Western Australian Capital Investment Co. Ltd. & Anor v. Federal Commissioner of Taxation
Judges:Pincus J
Gummow J
Lee J
Court:
Full Federal Court
Pincus, Gummow and Lee JJ.
These are five applications for leave to appeal from interlocutory orders made in income tax appeals. By those orders the applicant taxpayer in each of the five cases was refused an order for particulars against the respondent Commissioner and ordered to pay costs. It is admitted that there is no difference between any of the five cases which is relevant for present purposes; the application was argued on the basis of the facts in the first case, WAG 2049 of 1987, which is the one which is discussed here [reported at 89 ATC 4001]. In these reasons the expression ``applicant'' will refer to the applicant in that case.
Counsel argued the matter fully, as on an appeal. As will appear, we are of the view that leave to appeal should be granted and the appeal allowed.
The ultimate issue in the principal proceedings is the legal correctness of a notice of assessment of company tax upon the applicant in respect of the year ended 30 June 1981. The notice of assessment in question was not one of the conventional kind under sec. 174 of the Income Tax Assessment Act 1936, but was a special notice under sec. 18(1) of the Taxation (Unpaid Company Tax) Assessment Act 1982 (``TUCTA Act''). That was issued to the applicant on 30 March 1983 in respect of tax allegedly due by a company, Clifton Towers Pty. Ltd., for the year ended 30 June 1981. The assessment of tax and additional tax total $470,924.31.
The assessment was issued to the applicant accompanied by a letter referring to the TUCTA Act and reading in part:
``According to records held in this office you were a beneficial owner of shares in Clifton Towers Pty. Ltd. prior to the sale of those shares in November 1980. On that basis and in accordance with the provisions of the above Act, enclosed is the abovenamed company's Income Tax notice of assessment for the year ended 30 June 1981 together with a notice of assessment in respect of undistributed profits tax for the year ended 30 June 1981. These notices are being served on you as a preliminary step towards the raising of a recoupment tax assessment.''
The application in the case being discussed, [89 ATC 4001], relates only to the former of the two assessments mentioned in the letter, and the latter is the subject of the proceedings in WAG 2050 of 1987, which is one of the other four cases.
The justification for issue of the assessment against Clifton Towers Pty. Ltd. to the applicant (rather than to Clifton Towers Pty. Ltd.) is as follows. There had not been, prior to the issue of the assessment of 30 March 1983, any notice of assessment issued and served upon Clifton Towers Pty. Ltd. in respect of company tax for the year ended 30 June 1981. Under sec. 174 of the Income Tax Assessment Act 1936, a notice of assessment of income tax has to be served upon the person liable to pay the tax, i.e. here, Clifton Towers Pty. Ltd. But sec. 18(1) of the TUCTA Act (``sec. 18(1)'') creates a special exception to that and allows - indeed requires, in the circumstances to which it applies - service of a notice of assessment upon persons other than the person liable to pay the company tax; it does so as part of a scheme which is explained in the principal judgment of the High Court in
MacCormick v. F.C. of T. 84 ATC 4230 at pp. 4231-4234; (1984) 158 C.L.R. 622, especially at pp. 630 to 635. We do not repeat the full explanation, but some reference to the details of the legislation must be made. One effect of the scheme, broadly speaking, is that there is a ``primary taxable amount'' where the shares in a company are sold for a price which appears to be based on the assumption that its tax liabilities will not be met and the company is then stripped. There must have been an assessment of company tax and payment of that tax must be overdue. Then the ``primary taxable amount'' is, if there is only one vendor, the whole of the overdue tax and if there is more than one vendor, it is split among them pro rata. This follows from sec. 5(1)(k) and (m) of the TUCTA Act, read with the definition of ``vendors taxable amount'' in sec. 3(1) of that Act and with sec. 4 and 5 of the Taxation (Unpaid Company Tax - Vendors) Act 1982; the Act just mentioned creates the liability for the tax, which is called, generically, a ``recoupment tax''.
Here, as we have mentioned, no assessment for the relevant year had been issued to Clifton Towers Pty. Ltd. before 30 March 1983. Section 5(1) of the TUCTA Act makes existence of a primary taxable amount (the concept just referred to) dependent on the
ATC 4535
existence of a number of preconditions, of which the immediately relevant one is (e):``an assessment of ordinary company tax or undistributed profits tax has been made under the Assessment Act, whether before or after the commencement of this Act, in relation to the company in relation to a year of income (in this sub-section is referred to as the `relevant year of income'), being the year of income in which the last sale time occurred or a preceding year of income;.''
