HOARE BROS PTY LTD v DFC of T
Judges:Olney J
Court:
Federal Court
Olney J
The application
By application filed on 12 August 1994 the applicant (the company) seeks an order that a statutory demand served by the respondent pursuant to s 459E of the Corporations Law (the Commissioner) be set aside. The application is made pursuant to s 459G of the Corporations Law.
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The demand
The statutory demand asserts that the company owes the Commissioner the amount of $1,452,917.42 being the total of the amounts of debts described in a schedule to the statutory demand (the schedule) which is reproduced below:
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SCHEDULE
STATEMENT A
Description of Debt Amount of Debt
a. $336.81 being an additional tax due and
payable by the company pursuant to section 114
of the Fringe Benefits Tax Assessment Act 1986
for late lodgement of a return for the period
of the year which ended on 31 March
1992 notice of which issued on 2 June 1993 and
was due for payment on 2 July 1993. $336.81
b. $777.10 being an additional tax due and
payable by the company pursuant to section
114 of the Fringe Benefits Tax Assessment
Act 1986 for late lodgement of a return for
the period of the year which ended on
31 March 1993 notice of which issued on
3 March 1994 and was due for payment on
2 April 1994. $ 777.10
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TOTAL STATEMENT A $1,113.91
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STATEMENT B
c. Amount due and payable by the company under
and pursuant to the provisions of section
221YHJ(1)(a) of the Income Tax Assessment Act
1936, being the amount of deductions made by
the company as an eligible paying authority
from the prescribed payments of payees and
not remitted as required by
section 221YHD(1)(b)(v) of the said Act in
respect of the following period:
(i) the period from 1 May 1992 to 31 July
1993 inclusive. $27,525.50
(ii) the period from 1 December 1993 to
31 December 1993 inclusive. $1,715.00
(iii) the period from 1 February 1994 to
28 February 1994 inclusive. $2,007.00
d. Additional amount due and payable by the
company under and pursuant to the provisions
of section 221YHJ(1)(b)(ii)(B) of the Act
for late payment of the prescribed deduction
shown in paragraph c. calculated at
the rate stipulated by that section from
time to time to 19 May 1994. $3,132.25
e. Relevant penalty amount, equal to four per
centum of the prescribed deductions shown in
paragraph c. due and payable by the company
pursuant to section 221YHJ(1)(b)(ii)(A) of
the said Act.$1,249.90 $35,629.65
CREDIT in the sum of $31,247.50 being cash
payments made by the company between 16
September 1993 and 19 May 1994. $31,247.50
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TOTAL STATEMENT B $ 4,382.15
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STATEMENT C
f. Tax instalment deductions made by the
company as a group employer from the
salaries or wages of employees and not
remitted to the Deputy Commissioner as
required by section 221F(5)(a) of the
Income Tax Assessment Act 1936 in respect
of the following:
(i) the period from 1 July 1989 to 31
March 1990 inclusive. $334,123.91
(ii) the period from 1 June 1990 to June
1991 inclusive. $537,972.61
(iii) the period from 1 July 1991 to
30 June 1992 inclusive. $539,749.74
(iv) the period from 1 July 1992 to
30 November 1992 inclusive. $190,916.53
(v) the period from 1 January 1993 to
31 January 1993 inclusive. $ 50,874.32
(vi) the period from 1 March 1993 to
31 July 1993 inclusive. $315,559.22
(vii) the period from 1 November 1993 to
31 May 1994 inclusive. $502,720.26
g. Additional amount due and payable by the
company pursuant to section 221F(12)(b)(ii)(B)
of the said Act for late payment of tax
instalment deductions shown in paragraph f.
