Johnson v. Federal Commissioner of Taxation.
Judges:Toohey J
Court:
Federal Court
Toohey J.
This is an application under the provisions of the Administrative Decisions (Judicial Review) Act 1977.
The decision sought to be reviewed is one by the Commissioner of Taxation that two notices of objection against assessment of income tax were not valid because they were not posted to or lodged with the Commissioner within 60 days after service of notices of assessment to which the objections related.
The story is a relatively simple one though it has some curious aspects. The applicant Henry George Johnson is not the taxpayer to whom the notices of assessment related. The assessments were addressed to his daughter Lynette Annandale. They related to trusts apparently established by Mr Johnson in which Mrs Annandale was a beneficiary to a very substantial extent although it is not clear whether in fact she received any income from the trusts. These are not matters with which the Court is presently concerned except as part of the background to events giving rise to this application.
Daryl Barrey Paull is a public accountant practising in Gosnells. His practice relates mainly to the preparation of income tax returns for salary and wage earners and for small partnerships. He was engaged by Mrs Annandale to prepare her income tax returns for the years ended 30 June 1984 and 1985. Her income, as returned for those years, was quite modest. Mr Paull played no part in the preparation of Mrs Annandale's returns for the years ended 30 June 1979, 1980 and 1981. However, assessments relating to each of those years were sent to Mrs Annandale care of Mr Paull at his office in Gosnells. Presumably that was done because, at the time those assessments were issued, Mr Paull had furnished returns for Mrs Annandale in respect of 1984 and 1985 so that his name appeared in Mrs Annandale's file.
Regulation 59 of the Income Tax Regulations reads:
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``59 Any notice or other communication by or on behalf of the Commissioner may be served upon any person -
- (a) by causing it to be personally served on him; or
- (b) by leaving it at his address for service; or
- (c) by posting it by pre-paid letter post, addressed to him at his address for service;
and in any case to which paragraph (c) of this regulation applies, unless the contrary is proved, service thereof shall be deemed to have been effected at the time when it would, in the ordinary course of post, have arrived at the place to which it was addressed.''
While Mr Paull's office was undoubtedly Mrs Annandale's address for service in regard to her 1984 and 1985 returns, it could not have been the address shown on her earlier returns. However no point was made of this by the applicant because reg. 29 identifies as the ``address for service'' the address for service last given to the Commissioner. It was an agreed fact, for the purposes of the hearing, that notices of assessment were posted on 26 February 1985, that those notices were addressed to the taxpayer's address for service and that in the ordinary course they would have been served upon the taxpayer on 27 or 28 February.
Section 185 of the Income Tax Assessment Act 1936 provides that a taxpayer, dissatisfied with an assessment, may within 60 days after service of the notice of assessment, post to or lodge with the Commissioner an objection in writing. Mr Paull claimed that, notwithstanding the issue date of 26 February 1985 shown on each of the assessments, they were not received by him until ``on or about 9th April''. Mr Paull had no system of date stamping or otherwise recording incoming mail and mail was opened by him, his employed accountant or his secretary. In evidence he said that when he received the assessments he took no particular notice of the issue date which was only brought to his attention during the telephone conversation with Mr Johnson mentioned later in these reasons. I have some difficulty in accepting this statement. The amounts shown to be payable for each of the three years were $33,344.81, $46,458.01 and $46,991.44 respectively. Mr Paull himself said that most of his clients did not have a taxable income of $47,000. Furthermore, not only was the issue date more than a month earlier, the amounts were due and payable on 29 March 1985, a date that had then passed. I think it more likely that Mr Paull was not greatly concerned about the implications of the assessments at first since the relevant tax returns had not been prepared by him and he did not see himself as responsible for them.
Mr Paull said that, on receipt of the assessments, he asked his staff to telephone Mrs Annandale at home. They tried to do so over two or three days but were unsuccessful. They then tried to contact her at her place of employment in Willetton but were told that she no longer worked there. Mr and Mrs Annandale were not living together but Mr Paull asked his secretary to ring Mr Annandale, which she did. Mr Paull told Mr Annandale that he was trying to get in touch with his wife. Mr Annandale said that he would contact her and get her to ring Mr Paull. Mr Paull did not hear from Mrs Annandale so on 1 May he wrote to her at her home address asking her to contact him regarding her returns for 1979 to 1981. A photocopy of the relevant assessments and adjustment sheets was attached to the letter.
