CASE 27/97

Members:
MD Allen SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 9 May 1997

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MD Allen (Senior Member)

At the conclusion of the hearing of the above matter the terms of the decision intended to be made and the reasons therefor were stated orally. After service upon the Respondent of a copy of the decision that was in fact made the Respondent, pursuant to Sub-section 43(2A) of the Administrative Appeals Tribunal Act 1975, requested the Tribunal to furnish to the Respondent a statement in writing of the reasons of the tribunal for its decision.

2. The oral reasons for decision have been transcribed by Auscript, the Commonwealth Reporting Service. Whereas those oral reasons may reflect the inelegance of an extempore decision, they are in fact the reasons for the said decision.

3. The said transcript is annexed hereunto and furnished to the Respondent and to the Applicant as it is the reasons for the Tribunal's decision.

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MR ALLEN: In this matter the applicant seeks an extension of time in which to lodge an objection against an assessment of income tax for the tax year ending 30 June 1987 which assessment was dated 22 January 1993. Although section 14ZW of the Taxation Administration Act had been amended prior to the issue of the said assessment the transitional provisions contained in section 14 of the Taxation Laws (Amendment) Self Assessment Act 1992, being Act number 101 of 1992, restricted the time in which the applicant could lodge an objection to the period of 60 days.

At the outset I find that the applicant is now confused regarding his taxation affairs and I accept that the position was that at the relevant time, and indeed he seems now, content to put his affairs into the hands of his accountant and solicitor and be guided by their advice. They, in turn, seem to have suffered by a failure on the part of the applicant to properly attend to his own affairs. On 13 July 1994 the applicant's then accountant wrote to him stating inter alia:

``I have no documentation to determine whether the tax audit was correct or whether there are any grounds for appeal. After discussions with Tom Harding unless the solicitors can provide additional information I believe we have no grounds to appeal.''

That letter concluded:

``As a result of the above I believe I have exhausted all avenues available to me. After discussions with Tom Harding and a review of the facts I recommend that you pay the outstanding balance of $48,487.09 as soon as you can organise the finance.''

I would only comment that the person ``Harding'' referred to was a former accountant/tax agent of the applicant and apparently the writer of the letter had taken over that practice. Having received advice from his now accountants, it would appear that there are grounds upon which the applicant could seek to challenge the assessment. I do not consider that it is necessary for me to rule on whether such a challenge would be successful or not. The major item of contention is the inclusion in the applicant's income for the tax year ended 30 June 1987 of the sum of $76,793 said to represent the sale of a property described as block 3, section 43, Oxley, unit 5.

In evidence the tax officer who carried out the audit of the applicant's affairs conceded that the said sum of $76,793 was taken from the applicant's accountant's journal and that she relied upon that agent's submissions regarding that sum. Documentation from the Land Titles Office which was in the possession of the respondent at the time the assessment was made clearly shows that the purchase price of the unit was $70,000 and that settlement took place on 11 September 1987. In determining whether to grant an extension of time I would refer first of all to the decision of the High Court in
Brisbane South Regional Health Authority v Taylor reported at 139 ALR 1. At page 5 their Honours, Toohey and Gummow JJs said, in referring to a limitation period:

``The discretion conferred by the subsection is to order an extension of the limitation period. It is a discretion to grant, not a discretion to refuse, and on well established principles an applicant must satisfy the court that grounds exist for exercising the discretion in his or her favour. There is an evidentiary onus on the prospective defendant to raise any consideration telling against the exercise of the discretion but the ultimate onus of satisfying the court that time should be extended remains on the applicant.''

Similarly, his Honour, Mr Justice McHugh, with whom his Honour, Mr Justice Dawson agreed, said at page 9:

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``The finale rationale for limitation periods is that the public interest requires that disputes be settled as quickly as possible -''

- and continued at page 10 -

``- that the applicant had a good cause of action and was unaware of a material fact of a decisive character relating to the right of action does not alter the burden on the applicant to show that the justice of the case favours the grant of an extension of time. Those facts enliven the exercise of the discretion but they do not compel its exercise in favour of the applicant. Without them the applicant has no right to calls for the discretion to be exercised in his or her favour. Proof of them does not give the applicant a presumptive right to the exercise of the discretion as Mr Justice Davies, judge of appeal, and Mr Justice Ambrose held and as Mr Justice Wells has pointed out, to qualify is not to succeed. The object of the discretion to use the words of Chief Justice Dixon, in a similar context, is to leave scope for the judicial or other officer who is investigating the facts in considering the general purpose of the enactment to give effect to his view of the justice of the case. In determining what the justice of the case requires the judge is entitled to look at every relevant fact and circumstance that does not travel beyond the scope and purpose of the enactment authorising an extension of the limitation period.''

