THAI v DFC of T

Judges:
Lockhart J
Beaumont J
Whitlam J

Court:
Full Federal Court

Judgment date: Judgment handed down 26 August 1994.

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Lockhart, Beaumont and Whitlam JJ

[After setting out the history of the proceedings, and determining that leave should be granted to appeal from the decision of Davies J, the Court continued...]

(c) Is Mr Thai indebted in the sum of $636,787.08 for unpaid income tax together with additional tax for late payment?

The question is whether Mr Thai owed $636,787.08 for tax at the date of the sequestration order.

It was argued before Davies J. by counsel for the Deputy Commissioner that s. 177(1) of the Assessment Act precluded the Court from considering the challenges which Mr Thai made to the five notices of assessment issued by the Deputy Commissioner in relation to Mr Thai's taxable income for the years ended 30 June 1986 to 1990 inclusive, in each case issued on 2 September 1992. Section 177(1) provides as follows:

``177(1) The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.''

Davies J. held that in his opinion the due date for payment expressed in a notice of assessment is not a ``particular of the assessment'' which s. 177(1) makes conclusive. He said [at
Re Thai; Ex parte DFC of T 94 ATC 4289 p 4292]:

``In my opinion, the due date for payment expressed in a notice of assessment is not a particular of the assessment which s. 177(1) makes conclusive. Sections 166, 167, 168 and 169 deal with the making of an assessment. In each case, the assessment is an assessment of the taxable income of the person assessed and of the tax payable. Those provisions appear in Part IV of the Assessment Act. The Assessment Act deals with the question of a date when the assessed tax is due and payable in Division 1 of Part VI.''

No notice of contention with respect to this finding of Davies J. adverse to the Deputy Commissioner was filed by him (see O.52 r.22(3)). Nor did the Deputy Commissioner otherwise seek to challenge this finding before us on appeal (see
Chittick v Ackland (1984) 1 FCR 254 at 256 per Lockhart and Morling JJ.).

Central to the issues agitated on appeal are ss. 204 and 205 of the Assessment Act the terms of which were set out earlier.

The Deputy Commissioner served the notices issued pursuant to s. 205 on 2 September 1992 which purported to make the tax due and payable on 3 September 1992. Mr Thai contended that these notices were invalid because s. 204 was not complied with and that the fixing of a date for payment of tax by notices issued under s. 204 is a necessary prerequisite to the operation of s. 205.

The meaning of the word ``due'' and of the expression ``due and payable'' where appearing in the Assessment Act has been considered by the High Court from time to time and in different contexts. The cases are conveniently collected in
Clyne & Anor v DFC of T & Anor 81 ATC 4429; (1981) 150 CLR 1 per Gibbs C.J. at ATC 4432; CLR 8 and 9 and Mason J. (with whose reasons for judgment Aickin and Wilson JJ. agreed) at ATC 4436-4437; CLR 15-17. See also
Commissioner of State Taxation (WA) v Pollock 93 ATC 5220; (1994) 12 ACLC 28; (1993) 12 ACSR 217 per Ipp J. at ATC 5230; ACLC 38-39; ACSR 230, with whose reasons for judgment Wallwork J. agreed at ATC 5234; ACLC 42; ACSR 235; and
DFC of T v Kinny 89 ATC 4305; (1988) 15 NSWLR 701 per Smart J. at ATC 4307; NSWLR 704. It is unnecessary for present purposes to consider the meaning of the word ``due'' except where it is used in conjunction with the word ``payable'' in the composite expression ``due and payable'' where appearing in ss. 204 and 205.

It was established in Clyne that income tax is due when it is assessed and notice is served of that assessment; and that tax does not become payable before the date fixed by whichever limb of s. 204 applies: per Mason J. at ATC 4436-4437; CLR 16.

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ATC 4491

The principal question in the appeal from the judgment of Davies J. is whether the Commissioner's power to issue a notice under s. 205 of the Assessment Act arises only after a notice has been previously issued pursuant to s. 204(1) either specifying the date upon which tax is due and payable (the first limb) or not specifying such date so that the tax becomes due and payable on the thirtieth day after the service of the notice (the second limb).