Two or three days later Mrs Annandale rang Mr Paull to say that she did not know about the trusts mentioned in the adjustment sheets. She said that the reference to Johnson Transport Trust and Jack Johnson Family Trust must be a reference to her father with whom she was not on speaking terms. Mr Paull asked Mrs Annandale to get her father to ring him and Mr Johnson rang a couple of days later. During that conversation Mr Johnson asked Mr Paull when he had received the assessments. Mr Paull replied ``About four weeks ago''.
Mr Johnson placed the matter in the hands of his legal adviser and a notice of objection was prepared in regard to the 1979 and 1980 assessments. No objection was taken to the 1981 assessment. The objections were lengthy and detailed. They were provided to Mr Paull who lodged them with the Australian Tax Office, in each case together with a statutory declaration made 23 May 1985 reciting that he received the assessments on or about 9 April and referring to his attempts to contact Mrs Annandale. The contents of the statutory
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declaration are consistent with the evidence given by Mr Paull though not in the same detail. In particular, they offer no basis for the assertion that the assessments were received on or about 9 April.Asked in evidence whether there was any particular reason for selecting 9 April as the date on which the assessments were received, Mr Paull answered:
``When Mr Johnson rang me and asked me when I have received them, I said about four weeks ago. And he said, well could you be precise and that is when I worked back four weeks from whenever I was speaking to him from and said on or about that date. I had tried for two or three days to get Mrs Annandale and then her husband on a couple of days and a couple of weeks before I had written to her, so that was about the time it took. And I calculated that back from my discussion with Mr Johnson.''
The Commissioner declined to treat the notices of objection as having been lodged in compliance with sec. 185 of the Assessment Act. Implicit in this rejection is that there had been no proof to the contrary in accordance with reg. 59.
The applicant seeks to review that decision. Although he is not the taxpayer to whom the assessments related, it seems that he is the person who will bear the responsibility for any income tax that may be payable. The respondent acknowledged that the applicant was a person ``aggrieved'' by the decision within the meaning of subsec. 5(1) of the Judicial Review Act. The respondent also conceded that the decision the subject of the application was a decision to which the Act applied.
The Judicial Review Act has been in operation for more than five years and in many respects the nature and scope of the legislation have been clarified by judicial decision. However, having regard to the way in which this application was presented and resisted, it seems necessary to restate a few basic principles. The Act has been described as ``but one of a package of four federal statutes - collectively known as `The New Administrative Law' - which have established, in the federal jurisdiction, a real system of institutions designed to provide for effective review of administrative action'' (Hotop, Principles of Australian Administrative Law 6th ed. 326). The other statutes are the Administrative Appeals Tribunal Act 1975, the Ombudsman Act 1976 and the Freedom of Information Act 1982. Each Act serves a different purpose.
Of the four statutes comprising the package, the Administrative Appeals Tribunal Act is the closest in operation to the Judicial Review Act. The former empowers the Administrative Appeals Tribunal to review decisions made in the exercise of powers conferred by enactments, including those enactments mentioned in Sch. 1 to the Act. A review by the Tribunal is a review on the merits and the question for the Tribunal is whether the decision under review was the correct or preferable one on the material before it, not on the material before the decision-maker.
Re Becker and Minister for Immigration and Ethnic Affairs (1977) 32 F.L.R. 469;
Drake v. Minister for Immigration and Ethnic Affairs (1979) 46 F.L.R. 409;
Nevistic v. Minister for Immigration and Ethnic Affairs (1981) 51 F.L.R. 325. The function of the Federal Court under the Judicial Review Act is to review the legality, not the merits, of administrative decisions and the Court does not substitute its own decision for that of the decision-maker.
Hamblin v. Duffy & Ors (1981) 50 F.L.R. 308;
Turner v. Minister for Immigration and Ethnic Affairs (1981) 55 F.L.R. 180;
Sean Investments Pty. Ltd. v. MacKellar (1981) 38 A.L.R. 363;
Borkovic v. Minister for Immigration and Ethnic Affairs (1981) 39 A.L.R. 186.
The reasons why I have thought it necessary to restate these basic principles are twofold. First, in the course of his final address, counsel for the Commissioner was disposed to say that the outcome of the application was virtually dependent upon the view taken by the Court of Mr Paull's evidence, in particular his evidence as to the date of receipt of the assessments. Counsel resiled from that position later. Second, counsel for the applicant submitted in effect that his client did not have to bring himself within one of the grounds in subsec. 5(1) of the Judicial Review Act, as if the powers conferred on the Court by sec. 16 did not depend upon establishment of one of the grounds in sec. 5.