calculated at the rate of twenty per centum
per annum, from the original due date, up
to and including the 30th of September 1992
and thereafter at the rate of sixteen
per centum per annum to 16 June 1994. $ 72,677.58
h. Relevant penalty amount, equal to four per
centum of the tax instalment deductions shown
in paragraph f. due and payable by the
company pursuant to section 221F(12)(b)(ii)(A)
of the said Act. $ 98,876.41
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$2,643,470.58
CREDIT in the sum of $2,471,916.59 being
cash payments made by the company between
14 November 1989 and 16 June 1994. $2,471,916.59
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TOTAL STATEMENT C $ 171,553.99
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STATEMENT D
i. Income tax due and payable by the company
pursuant to notices of assessment made
under and pursuant to the provisions of
the Income Tax Assessment Act 1936 as set
our hereunder:
Assessment for the year of income which
ended on the 30th day of June 1990 which
issued on 20 June 1994 and which was due
for payment on 15 March 1991. $ 498,564.87
Assessment for the year of income which
ended on the 30th day of June 1991 which
issued on 5 June 1992 and which was due
for payment on 8 July 1992. $ 301,322.72
Amended assessment for the year of income
which ended on the 30th day of June 1991
which issued on 17 May 1994 and which was
due for payment on 20 June 1994. $ 666,072.28
Additional tax due and payable by the
company pursuant to section 207 of the
Income Tax Assessment Act 1936 for late
payment of income tax calculated at the
rate of twenty per centum per annum,
from the original due date, up to and
including the 30th of September 1992 and
thereafter at the rate of per centum
(sic) per annum to 15 July 1994. $ 358,401.92
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$1,824,361.79
CREDIT in the sum of $21,352.00 in respect
of a credit assessment for the year of
income which ended on 30 June 1992 which
issued on 18 June 1993. $ 21,352.00
CREDIT in the sum of $527,142.42 being
cash payments made by the company between
10 March 1993 and 4 July 1994. $ 527,142.42
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TOTAL STATEMENT D $1,275,867.37
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TOTAL STATEMENT A, B, C and D $1,452,917.42
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The company's contentions
The company contends that there is a genuine dispute between it and the Commissioner about the existence or amount of the debt to which the statutory demand relates or alternatively that there is some other reason within the meaning of s 459J(1)(b) of the Corporations Law why the statutory demand should be set aside. The basis of these contentions is that the company has lodged a notice of objection to the amended assessment for the year ended 30 June 1991 (the third item in paragraph (i) of the schedule) and is at present actively seeking an extension of time to enable it to lodge a notice of objection to the assessment for the year ended 30 June 1990 (the first item in paragraph (i) in the schedule). It is the case that the company lodged an objection to the amended 1991 assessment and although it was lodged out of time the Commissioner agreed to accept it and at present has the objection under consideration. No decision has been made on the objection. The company has also sought to lodge out of time an objection to the 1990 assessment but the Commissioner has declined to accept it. The company has sought to have the decision to refuse to accept the objection reviewed by the Administrative Appeals Tribunal (the AAT). It is also said that the amount of tax referred to in item (j) of the schedule will be affected if either or both of the company's objections are successful.
The company submits that pending the final determination of its objections there is a genuine dispute about the existence or amount of the debt to which the demand relates or alternatively, it would be unjust to allow the statutory demand to stand and thus give rise to a deemed insolvency in circumstances in which the Commissioner is actively considering an objection and the AAT has before it an application to review a decision to refuse to accept another objection out of time.
The Commissioner's contentions
The Commissioner denies that there is a genuine dispute as to the debt which would justify the setting aside of the demand pursuant to s 459H or that there is any other reason to warrant the demand being set aside pursuant to s 459J.
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Central to the Commissioner's case is the contention that the Commissioner is not prevented from seeking to recover an unpaid amount owing under an assessment of income tax merely because an objection to the assessment is under consideration or review or appeal is pending. Further, it is said first, that even if it be held that there is a genuine dispute with respect to the amended assessment for 1991, no objection had been lodged (nor indeed was sought to be lodged) in respect of the 1990 assessment at the time the statutory demand was served, and second, that the statutory demand includes amounts owing for additional tax by way of penalties, inter alia, for the late payment of FBT, group tax and PPS payments in respect of which there is no dispute as to the company's liability or as to the amounts due. The company's response to the latter point is that if it is entirely successful in its objection to the amended 1991 assessment and if it is successful before the AAT in obtaining review of the Commissioner's decision not to accept its objection to the 1990 assessment and then is entirely successful in that objection, it will become entitled to a refund of tax already paid which would exceed the total amount of tax paid in respect of which liability is not in contest.