Expressed another way, the question is whether the s. 205 power arises only if a date upon which tax is due and payable has been previously fixed by a notice issued under s. 204. Is s. 205 a provision dependent upon and auxiliary to s. 204, empowering the Commissioner to abridge the time for payment already fixed either by the Commissioner's choice under the first limb of s. 204 or the self operating provisions of the second limb? Must s. 204 operate to fix the time on which the tax becomes due and payable before s. 205 can be invoked by the Commissioner?

The function of s. 205 is plain. It is designed to protect the revenue against taxpayers liable to pay tax who seek to escape payment of it by quitting the jurisdiction.

The history of ss. 204 and 205 in federal income tax law commences with the Income Tax Assessment Act 1915 (Cth), ss. 36 and 41. Then came the Income Tax Assessment Act 1922 (Cth), ss. 40 and 54. When the Assessment Act was enacted in 1936 it included ss. 204 and 205 in a form not materially different from the form which they presently take so far as relevant to the questions which arise in this case. They were introduced as part of a regime whereby taxpayers who wished to leave Australia could not do so without first obtaining a certificate from the Commissioner that the taxpayer was not liable to pay income tax or that arrangements had been made to the Commissioner's satisfaction for the payment of income tax (ss. 211, 212 and 213).

Alterations were made to ss. 204 and 205 by the Income Tax Assessment Act (No 2) 1940 (ss. 12 and 13), the Income Tax and Social Services Contribution Assessment Act 1954 (s. 11), the Income Tax Laws Assessment Act 1981 (s. 24 and Schedule 1), and the Taxation Laws Amendment Act 1984 (ss. 109 and 110). Although the regime which previously required a taxpayer to obtain a certificate from the Commissioner before he or she was able to leave Australia has now changed, the Commissioner has a number of means available to him to recover tax from taxpayers, debtors, trustees, liquidators and receivers (see ss. 215-218 and 255-259), and to prevent the disposal of assets to protect the revenue:
DFC of T v Rosenthal & Ors 85 ATC 4031; (1984) 16 ATR 159. Those means include the Commissioner's power to issue a departure prohibition order under the Taxation Administration Act 1953: ss. 14Q to 14ZA. An order of this kind may be made where a person is ``subject to a tax liability'' and the Commissioner believes on reasonable grounds, that it is desirable to make such an order for the purpose of ensuring that the person does not depart from Australia for a foreign country without wholly discharging the tax liability or making arrangements satisfactory to the Commissioner for the tax liability to be wholly discharged (s. 14S(1)). The expression ``tax liability'' is defined by s. 2 (the interpretation section) as meaning a liability to the Commonwealth arising under, or by virtue of, a taxation law.

Once the Commissioner has issued a notice under s. 205, so that tax becomes due and payable on the date notified by the Commissioner in that notice, a liability to pay that tax to the Commonwealth arises under the Assessment Act not later than the date so notified to the taxpayer. The Commissioner is then in a position to issue a departure prohibition order under s. 14S of the Taxation Administration Act.

It is to be remembered that international reciprocity in enforcing the laws of other countries does not extend to enforcement of their revenue laws by permitting actions for recovery of revenue or admitting claims based thereon. Moreover, no relaxation is afforded in favour of countries which are members of the Commonwealth of Nations:
Government of India v Taylor [1955] AC 491 (H.L.).

Knowledge of the intention of a taxpayer to leave Australia may sometimes come to the attention of the Commissioner in sufficient time to allow him merely to accelerate the time for payment of tax that has already been fixed by a s. 204 notice. But there are other cases where quick action is required. Many examples come to mind and it is unnecessary to state them. Section 205 exists so that, once the Commissioner has assessed a taxpayer to tax

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ATC 4492

(the process of assessment under ss. 166 to 169 precedes the collection and recovery of tax which has been assessed), he may tailor the time for payment to the cut of the taxpayer's travel plans. Sometimes this may be very short indeed. See
DFC of T v Naidoo & Anor 81 ATC 4537; (1981) 55 FLR 245 (Everett J.) and
DFC of T v Keeling 93 ATC 5208 (Beach J.) where each s. 205 notice stated the tax to be due and payable on the same date as that notice was delivered.

We see no reason to construe s. 205 so as to confine its operation to the case where a notice of assessment has previously issued and the Commissioner wishes to accelerate the date for payment of tax, though such a case is obviously included within the scope of the section.