In referring to the Brisbane South case it must be kept in mind that that was an appeal against a limitation period which contained the qualification namely that an applicant had to show that a material fact of a decisive character relating to the action was not within his, his or her means of knowledge, thus, although the principles espoused by the High Court will affect, they do not materially alter the well known principles set forth by Wilcox J in
Hunter Valley Developments Pty Ltd v Cohen 3 FCR 344. Of those principles, the most important is, of course, the first, namely that

``Although the section does not, in terms, place any onus of proof upon an applicant for extension an application has to be made. Special circumstances need not be shown but the court will not grant the application unless positively satisfied that it is proper to do so. The `prescribed period' of 28 days is not to be ignored... Indeed, it is the prima facie rule that proceedings commenced outside that period will not be entertained.''

And those comments have been reinforced by Brisbane South v Taylor Supra. Part of the principle has, however, been modified because his Honour went on to say,

``It is a pre-condition to the exercise of the discretion in his favour that the applicant for extension show an `acceptable explanation of the delay' and that it is `fair and equitable in the circumstances' to extend time.''

As was pointed out by the Full court of the Federal Court in
Comcare v A'Hearn 119 ALR 85 at 88. We note that the tribunal used language that might be taken to suggest that it is a precondition for success in such an application, that an acceptable explanation for the delay must be given. Although it is to be expected that such an explanation will normally be given as a relevant matter to be considered, there is no rule that such an explanation is an essential precondition. The second principle referred to by Wilcox J refers to action taken by an applicant other than by making an application for review and whether that person has by non curial means continued to make the decision maker aware that he contests the finality of the decision.

In this matter the applicant has not made any real challenge. He has, for a long period of time, been content to leave matters in the hands of his accountant and tax agent. The first notification of the possibility of challenge was not until 27 August 1995. The third principle is prejudice to the respondent including any prejudice in defending proceedings. In that matter I could only refer to the case of
Windshuttle v DFC of T 93 ATC 4992 at 5003, as Von Doussa J pointed out:

``The contention that prejudice arises because no money has been recovered on the assessment presupposes that the assessment is one that in law should have been raised on the true facts. This is the very issue in dispute.''

This is not prejudice of the kind to which the authorities refer. If it were, there would be prejudice in every case where an extension of some procedural time limit is sought and the extension, if granted, would remove the bar to action in favour of the opposing party which would otherwise exist. The fact that the statute

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has provided a power to extend time is a recognition that the loss of the procedural bar that would otherwise apply is not to be a ground disqualifying someone from seeking an extension. The kind of prejudice which is relevant is prejudice that could arise to the opposing party in properly and fairly, dealing with the subject matter of the dispute, that will require determination, if the extension of time is granted.

Relevant matters will be whether witnesses have disappeared or their recollections have faded and cannot be refreshed. Whether avenues of useful inquiry have dried up or become difficult to pursue and whether material documents have been destroyed. In a case like the present it may be open to the party potentially entitled to recover money to establish that by reason of the delay. The financial resources of the applicant have so altered for the worse that the chance of recovery of whatever sum is ultimately found to be due, has seriously diminished. See also, Brisbane South v Taylor Supra. There can, in my opinion, be no such prejudice to the Commissioner in this case.

It was submitted by Ms Rowling for the Commissioner that prejudice would accrue to the Commissioner if the objection was upheld as he would be prevented from assessing any income for the 1988 tax year. I concede this is so if the objection were to be upheld. In my opinion,
Klopper & Anor v FC of T 97 ATC 4179; 34 ATR 650 referred to by Mr Hollands for the applicant is distinguishable as it referred to a gift and section 78A of the Income Tax Assessment Act 1936 applied. However, I regard it as no prejudice for the Commissioner to have to correct an assessment which is plainly based on a wrong premise. Compare
Lighthouse Philatelics Pty Limited v FC of T 91 ATC 4942; 103 ALR 156, especially at ATC page 4949; ALR page 165.