The company's calculations
In these proceedings the company does not dispute that it is liable for the net amounts of tax and penalties itemised in statements A, B and C of the schedule. It says however that there is a genuine dispute as to its liability in respect of the 1990 assessment and the amended 1991 assessment and that in the circumstances there is a genuine dispute as to its liability for the sum of $358,401.92 for additional tax assessed for late payment of income tax. According to the company's calculations it has paid the Commissioner at least $70,121.65 in excess of its total liability and is entitled to a refund of that amount.
The company's calculations can be summarised thus:
1. Statement A - liability admitted $ 1,113.91
2. Statement B - net liability admitted $ 4,382.15
3. Statement C - net liability admitted $171,553.99
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Total of liability under
Statements A, B & C $177,050.05
4. Statement D - liability admitted
for 1991 assessment (second item in
paragraph (i) of schedule) $301,322.72
Less Credits ($ 21,352.00)
Less Payments ($527,142.42) ($247,171.70)
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5. Amount said to have been overpaid ($ 70,121.65)
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Other material filed by the Commissioner suggests that since the statutory demand was served further payments have been made by the company which, on the company's figures, would increase the amount said to be refundable, but for present purposes it is not necessary to explore that matter any further.
The scheme of the Corporations Law
In an application for the winding up of a company the Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made, inter alia, the company failed to comply with a statutory demand (s 459C(2)) but such presumption does not apply if the contrary is proved (s 459C(3)). A statutory demand may claim that the company owes the person making the demand one or more debts exceeding the statutory minimum which is or are due and payable (s 459E(1)). A company may apply to the Court for an order to set aside a statutory demand (s 459G). On such an application, if the substantiated amount (a term to which reference will be made hereunder) is less than the statutory minimum the Court must set aside the statutory demand (s 459H(3)) and if the substantiated amount is at least as great as the
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statutory minimum the Court may vary the amount of the demand and declare the demand to have had effect as so varied as from when the demand was served (s 459H(4)). Section 459H has effect subject to s 459J which provides that in an application under s 459G the Court may set aside the demand if satisfied that because of a defect in the demand substantial injustice will be caused unless the demand is set aside (s 459J(l)(a)) or there is some other reason why the demand should be set aside (s 459J(l)(b)) but the Court must not set aside a demand merely because of a defect (s 459J(2)). An order under s 459H or s 459J may be made subject to conditions (s 459M). However, to the extent that s 459H(3) imposes a duty on the Court to set aside a statutory demand when the substantiated amount is less than the statutory minimum it would appear that there is no scope for s 459M to apply to an order made pursuant to s 459H(3).For the purposes of s 459H the substantiated amount is the difference between the ``admitted total'' and the ``offsetting total''. ``Admitted total'' means the ``admitted amount'' of the debt or debts to which the demand relates and ``offsetting total'' means the amount of any one or more offsetting claims (s 459H(2)).
The terms ``admitted amount'' and ``offsetting claim'' are defined in s 459H(5) which provides:
``459H(5) In this section:
`admitted amount', in relation to a debt, means:
- (a) if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt - a nil amount; or
- (b) if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt - so much of that amount as the Court is satisfied is not the subject of such a dispute; or
- (c) otherwise - the amount of the debt;
`offsetting claim' means a genuine claim that the company has against the respondent by way of counterclaim, set- off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates);
`respondent' means the person who served the demand on the company.''