We reject the argument of counsel for Mr Thai that, before the Commissioner can call in aid s. 205, he must first serve a notice under s. 204 and purport to make tax due and payable either on a date specified in the notice being at least 30 days after service of the notice (the first limb) or, in the absence of the specification of any such date, on the 30th day after service (the second limb).

The words in s. 205 ``before the date on which the tax is due and payable'' (our emphasis) do not assist Mr Thai's argument that the Commissioner cannot exercise any rights under s. 205 until such time as he has first issued notices of assessment which make tax due and payable under s. 204.

As we observed earlier, Davies J. dealt with this argument and called in aid the observations of Dixon J. in
Resch v FC of T (1942) 6 ATD 203; (1941-1942) 66 CLR 198 on a different but analogous point. As we read his Honour's reasons for judgment it is likely that he would have reached the same conclusion without the benefit of those remarks of Dixon J.

Section 205 may be invoked where the Commissioner has issued a notice under s. 204 and, before the time for payment of the tax has arrived, he forms the belief referred to in s. 205. The use of the word ``is'' is also apposite to include the situation where the Commissioner has not issued a notice under s. 204, but has assessed the taxpayer to tax and has reason to believe that the taxpayer may leave Australia before the date on which tax would be payable if a s. 204 notice were to issue (whichever limb of s. 204 may apply). In either case, the use of the word ``is'' in s. 205 is apt if read in the sense of ``will be due and payable'' or ``would otherwise be due and payable''. This construction gives effect to the obvious function which s. 205 is designed to serve. The exercise of power under s. 205 only arises in a case where the Commissioner wishes to invoke its provisions before the date when the tax is due and payable. The date on which tax ``is due and payable'' is thus always prospective when s. 205 is called in aid by the Commissioner. It does no violence to the language of s. 205 to read the word ``is'' in the sense in which in our view it should be read.

Also, s. 204(1) is introduced by the words ``Subject to the provisions of this Part,...'' Section 205 is not governed by s. 204; it operates independently of it. It is a separate source of the Commissioner's power to issue a notice to a taxpayer stating that tax shall be due and payable on a date earlier than a date that would otherwise arise under either limb of s. 204.

The construction and operation of s. 205 has been considered by courts in earlier cases.

We have referred already to Keeling and Naidoo. In Naidoo, as mentioned above, the s. 205 notice fixed the time at which the tax became due and payable as the date on which the notices of assessment were served. Everett J. rejected the argument that the Deputy Commissioner was not justified in taking that course.

In Keeling, another case where the s. 205 notice nominated as the date for payment of the tax the very same day on which the notice was issued, Beach J. said at 5209-5210:

``Under that section [205(1)] it is open to the Commissioner to specify any date he chooses for payment of the tax, including the date of issue of the Notice of Assessment itself, if he has reason to believe that a person liable to pay tax may leave Australia before the date on which the tax is due and payable.''

We agree with this passage from his Honour's reasons subject to the qualification that there may be a case where the issue of a notice in those circumstances is an unreasonable exercise of the power under s. 205. There is no suggestion that the present case is such a case.

In
Seymour v DFC of T; DFC of T v Seymour 92 ATC 4774 the Commissioner issued an amended assessment on 3 July 1992 making tax

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ATC 4493

due and payable on 6 July 1992. The Commissioner relied on s. 205 to support the notice. Northrop J. said at 4780:

``In order to do that the Commissioner had to have `reason to believe that (the taxpayer) may leave Australia before the date on which the tax is due and payable' presumably under the provisions of s 204.''

The Deputy Commissioner had previously issued an assessment for tax for the relevant year of income. The case was concerned with the question whether the Deputy Commissioner had reason to believe that the taxpayer would leave Australia and not with the question whether the issue of a s. 204 notice was a prerequisite to the issue of a s. 205 notice. When his Honour's observations are read in the context of the facts of the case, we see no support for the proposition that he regarded the issue of a notice under s. 204 as a necessary prerequisite to the issue of a notice under s. 205.