I consider it equally a reproach that the Commissioner should seek to maintain an assessment that is demonstrably wrong. At point 4 Wilcox J in Hunter Valley Developments referred to the mere absence of prejudice as not being enough to justify the grant of an extension. I feel I need not deal further with that particular ground as I consider it does not have a material application in this matter even though were he to be successful, it would mean that the applicant's taxation affairs would have to be reconsidered generally. As to the merits of the particular application, I have not canvassed the merits extensively but it seems to me that the applicant's case is at least arguable and he should, on that basis, be permitted to put it to the Commissioner.

There are also consideration of fairness and all I would say on that ground is that in the scheme of things, the sum involved will not cause great havoc to the finances of the nation, it will be of significance to the applicant. More important, however, is the recent decision of the Full Court of the Federal Court in
Darrell Lea Chocolate Shops Pty Ltd v FC of T 97 ATC 4040; 34 ATR 491. At ATC page 4049-4050; ATR page 502, the court said:

``There will of course be cases where there will be uncertainty as to the facts. But that uncertainty will not invalidate a bona fide attempt to assess. What the Act does not contemplate is that the Commissioner will seek to apply the provisions of the Act to facts which he knows to be untrue. That could never... amount to a bona fide process of ascertaining or determining the real sale value and sales tax payable on the relevant transaction. It would be an attempt at determining the sale value and sales tax payable in respect of some hypothetical transaction which did not occur and which the Commissioner knew did not occur.''

They continue:

``Conversely it may be said that once the Commissioner forms the view that there is no substantial possibility that the item of income is assessable income of a person, it could not be a bona fide exercise of the assessing power to assess that person to tax in respect of that income. Likewise here where it is conceded that there is no possibility at all that the assessments made were correct, there can be no assessment.''

Page ATC 4050-4051; ATR 503 the Court continued:

``If anything the present case is more extreme. Not only did the Commissioner not make any genuine attempt to ascertain the sale value of particular goods under each of the relevant Assessment Acts, but he also determined a sale value and purported to create a liability for sales tax upon facts which he knew were wrong. This would inevitably produce a sale value and sales tax

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payable under each assessment which were likewise wrong, so that the purported liability created had to be in excess of Darrell Lea's actual liability under each Sales Tax Assessment Act.

When one has regard to the role which s 67 played in protecting an assessment from all judicial scrutiny, it is axiomatic that that protection assumed that the Commissioner would make a bona fide effort to ascertain the liability of a taxpayer to tax by reference to facts which he believed at least could be true. When in
Federal Commissioner of Taxation v Clarke (1927) 40 CLR 246 at 276 Isaacs ACJ spoke of the Act trusting the Commissioner, his Honour clearly did not intend to convey that this trust extended to a case where the Commissioner acted in such a way as to betray that trust. The extensive powers conferred upon the Commissioner in connection with the assessment and collection of sales tax, or for that matter any other tax, must be so exercised as to deal fairly with each taxpayer:
Inland Revenue Commissioner v National Federation of Self-Employed and Small Businesses Ltd [1982] AC 617 and
Edelsten v Wilcox & Anor 88 ATC 4484; (1988) 83 ALR 99. An assessment on facts known by the Commissioner to be untrue is of its nature unfair and oppressive. But equally as important, it involves no process of ascertainment or calculation.''

In this matter, although the error now complained of was caused by the applicant's own tax agent it is now known to be arguably an error. Indeed, the respondent's officers at the time of the assessment had evidence which pointed to an error, namely the Titles Office documents, although in fairness to them it is clear that the applicant's whole affairs were confused and they were entitled to have regard to the applicant's tax agent.

However, as the court pointed out in Lighthouse Philatelics Supra at ATC page 4949; ALR page 165:

``To refuse to allow the amendment on the grounds of objection on the basis that the failure to claim deductions otherwise properly allowable was a mistake of the taxpayer's accountant, would involve an error of law.''

By equivalent reasoning it seems to me that it would be an error of law to refuse an extension of time on the basis that an applicant had placed his affairs in the hands of his tax agent and his recourse for any errors was against that person. It may be, as Ms Rowlings submitted, that the applicant's would be objection has little or no merit. That may be so but given the Title Office documents I consider he should be given the opportunity to argue that objection.

The decision under review will therefore be set aside and the tribunal substitutes its own decision in lieu, namely that the time in which the applicant may lodge an objection against an assessment of income tax for the tax year ending 30 June 1987, which assessment bears date 22 January 1993, be extended to 13 March 1996.