observed that the necessary difference between principles of private and public law had to be borne in mind in applying the law as between subject and subject to a cause concerning the rights and obligations of Government. In
Downs v. Williams (1971) 126 C.L.R., at p. 103 Gibbs J. remarked that `not every statute which imposes a duty on a subject can be rendered applicable to the situation of the Crown'. The observations of Owen J. (at pp. 91-92), if they are to be understood as concerned with the effect of `as nearly as possible', would seem to give that phrase a very wide operation and one which I find difficult to reconcile with that not inconsiderable number of cases in which the substantive law applicable to subjects has been applied to the Crown. To these references may be added what was said by Newton J. in
The Commonwealth v. Burns (1971) V.R., at p. 830 in relation to the Chief Justice's observations in South Australia v. The Commonwealth (1962) 108 C.L.R. 130, to which I have already referred and, in particular, to the judgment of Else-Mitchell J. in
The Commonwealth v. Lawrence (1960) N.S.W.R. 312. In the latter case his Honour (at p. 315) provides instances of the possible operation of the phrase `as nearly as

ATC 4260

possible', instances which serve to emphasize the variety of cases to which the phrase may possibly have occasion to operate.

Whatever may ultimately come to be regarded as involved in the qualification, `as nearly as possible', I see no good reason for treating the provisions of sec. 14(1)(a) of the Limitation Act as subject to it. The considerations which in past cases have been suggested as guides to the content of this qualification do not suggest that such a section falls within its terms; were it otherwise the operation of sec. 64 would be diminished to an extent far greater than is justified by the words `as nearly as possible', whether understood either according to their ordinary meaning or in the somewhat extended sense suggested by observations such as those of Isaacs J. in The Commonwealth v. Miller (at p. 756).

Without attempting any general analysis of the extent of the qualification involved in `as nearly as possible', I am content to conclude that it does not operate to exclude from the operation of sec. 64 the provisions of sec. 14(1)(a) of the Limitation Act.''

Mason J. at p. 402 said:

``The precise content of the words `as nearly as possible' is obscure. Whatever they may mean, they cannot be regarded as preserving in every case the special position of the Crown as it exists under State law.''

Murphy J. at p. 408 said:

``Although sec. 64 contains the qualification `as nearly as possible', I see no basis for holding that it is impossible to apply the Limitation Act. The present case is not concerned with `special situations arising out of purposes or functions peculiar to Government' (referred to by Dixon C.J. and McTiernan and Williams JJ. in
Asiatic Steam Naviation Co. Ltd. v. The Commonwealth (1956) 96 C.L.R., at p. 417).''

The levying of income tax upon citizens of the Commonwealth and the recovery thereof by the Commonwealth are plainly ``purposes or functions peculiar to government'' within the meaning of the words used in the joint judgment just quoted - penal provisions are not prohibited by the Constitution and are an essential part of any income tax system (F.C. of T. v. Trautwein per Evatt J. at p. 217). There is thus at the outset the impossibility of equating the position of the Commonwealth in the litigation with that of a subject so as to create the situation of parity of rights to which sec. 64 is addressed. The power to levy income tax is expressly given by sec. 51 placitum (ii) and sec. 55 of the Constitution but quite apart from that, it is a necessary power of government:

``The power of taxation has always been regarded as a necessary and indispensible incident of sovereignty. A government that cannot, by self-administered methods, collect from its subjects the means necessary to support and maintain itself in the execution of its functions is a government merely in name. If the United States, proceeding in one of their own courts, in the collection of a tax admitted to be legitimate, can be thwarted by the plea of a state statute prescribing that such a tax must be assessed and recorded under state regulation, and limiting the time within which such tax shall be a lien, it would follow that the potential existence of the government of the United States is at the mercy of state legislation.''

(
United States v. Synder (1892) 149 U.S.R. 210 at p. 214.)