I reject both approaches to the legislation. The Court does not sit as a court of appeal from the decision-maker and there is no appeal by
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way of rehearing. A person who invokes the Judicial Review Act must bring himself within one of the grounds in sec. 5, at any rate where he claims to be a person aggrieved by a decision as opposed to conduct as described in sec. 6. The grounds in sec. 5 focus on the decision and the circumstances surrounding its making. The Court may review the decision on any of those grounds. The Court is not empowered to review the decision on the merits except in the sense that it may hold that there was no evidence or other material to justify the making of the decision or that there was an exercise of power so unreasonable that no reasonable person could have so exercised the power or perhaps in the limited way arising from some of the other grounds. The Court is not empowered to substitute its own decision.The applicant does not succeed in the present case merely by calling evidence which, if accepted by the Court, would show that the assessments were not served until 9 April or thereabouts, with the consequence that the objections were lodged in time. The applicant must persuade the Court that the decision-maker erred on one of the grounds in subsec. 5(1). That is not to say that an applicant may not give evidence of events leading up to the making of a decision; and sometimes an applicant, without objection, gives evidence going to the merits of the decision. But, before exercising any powers under sec. 16, the Court must be satisfied that one of the grounds in subsec. 5(1) has been made out.
As already mentioned, reg. 59 of the Income Tax Regulations deals with service of notices by the Commissioner, deeming service to have been effected at a particular time ``unless the contrary is proved''. The use of this expression is somewhat curious, suggesting as it does a hearing before a court or tribunal. The Income Tax Assessment Act contains many references to the Commissioner being ``satisfied'' about a particular matter and that language is understandable having regard to the administrative steps with which the Act deals. But the reference in reg. 59 to proof creates difficulties. It is no doubt possible in legal proceedings to test the application of the expression to particular circumstances. But in my view it is not within the jurisdiction of the Court under the Judicial Review Act to make a positive finding that a taxpayer has proved the contrary for the purposes of reg. 59, at any rate without first having set aside the decision under challenge by reference to one of the grounds in subsec. 5(1). It may then be appropriate, in exercise of the powers conferred by para. 16(1)(c), to declare the rights of the parties by reference to that regulation.
This rather long excursus has been necessary in order to reach the heart of the matter viz. the decision by the Commissioner that the notices of objection were invalid because they failed to comply with sec. 185 of the Income Tax Assessment Act. While the Commissioner was the nominal decision-maker, the officer most directly concerned with the matter was Mrs Susan Owen from the compliance section. Mrs Owen first became involved with the matter when she received a telephone call from the applicant's legal adviser on 17 May 1985. She was told that Mr Paull had not received the assessments until on or about 9 April 1985 and she checked the departmental records to ensure that the date of assessment was 26 February as she had been told in the telephone call. She also checked Mrs Annandale's file to ensure that there was no indication of the assessments having been returned from another address; there was no evidence to suggest that this had happened.
On 6 June 1985 the respondent wrote to the applicant's legal adviser, drawing attention to reg. 59 and pointing out that, unless proof was provided that the taxpayer was not served in the ordinary course of post, the objections would not be accepted as valid. At that time neither Mrs Owen nor Mr Davy, the officer who drafted the letter, had seen the statutory declaration by Mr Paull which accompanied the notices of objection. Nevertheless, Mrs Owen confirmed in evidence that the notices and statutory declaration were received by the Australian Tax Office on 30 May.
This points up the need to identify in an application under the Judicial Review Act the precise decision sought to be reviewed and the date of that decision. If the letter of 6 June 1985 was a decision rejecting the notices of objection, the applicant's case would be a simple one. It would be that the decision was made without any regard to the statutory declaration, hence an improper exercise of power in that the decision-maker failed to take a relevant consideration into account (para. 5(2)(b) of the Judicial Review Act). But that was not an argument advanced by the applicant;
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the way the matter was put by counsel in opening was as follows:``Your Honour, there were various items of correspondence with the Deputy Commissioner of Taxation in this matter and they eventually led up to a decision on 11 October 1985 confirming an earlier decision not to accept the objection as valid.''
Much cross-examination was directed to Mrs Owen by reference to the statutory declaration and the weight attached to that document by her, cross-examination that would have been entirely unnecessary had there been an attack on the letter of 6 June as a decision. Of course the applicant's advisers may not have been aware of the fact that the statutory declaration had not been taken into account by the respondent when the letter of 6 June was written, but the point emerged in examination-in-chief of Mrs Owen.