So, if no assessment of the Clifton Towers Pty. Ltd.'s tax has been made under sec. 18(1), there can be no primary taxable amount and no tax exacted from the vendors.
Section 18(1), which permits and requires the service of the company tax assessment on a vendor, reads, in full, as follows:
``Where -
- (a) under the Assessment Act, the Commissioner is required or permitted to serve a notice of assessment on a company in relation to the liability of the company to pay ordinary company tax or undistributed profits tax in relation to a year of income; and
- (b) vendors recoupment tax is payable, or the Commissioner is of the opinion that vendors recoupment tax is likely to become payable, by a person or persons in relation to ordinary company tax or undistributed profits tax, as the case may be, that is payable or may become payable by the company in relation to that year of income,
the notice shall, notwithstanding section 174 of the Assessment Act, be served on the company by being served on -
- (c) where the vendors recoupment tax is payable, or in the opinion of the Commissioner, is likely to become payable, by only one person - that person; and
- (d) in any other case - any of the persons referred to in paragraph (b),
and, where the notice is served in accordance with paragraph (d), the Commissioner shall serve a copy of the notice on each person (other than the person on whom the notice was served) who is included in the representative class in relation to the vendors recoupment tax.''
The ``Assessment Act'' referred to is the Income Tax Assessment Act 1936. The expression ``ordinary company tax'' in sec. 18(1)(a) is defined in sec. 3(1) of the TUCTA Act to mean, to put it shortly, income tax and additional tax payable by the company. The expression ``vendors recoupment tax'' means the vendor's tax discussed above, assessed under the TUCTA Act and imposed by the Taxation (Unpaid Company Tax - Vendors) Act 1982. The notion of a ``representative class'' referred to in sec. 18(1) is explained in sec. 18(10), but need not be discussed here.
The mention of an opinion in sec. 18(1)(b) will be noted; a question arises whether that is truly a condition of liability for the relevant tax.
Under orders made before this dispute about particulars arose, the issues in the principal application were defined by the applicant's delivering points of claim and the respondent's delivering a response thereto. In the former it is asserted, and in the latter it is denied, that the respondent did not, prior to the issue of the assessment of 30 March 1983, address his mind to the matters set out in sec. 18(1)(b). Some colour is given to this assertion by the terms of the letter of 30 March 1983 partially quoted above. It says that, according to records held, the applicant was a beneficial owner of shares in Clifton Towers Pty. Ltd. prior to their sale and then goes on:
``On that basis and in accordance with the provisions of the above Act, enclosed is the abovenamed... notice of assessment...''
(emphasis added).
The letter does not say that the forwarding of the notice of assessment had any basis other than that mentioned. In particular, it does not say that the Commissioner is ``of the opinion that vendors recoupment tax is likely to become payable'', to use the language of sec. 18(1)(b). It is common ground that the first condition in sec. 18(1)(b) is inapplicable - i.e. the assessment was not issued by the Commissioner on the basis that ``vendors recoupment tax'' was, at the time of the issue of the assessment, payable.
It should be added that the applicant's points of claim go on to make other attacks on the opinion ``purportedly formed'': it is said the
ATC 4536
respondent took into account irrelevant considerations and failed to take into account relevant considerations and acted unreasonably. The respondent denies these allegations.At first sight, it would seem plain enough that an important question in the principal application is whether the sec. 18(1)(b) opinion, the formation of which appears to be essential to the validity of the assessment attacked, was in truth formed, and if so whether that was done validly. Further discussion of that, however, must await analysis of the reasons of the primary Judge.
The Judge mentioned that some particulars of the opinion had been given, viz. particulars of the period in which the respondent considered the sec. 18(1)(b) matters and the date of formation of the opinion. The request the Judge had to consider asked for more details, including the name of the person who formed the opinion, what facts he took into account, whether the facts or opinion or both were recorded in writing and particulars of the authority of the person who formed the opinion. His Honour did not consider the reasonableness of the specific requests made and they need not be set out here; he confined his attention to the broad question whether any particulars should be ordered and the case was argued before us on the same basis.
His Honour mentioned that there had been an unsuccessful application for summary dismissal by the respondent, on the basis that the liability for vendors recoupment tax could not be contested as part of the objection to the company tax assessment. He noted that that seemed opposed to what was said by the Full Court in
F.C. of T. v. Cripps & Jones Holdings Pty. Ltd. 87 ATC 4977; (1987) 76 A.L.R. 619, dealt with below.