The system of income taxation operating in Australia under the Constitution is based upon a Commonwealth revenue law (the Income Tax Assessment Act) operating uniformly between the States of the Commonwealth and the distribution to the States of a percentage of the tax collected, through the Commonwealth Grants Commission appointed under the Commonwealth Grants Commission Act 1973 (
The State of Victoria v. The Commonwealth (1957) 99 C.L.R. 575). At the heart of the proposition that sec. 64 can only have limited operation in the case of ``purposes or functions peculiar to government'', in my view, is the constitutional position of the Commonwealth as a sovereign government for this of itself excludes the application to the Commonwealth of any State law which seeks to interfere with the discharge of those sovereign functions. The Commonwealth law is paramount in that context. This was the doctrine applied in
The Commonwealth v. Cigamatic Pty. Ltd. (In Liquidation) (1962) 108 C.L.R. 372. Although that case does not mention sec. 64 of the Judiciary Act and merely dealt with the bare

ATC 4261

question whether a State Act could ever bind the Commonwealth in the matter of the Commonwealth in the matter of the Commonwealth's ``fiscal rights'', it provides the explanation, in the present case, why sec. 64 could not be held to operate so as to apply the Limitation Act passed by the New South Wales Parliament to an action in this Court to recover penalty tax imposed by the Commonwealth. In Maguire v. Simpson Mason J. observed at pp. 402 that sec. 64 could have been raised in The Commonwealth v. Cigamatic Pty. Ltd. (In Liquidation). The facts in the case were that the Commonwealth and the Commissioner of Taxation sought a declaration that in the liquidation of Cigamatic Pty. Ltd. they were entitled to be paid in priority to the unsecured creditors of the company amounts for sales tax owing to them by the company pursuant to the provisions of the Sales Tax Assessment Act (No. 1) 1930-1953, and that the Commonwealth was entitled to like priority in respect of sums owing to it under the Post and Telegraph Act 1901-1961 and the regulations made thereunder. The defendants claimed that the plaintiffs were bound by the provisions of the Companies Act 1936-1960 which establish a priority of payment of debts including debts due to the Commonwealth, in the winding up of insolvent companies. The headnote to the case correctly sets out the effect of the Court's decision:

``The Parliament of a State has no power to control or abolish the Commonwealth's fiscal right as a government to priority of payment of debts due to it when, in an administration of assets, those debts come into competition with debts of equal degree due to its subject.''

The case over-ruled the earlier decision of the High Court in
Uther v. F.C. of T. (1947) 74 C.L.R. 508. In the lastmentioned case, Dixon J. (as he then was) had been in the minority, but in the later case his views were adopted by all the Justices although two, namely McTiernan and Taylor JJ., declined to over-rule Uther's case. In The Commonwealth v. Cigamatic Pty. Ltd. (In Liquidation) Dixon J. at p. 377 stated that the view of the majority in Uther v. F.C. of T.:

``... seemed to me then to imply a fundamental proposition about the power of legislatures of the States which ought not to be entertained. The proposition that is implied is that an exercise of State legislative power may directly derogate from the rights of the Commonwealth with respects to its people. It is a proposition which must go deep in the nature and operation of the federal system. There can be no doubt as to the nature or the source of the right of the Commonwealth in an administration of assets to be paid in preference to subjects of the Crown if there is competition among debts of equal degree. It springs from the nature of the Commonwealth as a government of the Queen. Therefore to treat those rights as subject to destruction or modification or qualification by the legislature of a State must mean that under the Constitution there resides in a State or States a legislative power to control legal rights and duties between the Commonwealth and its people.''

He went on to say that such a doctrine:

``... is a fundamental error in a constitutional principle that spreads far beyond the mere preference of debts owing to the Commonwealth... If you express the priority belonging to the Commonwealth as a prerogative of the Crown in right of the Commonwealth, the question is whether legislative powers of the States could extend over one of the prerogatives of the Crown in right of the Commonwealth. If, as in modern times I think it is more correct to do, you describe it as a fiscal right belonging to the Commonwealth as a Government and affecting its Treasury, it is a question of State legislative power affecting to control or abolish a federal fiscal right... In truth it imports a principle which if true would apply generally with respect to the legal rights of the Commonwealth in relation to its subjects. I do not speak of legal rights which are the immediate product of federal statute and so protected by sec. 109 of the Constitution. But because it imports such a principle I think we ought not to give effect to the view taken in Uther's Case (1947) 74 C.L.R. 508 that sec. 297 of the Companies Act, 1936 of New South Wales operated directly to nullity the priority to which the Commonwealth might have been entitled.''