It is not altogether clear what the effect of s 459H(6) is in so far as it provides that s 459H has effect subject to s 459J. Obviously, if a demand is set aside pursuant to s 459J(1)(a) there can be no occasion to consider the provisions of s 459H and it would seem appropriate that questions relating to defects in the demand which cause substantial injustice should be dealt with in advance of any consideration of whether there is a genuine dispute as to the existence or amount of the debt but the real difficulty with s 459J is to know what is intended by the words ``some other reason why the demand should be set aside'' in subparagraph (1)(b). The ``other reason'' cannot be a defect causing substantial injustice nor can it be a mere defect (s 459J(2)), and it could hardly have been intended to refer to a genuine dispute between the company and the person making the demand about the existence or amount of the debt.
The general flavour of s 459J is one of a section which gives the Court a discretion to set aside a statutory demand when the justice of the case demands that a company which is otherwise likely to become deemed to be insolvent should be relieved of that possibility either completely or subject to it complying with conditions imposed pursuant to s 459M. In the present case it is appropriate to consider whether it is in the interests of justice that the fact that the company has lodged an objection to the amended 1991 assessment and seeks to object to the 1990 assessment warrants the exercise of the Court's discretion under s 459J(1)(b). As s 459H has effect subject to s 459J, it is appropriate that this question should be considered separately from, and prior to, any consideration of whether there is a genuine dispute as to the existence or amount of the debt claimed in the statutory demand.
The taxation legislation
It will be convenient at this stage to briefly review the relevant provisions of the Income Tax Assessment Act (ITAA) and the Taxation Administration Act (TAA).
From the returns and/or other information in his possession, the Commissioner is required to make an assessment of the amount of the
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taxable income of any taxpayer and of the tax payable thereon (ITAA s 166). Where under the Act a person is liable to pay tax the Commissioner may make an assessment of the amount of such tax (ITAA s 169). The Commissioner may amend any assessment by making such alterations therein or additions thereto as he thinks necessary (ITAA s 170(1)). Except as otherwise provided every amended assessment shall be an assessment for all the purposes of the Act (ITAA s 173). As soon as conveniently may be after any assessment is made, the Commissioner shall serve notice thereof in writing upon the person liable to pay the tax (ITAA s 174). A taxpayer who is dissatisfied with an assessment may object against it in the manner set out in Part IVC of the TAA (ITAA s 175A). The production of a notice of assessment or a document under the hand of the 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 TAA on a review or appeal relating to the assessment, that the amount and all particulars of the assessment are correct (ITAA s 177(1)). Any income tax assessed (including additional tax under Part VII) shall be due and payable by the person liable to pay the tax on the date specified in the notice as the date upon which tax is due and payable not being less than 30 days after the service of the notice, or if no date is so specified, on the 30th day after service of the notice (ITAA s 204). If any tax remains unpaid after the time when it became due and payable, additional tax is due and payable by the person liable to pay the tax (s 207(1)).The Commissioner may sue for recovery of any tax unpaid immediately after the expiry of the time when it becomes due and payable (ITAA s 207(2)). Income tax (including additional tax) when it becomes due and payable is a debt due to the Commonwealth payable to the Commissioner (ITAA s 208(1)). Any unpaid tax may be sued for and recovered in any court of competent jurisdiction by the Commissioner or a Deputy Commissioner suing in his official name (ITAA s 209).
An objection against an assessment of income tax by a person who is dissatisfied with the assessment must be lodged with the Commissioner within 60 days after the notice of the assessment has been served (TAA s 14ZW) but if the period for objection has passed, the person may nevertheless lodge the objection together with a written request asking the Commissioner to deal with it as if it had been lodged within time (TAA s 14ZW(2)) and the Commissioner must decide whether to agree to or refuse the request (TAA s 14ZX(1)). If the Commissioner decides to agree to the request, the objection is taken to have been lodged within time (TAA s 14ZX(3)) but if the request is refused the person may apply to the AAT for review of the decision (TAA s 14ZX(4)). The Commissioner must allow an objection (either in whole or in part) or disallow it (TAA s 14ZY(1)) and if the person is dissatisfied with the Commissioner's decision the person may either apply to the AAT for review of the decision or appeal to the Federal Court against the decision (TAA s 14ZZ). The fact that a review or an appeal is pending in relation to a decision does not in the meantime interfere with, or affect, the decision and any tax may be recovered as if no review or appeal were pending (TAA s 14ZZM, 14ZZR).