In discussing the function of particulars, his Honour remarked [at p. 4005]:
``Where a plea in defence amounts to no more than a challenge to the plaintiff to prove its case, there is no affirmative statement and particulars of the defence have no function. And that is the effect of a general traverse in a defence which, save for matters expressly admitted, denies or does not admit the allegations in the statement of claim... Where a plaintiff pleads a negative allegation particulars will not be ordered of a defence denying it merely because that defence as a matter of logic may be said to imply an affirmative -
Weinberger v. Inglis (1918) 1 Ch. 133 at p. 137 (Astbury J.). Where, however, the defence imports some affirmative allegation beyond that which is to be implied from the mere denial of a negative, then particulars of that allegation may be ordered...''
The Judge also noted that Court proceedings should not be used ``to find out if there is a case'' but [at p. 4006]:
``Rather, they assist in the definition and proof of a case for which there already is some basis... A plaintiff should not, in the ordinary course, be permitted to assert that `D did not do X' and on nothing more than D's denial demand that D provide particulars of an implied assertion that it did X.''
His Honour then went on to discuss cases specifically relating to particulars in income tax appeals and especially
Bailey & Ors v. F.C. of T. 77 ATC 4096; (1977) 136 C.L.R. 214; he then set out his conclusions at length. They do not readily admit of summary without loss of accuracy, but their general effect may be stated as follows.
His Honour read into the response to the points of claim an assertion by the respondent that he ``did address the requisite matters and form the requisite opinion''. He went on to say, however, that the respondent's case ``does not necessarily involve the positive assertion that he formed the opinion in question''. It may be remarked, with respect, that the distinction between a party's asserting a fact, on the one hand, and his case's involving a positive assertion of that fact, on the other, is not one which is easily drawn. However, the distinction he had in mind appears to be related to the matter of calling evidence, for his Honour went on to point out that the respondent might or might not call evidence on the question of the opinion.
He expressed the view that the applicant did not, in the nature of the case, have to anticipate a variety of possible cases on the question of the formation of the opinion and that the issues were adequately defined; nor was the Court kept in the dark. His Honour thought there was no ground for any suspicion that the opinion in question was not formed and that an order for further particulars would assist a fishing
ATC 4537
expedition. The Commissioner should not be placed in a position different from that of an ordinary litigant and the motion for particulars should, the Judge held, be refused.As to the question of suspicion, we have already drawn attention to the terms of the relevant part of the letter of 30 March 1983, which accompanied the notice of assessment. It is true that it neither says nor clearly implies that the requisite opinion has not been formed, but what it does do is to state the factual basis on which the notice of assessment has been sent, namely that according to records the applicant was the beneficial owner of shares in the relevant company prior to their sale. That is but one of the rather complicated set of conditions listed in sec. 5(1) of the TUCTA Act, on the basis of which the conclusion may be open that there is a primary taxable amount; specifically, it is or is referable to condition (c). Other important conditions in sec. 5(1) relate to the consideration paid, the value of the assets of the company and its liabilities, whether (to put it simply) the company was stripped and other points which might be the subject of more than academic disagreement. It may be that the respondent intended, by his letter of 30 March, not to suggest that the basis of his sending the notice of assessment included only the matter specifically stated in the letter, but it would be rather inconvenient if the Court were reduced to making guesses about that. A proper determination of the question whether the statutory test set out in sec. 18(1)(b) is satisfied could not necessarily be made on the basis of argument and counter-argument about the proper construction of the letter. It may well have been based on a standard form, not in relevant respects adapted to the particular circumstances of the case; a similar form of letter was used by the respondent in quite different circumstances in the Cripps & Jones case (above).
Nor, in our opinion, may it be safely assumed that the process of discovery in a case of this sort will necessarily enable the applicant to ascertain from what appears in the documents whether the requisite opinion was formed nor the process by which it was formed.
In this Court, counsel for the respondent Commissioner sought to support the Judge's reasons by submitting that particulars should not usually be ordered unless it appeared that the respondent proposed to advance a positive case. He argued in effect that the applicant had to show that the opinion in question either was not held or was not legally supportable, and that the respondent might passively resist the attack on that opinion. He intimated that the respondent did not intend to call any evidence as to the issue of the holding of the opinion.
