Case X52

Members:
Gray J

Tribunal:
Administrative Appeals Tribunal

Decision date: 5 June 1990.

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Gray J. (Presidential Member)

The applicant company seeks to review a decision of the Deputy Commissioner of Taxation, refusing to treat as having been duly lodged a late objection to an amended assessment. In a sense, the case is a sequel to that reported as Case X2,
90 ATC 105. The facts are set out in some detail in that decision. For the purposes of the present application, it is only necessary for me to set out the facts in a summary form.

2. In its return of income for the year ended 30 June 1981, the applicant declared as income a sum of $1,108,815 (``the disputed sum''), describing it as ``sale of drilling information''. In the same return, the applicant claimed the disputed sum as a deduction, describing it as ``expenditure... in respect of oil exploration'' and referring to sec. 124. This reference should have been to sec. 124AH of the Income Tax Assessment Act 1936 (``the Act''), under which expenditure on exploration in Australia for the purpose of discovering petroleum is an allowable deduction. Because of information given in the return, the deduction was disallowed when the applicant's income was assessed, on the basis that the disputed sum had been recouped. See sec. 124AQ of the Act.

3. Following the assessment, the applicant lodged an objection. This objection included a claim that the applicant's net profit be reduced by the disputed sum, but did not include as a ground of objection the specific claim that the disputed sum should be allowed as a deduction pursuant to sec. 124AH. The objection was accompanied by an amended return containing a set of figures, calculated by an accountant who had replaced the person responsible for the earlier return, which figures were said by the

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ATC 408

applicant to represent the true position as to its income and expenditure for the relevant year. The disputed sum was not shown in these figures as income. An explanation was given that it was received as a loan. An amount in excess of the disputed sum was shown as expenditure in relation to the drilling of a particular hole and was claimed as a deduction.

4. An amended assessment was prepared. It was based on the new figures, except apparently in one respect. It appears that the assessor treated the disputed sum as having been recouped, setting it off against the amount claimed as a deduction under sec. 124AH. The applicant alleges that, in doing so, the assessor relied on information from the original return, and that this was the only respect in which he or she did so. The result was a minor diminution in the applicant's taxable income as assessed. The assessment was dated 22 October 1986.

5. The applicant requested referral of its objection to this Tribunal, pursuant to sec. 187(a) of the Act. The Commissioner referred the objection on 30 June 1987. In the course of interlocutory proceedings, the parties exchanged statements of facts, issues and contentions. The matter was set down for hearing. A few days before the hearing, counsel for the Commissioner gave notice that the Commissioner would contend that the grounds stated in the original objection were not wide enough to allow the Tribunal to grant the relief claimed, i.e. that the applicant could not pursue its objection on the ground that it should have been allowed a deduction when its objection was based on the proposition that the disputed sum should not have been included as assessable income. The applicant sought to amend its grounds of objection. The point was argued before the Tribunal, constituted by a Senior Member. The Tribunal upheld the Commissioner's argument that the grounds of objection could not be amended. The decision was given on 18 December 1989.

6. On 19 February 1990, the applicant lodged an objection to the amended assessment (that of 22 October 1986). This objection was well outside the 60-day period laid down by sec. 185 of the Act, during which an objection may be lodged. It was accompanied by an application pursuant to sec. 188(1) of the Act, requesting the Commissioner to treat the objection as having been duly lodged. This was a course which had been suggested by the Tribunal in its decision of 18 December, although it appears that the Tribunal had heard no argument on that point. The Commissioner exercised his power pursuant to sec. 188A(1) to refuse the application to treat the objection as having been duly lodged. The applicant has exercised the right given by sec. 188A(3) to apply to the Tribunal for a review of the decision refusing that application.

Section 185(1) of the Act provides:

``185(1) A taxpayer dissatisfied with any assessment under this Act may, within 60 days after service of the notice of assessment, lodge with the Commissioner an objection in writing against the assessment stating fully and in detail the grounds on which he relies.