(The emphasis is mine.)

In Uther's case his Honour had dealt at length with the doctrine which he was asserting, and it is appropriate to set out here some of the

ATC 4262

matters to which he there referred (at pp. 529-530):

``A federal system is necessarily a dual system. In a dual political system you do not expect to find either Government legislating for the other. But supremacy, where it exists, belongs to the Commonwealth, not to the States. The affirmative grant of legislative power to the Parliament over the subjects of bankruptcy and insolvency may authorize the enactment of laws excluding or reducing the priority of the Crown in right of the States in bankruptcy and it has been held that the taxation power extends to giving the Commonwealth a right to be paid taxes before the States are paid (South Australia v. The Commonwealth (1942) 65 C.L.R. 373). But these are the results of express grants of specific powers, plenary within their ambit, to the Federal legislature, whose laws, if to the Federal legislature, whose laws, if within power, are made paramount. Because of their content or nature, the express powers in question are considered to extend to defining the priority of debts owing to the States or postponing State claims to taxes. The legislative power of the States is in every material respect of an opposite description. It is not paramount but, in case of a conflict with a valid Federal law, subordinate. It is not granted by the Constitution. It is not specific, but consists in the undefined residue of legislative power which remains after full effect is given to the provisions of the Constitution establishing the Commonwealth and arming it with the authority of a central government of enumerated powers. That means, after giving full effect not only to the grants of specific legislative powers but to all other provisions of the Constitution and the necessary consequences which flow from them.''

His Honour referred to United States v. Synder (supra) and (at p. 532):

``... to the anomaly which must arise if one State may exclude and another may allow the Commonwealth's claim to preferential payment of its taxes in a liquidation, notwithstanding that the Commonwealth itself could not make or authorize a similar discrimination.''

A similar anomaly could arise in the case of limitation statutes passed by States or some only of the States - different periods of limitation could apply from State to State or there might be no limitation period in some States.

In the present case, for sec. 64 to apply the provisions of the Limitation Act to an action for recovery of penalty tax under sec. 207 of the Income Tax Assessment Act would be to give to a State Act efficacy to interfere with a ``fiscal right'' of the Commonwealth, that right being the right to impose and recover tax from the citizens of the Commonwealth: that right of the Commonwealth to recover the tax sued for unimpeded by the Limitation Act 1969 is implicit in the power of the Commonwealth to levy and recover the tax as a function of government. In my view, the constraint expressed by the words ``as nearly as possible'' in sec. 64 of the Judiciary Act acknowledges the position of the Commonwealth as a sovereign government empowered to collect from its subjects the taxes which it imposes, unimpeded by a State law, and operates to prevent both sec. 14(1)(d) and 18 and also 63 of the Limitation Act applying to the collection by the plaintiff of ``tax'', under the Income Tax Assessment Act. Accordingly, the defendant cannot rely upon that Act as a defence in these proceedings.

Although the question dealt with in this judgment concerns the power of the Commonwealth to carry on a function of government without interference from a State Act, both parties have expressly disclaimed the existence of any question arising under the Constitution within sec. 40 of the Judiciary Act, and the Attorneys-General for the States, although notified (an affidavit by W.J. Clarke, a Senior Legal Officer in the Office of the Australian Government Solicitor, sworn 29 April 1985 was failed in Court) have not appeared. The view has been taken by the parties that the question arising in these proceedings involves the proper interpretation of sec. 64 of the Judiciary Act and no more.

In accordance with the agreement made between the parties (earlier referred to) as to the amount for which judgment should be entered if the Limitation Act 1969 is not held to apply, there will be judgment for the plaintiff in the sum of $132,965.28. The defendant is to pay the plaintiff's costs which shall not include any costs in respect of the plaintiff's claim for tax under sec. 226(2) of the Income Tax Assessment Act. The judgment may be entered.


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