In
DFC of T v Thai 93 ATC 4530 Master Malpass heard a motion to set aside a default judgment obtained by the Deputy Commissioner against Mr Thai for an amount of income tax. Following a taxation audit, five notices of assessment had been issued to Mr Thai on 2 September 1992. (They appear to be the same notices that are before us.) Master Malpass ordered that the default judgment be set aside because the originating process on which the judgment was founded did not allege the material facts on which the Deputy Commissioner relied. It failed to comply with the rules of the Supreme Court of New South Wales and disclosed no cause of action. Accordingly, he held that the judgment was irregularly obtained and should be set aside. Master Malpass said (with reference to ss. 204 and 205) at 4,536 that it was arguable that the Deputy Commissioner could not invoke s. 205 unless a notice of assessment to tax had already been served on the taxpayer making the person liable to pay tax and specifying the date on which the tax was due and payable. These observations of Master Malpass are obiter dicta and were in any event carefully prefaced by him as being simply arguable questions, as indeed they are. We do not understand the Master to have reached any final view on the questions.

It was not in dispute before Davies J. (or before Einfeld J. or on appeal) that the Deputy Commissioner believed that Mr Thai might leave Australia before the date on which tax would be due and payable. Nor was it in dispute that the Deputy Commissioner had reason to believe that Mr Thai might do so.

In our opinion the notices issued by the Deputy Commissioner in reliance upon s. 205 are valid notwithstanding that they were not preceded by the issue of notices under s. 204. The s. 205 notices operated as notices of assessments to tax in their own right and fixed the date on which the tax was due and payable as the following day, 3 September 1992. The amount claimed by the Deputy Commissioner to be due and payable as unpaid income tax, together with additional tax for late payment, constitutes a debt due by Mr Thai to the Commonwealth.

Before leaving this question we should mention that Davies J. [at 94 ATC 4293] expressed the opinion, by way of obiter dicta, that the second limb of s. 204 should be construed so that even if a notice under s. 205 had been issued which specified a date on which the tax would become due and payable, and the notice was invalid, (his Honour was considering the hypothesis, not argued in this case, as to whether the Deputy Commissioner had or had not reason to believe that Mr Thai may leave Australia):

``s. 204 would operate as if no date had been specified in the notice of assessment and, accordingly, the tax would have been due and payable on the 30th day after the service of the notices of amended assessment.''

We respectfully disagree. Section 204 has two limbs, each independent of the other. In each case there must be a written document, a notice telling the taxpayer the amount of tax to which he has been assessed. The notice may specify the date when the tax is due and payable. If there is no reference to the date for payment (obviously this would be a rare occurrence), then the section operates of its own force to determine that date. The second limb is in the nature of a deeming provision. Each limb of the section depends for its operation upon the terms of the written document, the notice served upon the taxpayer. The notice is the means whereby a taxpayer knows the amount of tax to which he has been assessed and when the tax is due and payable.

A notice purporting to state a date for payment of tax which is invalid cannot be a notice on which no date for payment is

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ATC 4494

specified. It has been specified in fact. The date appears on the face of the notice. To satisfy the terms of the second limb of s. 204 there must be a notice which does not specify the date on which tax is due and payable.

[The Court then proceeded to determine the appeal from the orders of Einfeld J.]

THE COURT ORDERS THAT:

1. Leave to appeal be granted from the judgment of Davies J. given on 9 May 1994.

2. The appeal from the said judgment of Davies J. be dismissed.

3. The appeal from the judgment of Einfeld J. given on 16 June 1994 be allowed.

4. Order 4 made by Einfeld J. on 16 June 1994 that the fifth ground of opposition to the petition be dismissed, be set aside.

5. Order 5 made by Einfeld J. on 16 June 1994 that Mr Thai pay the costs of the Deputy Commissioner of Taxation of the hearing on 16 June 1994 be set aside.

6. Order 6 made by Einfeld J. on 16 June 1994 that a sequestration order be made against the estate of Mr Thai be set aside.

7. Order 7 made by Einfeld J. on 16 June 1994 be set aside and in lieu thereof it be ordered that there be no order as to the costs of the proceeding before Einfeld J. on 16 June 1994.

8. The matter be remitted to a judge of the Court to make such orders under s. 52 of the Bankruptcy Act as may be appropriate in accordance with the reasons for judgment of the Full Court and, in particular, upon the basis that the orders made by Davies J. not be disturbed.

9. There be no order as to the costs of the appeal to the Full Court from the judgment of Davies J. of 19 May 1994 (including the motion for leave to appeal therefrom) and of the appeal from the judgment of Einfeld J. on 16 June 1994.

10. Liberty to be reserved to either party to apply on seven days' notice.