The contentions in favour of the applicant are that formation of the opinion mentioned in sec. 18(1)(b) of the TUCTA Act is a condition of the right to serve such a notice as sec. 18(1) refers to; secondly, that the applicant is entitled to a proper opportunity to contest the assertion that that opinion has been formed; thirdly, that it cannot be afforded such an opportunity unless it has proper particulars of the opinion.
The first two of these contentions receives support from the decision of this Court in Cripps & Jones (above). In that case, the Court dismissed an appeal from a decision setting aside assessments of company tax under the TUCTA Act. There the assessments were made not, as here, under sec. 18(1), but under sec. 15(4). The main difference between sec. 15(4) and 18(1) assessments is that the former can be made only against companies which have ceased to exist; the assessment is called a ``notional assessment''. But the need for the Commissioner to form an appropriate opinion is common to the two provisions. Under sec. 15(4), the opinion must be, to put it shortly, that an assessment against the company would have been good if it had not ceased to exist and further that, if so, and if the tax assessed had remained unpaid, recoupment tax would have been payable. At first instance, Beaumont J. held (assisted by an admission made by the respondent at an earlier stage of the proceedings) that the requisite opinion had not been formed and that view was upheld by the Full Court, as was the consequent setting aside of the notional assessments.
The Cripps & Jones case helps the applicant here, not only because the view the Court took about sec. 15(4) assessments would seem logically applicable to sec. 18(1) assessments, but because assessments of that latter kind were also dealt with in the Court's reasons. The Commissioner argued there that the opinion required had been formed (mistakenly) under sec. 18 but would also support a sec. 15(4) assessment. Rejecting that argument, the Court distinguished between the two provisions (ATC p. 4984; A.L.R. p. 626), but made some remarks about their common features. After
ATC 4538
referring to the taxpayer's right ``to challenge the existence of the conditions giving rise to the exercise of a power which imposes on him a new substantive liability to tax'', referred to in the High Court inF.J. Bloemen Pty. Ltd. v. F.C. of T. 81 ATC 4280 at p. 4287; (1981) 147 C.L.R. 360 at p. 374, the Full Court in Cripps & Jones went on [at ATC p. 4985; A.L.R. pp. 628-629]:
``Sections 15 and 18 of the Act should both be construed as conferring a corresponding right to challenge the existence of the conditions giving rise to the exercise of the power, under which an assessment is issued, that is served pursuant to the provisions of sec. 15 or 18 of the Act... [I]f there is any ambiguity in the provisions of sec. 15(9) and 18(3), a construction which would remove an ingredient of liability from the possibility of challenge should be rejected, both upon general principles of statutory construction, and also in accordance with the approach to the constitutional validity of an incontestable tax taken in MacCormick v. F.C. of T....''
Sections 15(9) and 18(3), referred to in this passage, deal with rights of objection to notices of assessment served under sec. 15(4) and 18(1) respectively.
In Cripps & Jones, interrogatories were answered relating to the question of the opinion. Here, an order was made on 11 July 1988 refusing leave to interrogate about the opinion; there was no appeal from that order.
The applicability of the principle of the decision in Cripps & Jones to sec. 18(1) assessments was not challenged by the respondent before us and his counsel relied, as we have said, on grounds having to do with the general law as to particulars. The argument was said to gain some support from the decision of the High Court in
George v. F.C. of T. (1952) 86 C.L.R. 183. That concerned assessments under sec. 167 of the Income Tax Assessment Act 1936, which allowed then (as it still does) the making of what is called for short a ``default assessment''.
There were two points in George's case. The first was whether the Commissioner should be ordered to supply particulars as to the source of the additional income on which one of the assessments was based; that was resolved in the negative. The second question was whether the Commissioner should supply particulars as to the identity of the person who formed or made the judgment under sec. 167; the provision speaks of the Commissioner's making an assessment ``of the amount upon which in his judgment income tax ought to be levied...''. Kitto J., at first instance, rejected this second application for particulars also.
In the Full High Court, where Kitto J.'s judgment was upheld, reference was made to the onus lying on the taxpayer to prove the assessments wrong (p. 201). The Full Court went on to say (pp. 203-204) that the formation by the Commissioner of his judgment as to what was the amount of the income upon which the taxpayer ought to be taxed was part of the very process of the assessment itself, that the taxpayer had the burden of showing the assessment was excessive and that it was no part of the duty of the Commissioner to establish what judgment he formed. The Full Court distinguished (p. 203) the formation of a judgment which was a condition precedent to the power to assess. The case is therefore no authority that particulars need not be given as to the attainment of a state of mind where that is a condition of the validity of the assessment (as in
Duggan and Ryall v. F.C. of T. 72 ATC 4239; (1972) 129 C.L.R. 365).