185(2) Where an assessment has been amended in any particular, the right of a taxpayer to object against the amended assessment is limited to a right to object against alterations or additions in respect of, or matters relating to, that particular.''

The first question which arises is whether the applicant is entitled to object at all to the amended assessment. The answer to this question depends on whether the objection is against an alteration or addition in respect of, or a matter relating to a ``particular''. Section 185(2) in its present form was enacted in 1986, apparently in an attempt to amend the law as laid down in
F.C. of T. v. Offshore Oil N.L. 80 ATC 4457; (1980) 49 F.L.R. 159. The intention of the legislature seems to have been to eliminate a right to raise in relation to an amended assessment matters not objected to in the original assessment. In the present case, counsel for the Commissioner argued that the applicant could have objected to the disallowance of a deduction under sec. 124AH in the original assessment and did not do so. He argued that the applicant was prevented by sec. 185(2) from raising such an objection in relation to the amended assessment. There is no doubt that the amended assessment did involve an alteration to the amount of the deduction allowed under sec. 124AH. Such an alteration must amount to an amendment in a ``particular'', whatever else the word ``particular'' might mean in the context of sec. 185(2). The applicant is therefore entitled to

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ATC 409

object against alterations or additions in respect of, or matters relating to, that particular. The question of the proper amount to be deducted under sec. 124AH is clearly at the very least a matter relating to the amendment in the relevant particular.

7. The next question is whether the exercise by the Commissioner of the discretion pursuant to sec. 188A(1) to grant or refuse the application is the correct or preferable decision. It is clear from cases such as
Lucic v. Nolan (1982) 45 A.L.R. 411 that an applicant for the exercise of a discretion to extend a statutory time limit carries an onus to establish the facts on which a favourable exercise of the discretion could be based. It also appears from
Hickey v. Australian Telecommunications Commission (1983) 47 A.L.R. 517 at p. 523 that mere delay may disentitle a person to an extension of a statutory time limit where the public interest is involved. Obviously, delay is not an automatic bar, or there would be no point in the existence of a statutory discretion to allow the doing of an act outside the statutory time limit.

8. In the present case, several factors are of significance:

• (a) The information provided by the Commissioner, with both the first assessment and the amended assessment, did not state explicitly, and did not make clear, what had been the fate of the disputed sum. The manner in which the disputed sum had been dealt with only became clear when the Commissioner provided details of calculations in preparation for the hearing of Case X2.
• (b) Until shortly prior to the hearing of Case X2, it appeared that the substance of the matter would be dealt with in that proceeding. It was proper for the Commissioner to take the point that amendment of the grounds of objection was no longer possible, and I must assume that it was proper for the Tribunal to uphold the point. Nevertheless, the point was taken late in the day. This explains a large part of the lapse of time between the amended assessment on 22 October 1986 and the lodging of the objection to it on 19 February 1990.
• (c) If the applicant's case is correct that the amended assessment was calculated on the new set of figures in all respects but one, and that the amended assessment is unfavourable to the applicant in that one respect (and I say nothing as to the correctness of this case), there has been a grave injustice done to the applicant.
• (d) The Commissioner is not able to show any prejudice arising from the delay. At the instigation of the Commissioner, pending the hearing in Case X2, the applicant has paid half of the tax assessed by the amended assessment. There is nothing to suggest that the balance will not be paid if the applicant is unsuccessful.

9. The balance of these factors lies clearly in favour of allowing the applicant to pursue the substance of its dispute with the Commissioner over the disputed sum. Notwithstanding the delay which has occurred, I am of the view that the discretion of the Commissioner under sec. 188A(1) of the Act should have been exercised to grant the application that the Commissioner treat the objection to the amended assessment as having been duly lodged. The Tribunal will therefore set aside the decision under review, and order instead that the applicant's objection, lodged on 19 February 1990, be treated as having been duly lodged.