The standing of the Commissioner
In the course of preparing these reasons it occurred to me that there may be some doubt as to the standing of the Commissioner to serve a statutory demand pursuant to s 459E of the Corporations Law. The matters which raised my concern had not been the subject of argument but because I considered them to be of some importance I drew the attention of counsel to my concern and invited their further submissions.
The matters to which I drew the attention of counsel were as follows. Under s 459E of the Corporations Law the entitlement to serve a statutory notice depends upon the circumstance that the company served owes a.debt or debts to the person serving the notice. It appears from s 208 of the ITAA that the debt created following the service of a notice of assessment of income tax on a taxpayer is a debt due to the Commonwealth and not to the Commissioner and this is so notwithstanding that the debt is payable to the Commissioner and that the Commissioner is entitled to sue for and recover in his official name any tax unpaid including additional tax payable under s 207.
The debts the subject of the statutory demand are (to adopt the words of s 459E(1)(b)) ``2 or more debts that the company owes (to the Commonwealth), that are due and payable and
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whose amounts total at least the statutory minimum''. Thus the statutory demand and the affidavit accompanying it would appear to be inconsistent with s 208 insofar as it is asserted that the debts are now due and payable to the creditor (i.e. the Deputy Commissioner of Taxation) by the company.It would seem that once the Commissioner has sued for the amount of any unpaid tax and obtained judgment for same in a court of competent jurisdiction, there would then be a judgment debt due and payable to the Commissioner but unless and until judgment is obtained the debt would remain due to the Commonwealth. If this be so, the question arises as to what standing the Commissioner has to serve a statutory demand in respect of unpaid tax for which no judgment has been obtained. Further, if the Commissioner had no standing to serve the statutory demand, would this be an appropriate occasion for the exercise of the Court's power under s 459J(1)(b) to set the statutory demand aside or ``some other reason''?
By way of response, counsel for the company has referred me to decision of the High Court in
James v DFC of T (1957) 97 CLR 23 and in particular to the passage from p 35 the judgment of Dixon CJ, Fullagar and Kitto JJ where their Honours said:
``We think that the commissioner or deputy commissioner is empowered to take proceedings in bankruptcy for the recovery of the tax as a Crown debt. The officer may proceed in his own name but he sues for the Crown and as plaintiff or actor it is not in his own right but that of the Crown that he proceeds.''
In the present matter the company does not challenge the Commissioner's standing to serve the statutory demand and in those circumstances I will proceed on the basis that the demand was properly made. But that is not to say that I accept that the issue is beyond question nor that James v DFC of T is decisive of, or indeed relevant to, the issue. The facts in James were that the Deputy Commissioner had obtained a judgment for the amount of tax due to the Commonwealth and had issued a bankruptcy notice on the strength of that judgment. It has long been held that a power to sue for and recover a debt on behalf of another extends to taking proceedings in bankruptcy but I remain unconvinced that the same reasoning necessarily applies to the case of the Commissioner seeking to create a deemed insolvency under the Corporations Law in circumstances in which judgment has not first been obtained. As Hayne J said in
Mibor Investments Pty Ltd & Ors v Commonwealth Bank of Australia (1993) 11 ACLC 1062 at p 1066:
``... the (statutory) demand is no more than a precursor to an application for winding-up in insolvency.''
Be that as it may, the applicant is content to accept that the Commissioner had standing to serve the statutory demand and the application will be dealt with accordingly.