In the leading case on this subject, Bailey v. F.C. of T. (above), the Commissioner admitted - indeed submitted - that the Court could order particulars where the opinion of the Commissioner was an element in the assessment (ATC p. 4103; C.L.R. p. 226) and nothing was said by the judges to throw doubt upon the propriety of that concession. Barwick C.J. expressed the view that the process of assessment must be ``exposed to the Court'' and that ``the taxpayer is entitled to know the basis on which the assessment has been made'' (ATC p. 4098; C.L.R. p. 217). Dealing with the argument that in Bailey's case all the relevant facts were within the knowledge of the taxpayer (it was a sec. 260 case), Mason J. (as he then was) remarked [at ATC p. 4100; C.L.R. p. 221]:
``the relevant facts in the appeal include the view of the facts on which the Commissioner has based his assessment, the manner in which he has arrived at his assessment. These facts are not within the knowledge of the taxpayer; they are within the knowledge of the Commissioner.''
ATC 4539
It would appear that here the Commissioner's opinion about the matters referred to in sec. 18(1) may be described as or equated to the Commissioner's ``view of the facts''. Further, that opinion is a matter within the Commissioner's knowledge and not within the taxpayer's knowledge.
Aickin J., who wrote the leading judgment in Bailey's case, could see [ATC p. 4103; C.L.R. p. 227]:
``no reason why in appropriate cases the Commissioner should not give particulars where they are necessary in order that both the appellant and the court may understand the basis upon which the assessment has been made.''
Here, the basis of the assessment is (as in Bailey's case) known, at present, only in a general way.
Aickin J. also referred, without disapproval, to the assumption in the Commissioner's argument that particulars could be obtained ``in cases where the assessment was made under a section which made it dependent upon the opinion of the Commissioner, or on his being `satisfied' as to some matter'' (ATC p. 4104; C.L.R. p. 228).
In our opinion, Bailey's case is inconsistent with the general proposition that if the Commissioner intimates that he will not call any evidence about a matter necessary to the validity of his assessment, but will simply argue at the trial that the taxpayer has not displaced the assessment, particulars of its basis will ordinarily not be ordered. No trace of such a doctrine can be found in the reasons.
It must be conceded that, as the primary Judge implied, if the particulars sought here are ordered, that might enable the applicant to win an otherwise unwinnable case. If the respondent is compelled to expose to analysis the opinion allegedly held, the applicant may have opportunities of success which it would not have if confined to the processes of discovery of documents and argument based on the letter referred to above. In view of the content of that letter, we cannot agree that the request to know more about the requisite opinion is merely fishing, but we would also take broader ground. Although no special principles of law apply to the ordering of particulars against the Commissioner in income tax cases, the jurisdiction to do so must be exercised having regard to the unusual character of the onus imposed on the taxpayer by sec. 190 of the Income Tax Assessment Act 1936. Ordinarily a would-be creditor has to prove the existence of the conditions of the liability he alleges; in income tax litigation, the debtor bears the burden of disproving them, but he is in general entitled to the ``fullest particulars necessary to enable him to appraise the case which he has to'' disprove; see per Aickin J. in Bailey's case at ATC p. 4105; C.L.R. p. 230.
This approach to the need for particulars of facts that were relevant to the formation of an opinion was followed by Jenkinson J. in
Hutchins v. F.C. of T. 86 ATC 4549, also a case involving recoupment tax assessments.
In our opinion, the questions raised by the applicant are of sufficient importance to warrant the granting of leave. We are of the view that the discretion of the learned primary Judge miscarried and that his Honour should have held the applicant entitled to reasonable particulars of matters relevant to the opinion mentioned in sec. 18(1), on the ground that proper formation of that opinion was a condition of the validity of the assessment and on the ground that the terms of the letter of 30 March 1983 made further examination of that opinion a legitimate subject of inquiry.
No argument was addressed to the details of the particulars sought, but the matter was argued as one of principle only. It will be ordered, in the case just dealt with, that the application for leave to appeal be granted, that the appeal be allowed and the orders made below set aside. The application for particulars must be remitted to the learned primary Judge for further consideration and the respondent must pay the costs of the appeal. The same order must be made in the other four cases.
This information is provided by CCH Australia Limited Link opens in new window. View the disclaimer and notice of copyright.