On that approach, the applicant may have placed himself in an unnecessarily difficult position. But that, I think, is explicable because of the terms of the letter of 6 June and the ambulatory nature of reg. 59. The process of proving the contrary in terms of that regulation may take place over many weeks, involving an exchange of correspondence on both sides and possibly oral representations. No doubt for that reason the applicant took as the relevant decision the letter of 11 October, the first paragraph of which reads:
``Further to your letter of 12 September 1985, it is hereby confirmed that as the objection notices against the 1979, 1980 and 1981 assessments of the abovenamed taxpayer have not been accepted as valid objections, the Commissioner cannot subsequently amend to reduce the taxpayer's liability to correct a mistake of law.''
That letter was preceded by a letter from the Commissioner to Mrs Lynette Calautti care of Mr Paull at his Gosnells office and dated 1 August 1985. Mrs Annandale was then Mrs Calautti. It appears that the letter was not received by Mr Paull and, in response to a request from him, a copy was sent to him in September. That letter itself contains a decision in these terms:
``The letter received in this office on 30 May 1985 cannot be treated as a valid objection as the period allowed for lodgment expired on 27 April 1985.''
The reference to ``letter'' was a reference to the notices of objection and accompanying statutory declaration, the term letter being used to make clear the Taxation Office's stand that notices of objection in accordance with the Act had not been received.
The picture is thus a confusing one. But, having regard to the way in which the applicant's case was presented, I have no choice but to take the letter of 11 October as the relevant decision.
It is clear from Mrs Owen's evidence that, at the time the letter of 11 October was written, she had before her the statutory declaration and letters written by the applicant's legal adviser. Mrs Owen was a clear and frank witness and I accept her testimony. She said that she considered the contents of the statutory declaration but concluded that Mr Paull ``was trying to recollect, or relying on his memory for the date of receipt''. She considered that the statutory declaration was not proof to the contrary within reg. 59 because ``the declaration seems to suggest that he relied on his memory that there would not have been proper records indicating the actual date of receipt''.
There was an attempt in cross-examination to suggest that Mrs Owen had a particular objection to trust stripping and that this was an important reason for her decision not to accept the objections. Mrs Owen rejected the suggestion and I accept her rejection. It was also put to her that she had not appreciated the force of a statutory declaration, having regard to the penalties imposed by the Statutory Declarations Act 1959 on a person who wilfully makes a false statement in a statutory declaration. Mrs Owen said that she was aware that there were penalties for making false declarations though she did not know precisely what they were.
In the end, it seems to me, Mrs Owen was saying that Mr Paull appeared to be relying on his memory of the date of receipt of the assessments, that he was not specific as to the actual date, and that in the absence of records he should have provided additional evidence such as a statement from his secretary or a letter from the postal authorities explaining the delay.
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It was put to Mrs Owen in cross-examination that she failed to have regard to the status of Mr Paull as an associate of the Australian Society of Accountants and as a certificated practising accountant and as well his position as a Commissioner for Declarations. Mrs Owen's reply was that she was not aware of these matters but that she did not consider it was for her to enquire as to Mr Paull's position. I see nothing wrong in that approach. Regulation 59 casts an onus upon the taxpayer and it is for the taxpayer to decide how much material to present to the Commissioner, though if there is some lack of clarity in the material, it may be unreasonable for the Commissioner not to seek clarity.
There is only one other matter in Mrs Owen's evidence to which reference need be made. She was asked about the fact that a copy of the Commissioner's letter of 1 August 1985 was sent to the applicant's legal adviser and it was put to her that this implied acceptance of the fact that the original had not been received. Mrs Owen's response, which I accept, was that the issue of a copy of a letter did not affect any decision and was not crucial to any determination.
Although there are some curious aspects of Mr Paull's evidence, I am prepared to accept his testimony that the assessments were not received until 9 April 1985 or thereabouts, in particular that they were not received until a date which allowed the notices of objection to comply with sec. 185 of the Income Tax Assessment Act. Why the assessments took so long to reach him was simply unexplained. Mr Paull was cross-examined with a view to showing that he could not be certain of the date on which he received the assessments. B it was not put to him that he did receive them at the time he would have received them in the ordinary course of post. However, to find as I have just found does not conclude the case for the applicant; indeed it may well be said that such a finding is irrelevant in these proceedings except for the light it throws upon the sequence of events. The applicant must still show that the decision is reviewable in accordance with sec. 5 of the Judicial Review Act.