``Any other reason''
I do not think that the fact that there remain unresolved questions relating to the company's objection to the amended 1991 assessment and to the Commissioner's decision to reject an objection lodged out of time in respect of the 1990 assessment renders the service of the statutory demand unjust so as to give rise to an occasion for making an order pursuant to s 459J(1)(b).
The objection currently under consideration by the Commissioner and the objection which the company now wishes to lodge in respect of the 1990 assessment both go to the issue of the amount of the company's liability for tax in the relevant years. The company's argument to the effect that it is entitled to a net refund of tax is based upon the claim that both the objection to the 1991 assessment and the proposed objection to the 1990 assessment will be entirely successful. But no attempt had been made to object to the 1990 assessment until after the statutory notice was served. I do not think that it can be said that the Commissioner's conduct in serving the statutory demand was in any way unconscionable or an abuse of process or that it has given rise to substantial injustice that warrants the Court setting aside the statutory demand. The company has not been denied whatever opportunity exists under s 459H to seek to have the statutory demand set aside. There is nothing special about the circumstances of the case which calls for the Court's intervention pursuant to s 459J(l)(b).
Genuine dispute
The Commissioner's view is that unless and until a duly issued assessment of income tax is varied either by the Commissioner, the AAT or
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the Federal Court pursuant to the provisions of the legislation governing objections, the amount assessed remains due and payable and incapable of being the subject of a genuine dispute either as to the existence of the liability or as to the amount thereof. In other words the Commissioner would have it that once the Commissioner has issued and served an assessment of income tax, and assuming payment has not been made within the prescribed time, a statutory demand under s 459E claiming that the amount of the assessment is due and payable may be served and the company cannot challenge the statutory demand on the ground that there is a genuine dispute as to the existence or amount of the company's liability notwithstanding that an objection has been made and remains unresolved or that the Commissioner's decision rejecting an objection is currently the subject of review by the AAT or an appeal to the Federal Court.The Commissioner has not in this proceeding produced any notice of assessment or copy of any notice of assessment in respect of any of the amounts said to be owing by the company and accordingly there is no occasion for the provisions s 177(1) of the ITAA to operate. In this context I refer to the comments of Mason and Wilson JJ in
F.J. Bloemen Pty Ltd v FC of T 81 ATC 4280 at p 4289 where their Honours said:
``... [subsection 177(1)] is evidenciary and begins to operate when an appropriate document is produced in a court or board of review, and not before...''
There is however material before the Court which establishes the fact of the various assessments having been issued and no issue has been raised by the company either as to the issuing and service of the assessments, the expiration of the time for payment, or as to the amount of the taxable income and tax said to have been so assessed. On the material before the Court (and without the conclusive presumption of 177(1) being invoked) it is open to it to find and I so find, that by reason of the issuing and service of the various assessments referred to in the schedule the total amount of those assessments less the amounts shown in the schedule as being credited against the company's liability is a debt presently due to the Commonwealth which is payable to the Commissioner and for which the Commissioner may sue in a court of competent jurisdiction in his official name. The question which this application raises is whether there can be a ``genuine dispute'' within the meaning of s 459H of the Corporations Law, as to the existence or amount of such a liability.
The scheme of the ITAA is not to render a taxpayer liable or tax unless and until three events have occurred: first, the Commissioner must have assessed the amount of the taxable income and the tax payable thereon; second, notice of the Commissioner's assessment must have been served on the taxpayer; and third, the prescribed period after service of the notice of assessment must have expired. Once these events have occurred the tax as assessed becomes a debt due to the Commonwealth by the taxpayer. This conclusion is dictated by the ordinary meaning of the words used in the ITAA and is supported by dicta of Kitto J in
Batagol v F.C. of T. (1963) 13 ATD 202 at 203-204; (1963) 109 CLR 243 at p 251, 252 and of Mason and Wilson JJ in Bloemen at p 4286.
