Deputy Federal Commissioner of Taxation v. Manners & Anor.

Judges:
Murphy J

Court:
Supreme Court of Victoria

Judgment date: Judgment handed down 27 November 1985.

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Murphy J.

The Deputy Commissioner of Taxation for the Commonwealth of Australia by writ issued 23 November 1984 sued Geoffrey George Manners and Terrule Pty. Ltd. for arrears of income taxation and additional tax. The said claims related to the financial years 1977 to 1980 inclusive and were made up of what may be termed primary or principal tax, additional tax under sec. 226 and further additional tax under sec. 207 of the Income Tax Assessment Act 1936 as amended up to the date of issue of the writ.

The amount claimed against Manners was $12,672,538.89 and against Terrule Pty. Ltd. $3,335,948.80.

In October 1984 two summonses seeking leave to enter final judgment against each defendant respectively issued and on 21 May 1985, Phillips J. gave leave to the plaintiff to

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enter final judgment against Manners for the sum of $11,019,659.99 with interest being in the sum of $732,209.93. The said summonses had been adjourned on several occasions before being dealt with by Phillips J. By the same order, Phillips J. gave leave to Manners to defend the claim against him for additional tax which was assessed pursuant to sec. 207 of the said Act and calculated on the additional tax levied pursuant to sec. 226(2) of the said Act and amounting to $1,652,878.90.

The order giving leave to defend was given on what was described in his Honour's order as ``the point of law only'', by which, I think, it is clear that his Honour considered that it was an arguable point of law whether or not additional tax for late payment under sec. 207 was assessable upon additional tax assessed upon sec. 226(2). On 2 April 1985 in
Koadlow v. D.F.C. of T. (85 ATC 4147) the Full Court of Victoria had decided in a not dissimilar case that the question of law involved was one which was fit to be investigated.

When the matter was called on before me on Monday 25 November 1985, Mr Maxwell of counsel appeared for the Deputy Commissioner and there was no appearance by the defendant. I enquired whether the defendant had notice that the matter would come on before me, and was informed that until 11 July 1985 Henty Jepson and Kelly, a firm of solicitors, were the solicitors on the record for the defendant, but on that date notice of withdrawal was filed by them. That firm of solicitors had been aware of the order made by Phillips J. It also appeared on affidavit material that the defendant had left Australia and remained outside it and was apparently living in London. In a letter from the said firm of solicitors addressed to the solicitors for the plaintiff and also in proceedings in the Federal Court in which the defendant was a party, the said solicitors stated that all notices were to be sent to the defendant care of 108 St Georges Road, Toorak, which was the address at which the defendant's wife and daughter resided. Oral evidence was given that the listing master fixed the case for hearing in the normal way and then on 31 October 1985, as a matter of courtesy, the plaintiff's solicitor sent to the defendant care of the St Georges Road address a letter informing him that the listing master had fixed the case for hearing on 18 November 1985. The case was not reached on that date but eventually came on for hearing before me a week later, namely 25 November 1985.

Accordingly, Mr Maxwell argued the point of law before me without opposition, and although he fairly informed me of the argument (as he understood it) for the view opposed to that which the plaintiff submitted was correct, the Court was not assisted in arriving at its decision by robust adversarial debate.

The sole issue was whether sec. 207 tax can be claimed on a late payment of additional sec. 226(2) tax.

The starting point is sec. 226(2) as it was at the relevant time before Act No. 123 of 1984 repealed it.

That subsection in so far as relevant read:

``226(2) Any taxpayer who -

• (a) omits from his return any assessable income;
• ...

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 $2, whichever is the greater.''

The other section of the Act which is central to the issue is sec. 207 which in so far as relevant read:

``207 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...''

This section has now been amended but a further subsection of the amended Act read as follows:

``165(5) In determining whether, at a time before the commencement of this section, a reference in a provision of the Principal Act to tax or income tax included a reference to additional tax, the amendments made by this Act shall be disregarded.''

(See sec. 165(5) of Act 123 of 1984.)

The amendments made by this Act included sec. 112 of Act 123 of 1984 which added a subsection to sec. 207 to the effect that ``in this

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section unless a contrary intention appears `tax' includes additional tax under Part VII''.

The explanatory memorandum suggested that the addition of subsec. (3) to sec. 207 ``will make clear'' that sec. 207 tax for late payment was to be assessed both on the principal or primary tax and on sec. 226 additional tax.