The application casts its net widely by referring to most of the grounds in subsec. 5(1), though in the unsatisfactory way of simply repeating the language of the statute without any particulars of the matters to be relied upon in support of the grounds. Although I have given close consideration to each of the grounds in subsec. 5(1), I am not persuaded that the applicant has made good any one of them. The decision to reject the notices of objection involved no error of law or procedure, nor did it take an irrelevant consideration into account or fail to take a relevant consideration into account. It was an exercise of judgment based on material provided by the applicant, in particular the statutory declaration. It was not an unreasonable exercise. The respondent might well have accepted the applicant's explanation, as I accept it. But in the light of the material before the respondent I am unable to say that there was anything wrong with the legality of the decision, using that term to comprehend the various grounds in sec. 5. It is of considerable importance that the applicant did not offer any proof other than a statutory declaration couched in rather vague terms.
The position is clearly unsatisfactory, not just from the point of view of the applicant, but having regard to the current scope for review of administrative decisions. The decision in the present case had particularly adverse consequences for the applicant in so far as it deprived him of the opportunity to test the relevant assessments. It seems to me that it is still open to the respondent to reconsider the matter in the light of the evidence given at the hearing and to conclude, if it be thought appropriate, that the taxpayer has now provided proof to the contrary in terms of reg. 59. But that must be a matter for the respondent; it cannot affect the outcome of this application.
I am not to be taken as suggesting that there is no way that a decision of the Commissioner refusing an objection on the grounds that it is out of time may not be challenged. That would be a surprising situation. To begin with, sec. 39B of the Judiciary Act 1903 includes in the original jurisdiction of the Federal Court any matter in which a writ of mandamus is sought against an officer of the Commonwealth. Furthermore, it seems that from time to time the Commissioner has, at the request of a taxpayer and in accordance with sec. 187 of the Income Tax Assessment Act, referred his disallowance of objection to a Board of Review or to a Supreme Court, notwithstanding his contention that the notice of objection did not comply with sec. 185. This practice may stem
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from the comments of Dixon and Evatt JJ. inTrautwein v. F.C. of T. (1936) 56 C.L.R. 63 at p. 110 that:
``... it would be more convenient if the commissioner adopted the practice of complying with the taxpayer's request to forward the objections to the court, notwithstanding that the commissioner considers no appeal lies. His contention that an appeal cannot be entertained would not be prejudiced by his doing so and he could, in forwarding the objections, notify the registrar and the taxpayer that he had given his decision and forwarded the objection subject to and under the cover of an objection on his part that the alteration or addition was not subject to objection and appeal by the taxpayer.''
Dixon and Evatt JJ. expressly refrained from deciding whether the Commissioner had ``an absolute duty'' in those circumstances to forward the objection; in that case the Commissioner was prepared to take the course suggested. There appears to be a diversity of opinion among Boards of Review as to whether a board has power to decide whether a reference is properly before it. See Reference Nos. 6/1981 and 122-123/1981 (Case P4,
82 ATC 16).
I express no views about the appropriateness or otherwise of these or any other avenues in the present case. I mention them only to make it clear that careful consideration must be given to the course of action to be followed by a taxpayer in a situation such as the present one, particularly given the limitations on the scope for review under the Judicial Review Act.
Some comment may also be made about the arbitrary nature of sec. 185 of the Income Tax Assessment Act. See
F.C. of T. v. Hoffnung & Co. Ltd. (1928) 42 C.L.R. 39 at p. 54. At a time when limitation periods are almost invariably qualified by provisions for extension, sec. 185 may be said to be out of step in so far as it presents an absolute bar to the lodging of an objection after 60 days from service of the notice of assessment, no matter how extenuating the circumstances may be. No doubt a time limit in absolute terms adds to the administrative efficiency of the Australian Tax Office but it may, from time to time, create substantial injustice. It would not be hard to provide for an extension of time, but in such a way as to cast a substantial onus on the taxpayer. Again the Court can do no more than bring this matter to the attention of the relevant authorities.
I should add that no attack was made upon the validity of reg. 59.
No ground under sec. 5 of the Judicial Review Act having been made out, the application must be dismissed.
THE COURT ORDERS THAT:
1. The application is dismissed.
2. Liberty to the respondent to apply on the question of costs.
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