A genuine dispute as to whether or not any one or more of the three events mentioned above has occurred would in my view be a ground upon which the power to set aside a statutory demand under s 459H could be exercised. Such a dispute would clearly go to the question of the existence of the debt. In a case in which a notice of assessment has not been produced so as to invoke provisions [of] s 177(1) it may be open to dispute that an assessment has been duly made, but that case is not this case. Furthermore, there may also be scope for there to be a genuine dispute as to the service of notice of the assessment or as to the expiration of the required period after service. But once all three elements have been established namely, the making of the assessment, the service of notice of the assessment and the expiration of the required period after service, there is created a statutory liability which is capable of being sued for and recovered in a court of competent jurisdiction and this is so notwithstanding that the taxpayer may have lodged an objection against the assessment or has sought review of, or has appealed against, the Commissioner's decision in response to the objection.
In the present case the objection which the company has lodged in respect of the 1991 amended assessment and which the
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Commissioner presently has under consideration raises an issue as to whether the Commissioner should have disallowed certain losses which the company claimed as deductions against its gross income. The objection which the company wishes to make against the 1990 assessment is based upon an assertion that certain previously unclaimed deductions aught to be allowed. There is no reason to doubt that the dispute between the company and the Commissioner as to the deductibility of the amounts in question is a genuine dispute, nor that if the company is successful in its objections, either by persuading the Commissioner or if it fails to do that, upon review or appeal, the amounts of tax payable for the relevant years, and possibly the penalty tax are likely to be reduced. But the structure of the taxation legislation is such that the debt created after the service of an assessment remains recoverable as a debt unless and until it is replaced following objection, review or appeal by some other liability. A genuine dispute as to the process of assessment is not a dispute as to the existence or amount of the debt.In a case such as this in which the issuing and service of the assessments are not in issue and in which there is no question that the respective dates for payment of the assessments have passed there can be no genuine dispute as to the existence or amount of the debt claimed in the statutory demand which would justify the Court exercising its powers pursuant to s 459H of the Corporations Law to set aside or vary the statutory demand. In the absence of a genuine dispute as to the existence or amount of the debt claimed in the statutory demand no question as to any ``offsetting claim'' arises.
An incontestable tax?
At paragraph 5 of the applicant's statement of facts and circumstances the following submission is made:
``Further and in the alternative, if it is held that a `genuine dispute' does not exist within the meaning of section 459H(1)(a), that could only be because in a technical sense income tax may be a debt due and payable pending the objection and appeal process. However, the legislature could not have intended that the specific objection and appeal rights contained in the Taxation Administration Act are impliedly overridden by the general language used in Chapter 5 of the Corporations Law. To the contrary, the specific objection and appeal rights contained in the Taxation Administration Act cannot be taken to be impliedly overruled by the general language of Chapter 5 of the Corporations Law since the taxation power contained in section 51(ii) of the Constitution does not permit the imposition of `taxation' which is, in effect, incontestable (
MacCormick v F.C. of T. 84 ATC 4230; (1983-1984) 158 CLR 622).''
This submission was enlarged upon by counsel in the course of argument but in my opinion there is no substance in it and indeed it is contradicted by the judgments in MacCormick.
The doctrine that the incontestability of a tax may go to its validity appears to have had its origin in a dictum of Dixon CJ in
DFC of T v Brown (1958) 11 ATD 374; (1958) 100 CLR 32 in which his Honour said at ATD p 375-376; CLR p 40:
``Although there is no judicial decision to that effect, it has, we think, been generally assumed that under the Constitution liability for tax cannot be imposed upon the subject without leaving open to him some judicial process by which he may show that in truth he was not taxable or not taxable in the sum assessed, that is to say that an administrative assessment could not be made absolutely conclusive upon him if no recourse to the judicial power were allowed.''