This Act however was passed after the issue of the writ in this case. Its provisions were not relied upon by Mr Maxwell. Late payment, namely, sec. 207 tax is sought in this matter only up to the date of the issue of the writ herein, namely 23 November 1984, and it was not argued that the new legislation could assist the Deputy Commissioner's point.

Pursuant to the Act: ``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''. (See sec. 166.)

In the present case, the Commissioner relied upon the omission by the taxpayer of assessable income from this return to create his liability to pay ``additional tax''; sec. 226(2).

Such additional tax assessed under sec. 226 was included in the amended assessment issued by the Commissioner, as part of the process of assessment, and additional tax was part of the tax payable on or before the date specified in each such assessment.

It appears to me as a matter of statutory interpretation that this is so and there is authority to support this view (see
Richardson v. F.C. of T. (1931-1932) 48 C.L.R. 192 and
Jolly v. F.C. of T. (1935) 53 C.L.R. 206). The calculation of additional tax payable consequent upon the omission from a return of assessable income is part of the process of assessment. (See Dixon J. 48 C.L.R. at pp. 202-205.)

It is to be contrasted to the ``analogous obligation'', namely liability to an additional tax upon late payment of the tax assessed. ``[This] must be subsequent to and therefore cannot be the subject of assessment'' (see the same reference, p. 203).

In Richardson's case it was decided that the procedure of assessment, objection, review and appeal applies to additional tax under the statutory provisions now found in sec. 226(2). Similarly in Jolly v. F.C. of T. (1935) 53 C.L.R. 206, it was held that the Board of Review has power to review the entire process of assessing additional tax, consequent upon the taxpayer's failure to include any assessable income in any return.

Mr Maxwell in the present case accordingly submitted that sec. 207(1) in stating ``If any tax remains unpaid'' must intend that the words ``any tax'' include not only the principal sum or primary tax but also any sum assessed to be payable as additional sec. 226(2) tax in the assessment or amended assessment.

He also pointed to the context in which sec. 207 is found. Section 204 specifies the date on which any income tax assessed shall be due and payable; sec. 206 relates to payment of tax by instalments; sec. 208 stipulates that income tax when it becomes due and payable shall be a debt due to the Commonwealth, and sec. 209 provides that ``any tax unpaid'' may be sued for and recovered in any court of competent jurisdiction. His submission that in these sections ``tax'' and ``income tax'' include any additional tax assessed under sec. 226(2) appears to me to be correct, and thus support is lent to the submission that the words ``any tax'' appearing in sec. 207 bear a corresponding meaning.

The argument to the contrary relies for its support on two decisions in which dicta appear to support the view that ``additional tax'' is a penalty and thus not to be characterised as a tax. See
Re Dymond (1958-1959) 101 C.L.R. 11 at p. 21;
F.C. of T. v. Trautwein (1936) 56 C.L.R. 211 at pp. 216-217. In Trautwein's case, as in the instant case, the Commissioner applied for leave to enter final judgment in an action for the recovery of income tax and additional tax allegedly due and payable by the defendant in respect of several income years. Evatt J. said at p. 216:

• ``The statute'' (cf. sec. 226(2)) ``imposes the additional tax in the nature of a penalty and the amount of that is fixed precisely by the statute.''

Again at p. 217 his Honour said:

``although the penalty is collected via the machinery of assessment, the section is clearly a penal provision.''

From these remarks it is sought to argue that the words ``any tax'' in sec. 207 do not include

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``additional tax'' (sec. 226(2)) which is really a penalty and not a tax strictu sensu. The same reasoning is applied to similar remarks of Fullagar J. in Re Dymond at p. 21 of the report of that decision.

However, in my opinion, the characterisation of ``additional tax'' as a penalty for the purpose of considering its validity as falling beneath some shield of legislative power within the Constitution cannot, in my opinion, affect the question of statutory interpretation of the meaning of the words ``any tax'' appearing in sec. 207.

I am of the opinion that additional tax imposed by way of assessment pursuant to sec. 226(2) of the Act is included in the words ``any tax'' appearing in sec. 207, and may be the subject of additional tax imposed under sec. 207 for late payment.

It follows that, in my view, the plaintiff Commissioner is entitled to judgment against the first defendant in the further sum of $1,652,878.90 in addition to the judgment already entered for the sum of $11,112,469.

Order that the plaintiff's costs be taxed including any reserved costs and when taxed paid by the defendant to the plaintiff's solicitor.