This passage was quoted in the joint judgment of Gibbs CJ, Wilson, Deane and Dawson JJ in MacCormick at ATC p 4237; CLR p 640-641 following which their Honours said:
``For an impost to satisfy the description of a tax it must be possible to differentiate it from an arbitrary exaction and this can only be done by reference to the criteria by which liability to pay the tax is imposed. Not only must it be possible to point to the criteria themselves, but it must be possible to show that the way in which they are applied does not involve the imposition of liability in an arbitrary or capricious manner. In
Giris Pty. Ltd. v. F.C. of T. 69 ATC 4015 at pp. 4021-4022; (1969) 119 C.L.R. 365 at pp. 378-379, Kitto J. pointed out that the expression `incontestable tax' in the sense in which it is used in Hankin and Brown `refers to a tax provided for by a law which, while
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making the taxpayer's liability depend upon specified criteria, purports to deny him all right to resist an assessment by proving in the Courts that the criteria of liability were not satisfied in his case'. The purported tax is thereby converted to an impost which is made payable regardless of whether the circumstances of the case satisfy the criteria relied upon for characterization of the impost as a tax and for characterization of the law which imposes it as a law with respect to taxation. Such an incontestable impost is not a tax in the constitutional sense and a law imposing such an impost is not a law with respect to taxation within sec. 51(ii). It is in this sense that an incontestable tax is invalid.''
Although MacCormick was a case which had to do with the imposition of recoupment tax under the Taxation (Unpaid Company Tax) Assessment Act 1982, the legislative scheme incorporated the relevant parts of the ITAA relating to review and appeal. Immediately following the passage last quoted the joint judgment continued (at ATC p 4237-4238; CLR p 641-642):
``However, the liability which the legislation imposes to pay recoupment tax is not incontestable in this sense. One of the criteria of liability for recoupment tax is a pre-existing, unpaid liability on the part of a target company to pay company tax. The fact that a person not liable to pay company tax but liable to pay a different tax in the form of recoupment tax has a limited right or no right at all to contest the liability of the relevant target company for company tax is not to the point. It is the existence of the overdue company tax which is one of the criteria of liability for recoupment tax and that existence is established once an assessment of company tax is made and any objection has been finalized or the period for objecting has expired and the tax remains unpaid at the relevant time. Liability to pay recoupment tax does not arise until these event have occurred and it arises only upon the assessment of those persons to whom the legislation applies. The assessment of those persons is open to the ordinary processes of review and appeal. This is because the 1982 Assessment Act incorporates the relevant parts of the Income Tax Assessment Act relating to the assessment and collection of tax, including review and appeal.
It would not be to the point if no right to contest the liability of a target company to pay company tax were given to those persons liable to pay recoupment tax upon the basis of the overdue company tax. The limited rights given to those persons to contest the liability of the company are, from the point of view of legality, gratuitous. If in a particular case the provisions have the effect that a person liable to pay the recoupment tax is unable to contest the liability of the target company, and the assessment of that liability was in fact incorrect, the result will be plainly unjust, but it will not mean that the recoupment tax is incontestable. Of course, it was not argued, nor could it be argued, that company tax is itself an incontestable tax. Liability to pay that tax arises upon the assessment of a company pursuant to the provisions of the Income Tax Assessment Act and in relation to that assessment the ordinary processes of review and appeal are open. Once those processes are complete or the time for taking them has expired, the existence of the company tax may be proved by recourse to sec. 177(1) of the Income Tax Assessment Act which provides that production of a notice of assessment shall be conclusive evidence of the due making of the assessment and that the amount and all the particulars of the assessment are correct. That section does not, of course, apply in proceedings on appeal against the assessment of the company tax. The existence of that section does not make company tax incontestable nor was it suggested that it does.''
In my opinion there is no support in the decision in MacCormick for the proposition advanced by the present applicant based upon the claim that the statutory demand relates to an incontestable (and therefore an invalid) tax.
Conclusion
The company has not demonstrated any ground upon which the Court may exercise its powers under either s 459H or 459J of the Corporations Law Act to either set aside or vary
ATC 4167
the statutory demand served on it by the Commissioner.The application will be dismissed.
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