ROSS PALMER HOLDINGS PTY LTD & ANOR v FC of T

Judges:
Spender J

Court:
Federal Court

MEDIA NEUTRAL CITATION: [2003] FCA 508

Judgment date: 23 May 2003

Spender J

These are two applications for judicial review under Administrative Decisions (Judicial Review) Act 1967 (Cth) (``the ADJR Act''). The application in Q 282 of 2001 is by Ross Palmer Holdings Pty Ltd (``RPH''), and the application Q 283 of 2001 is by Tube Securities Pty Ltd (``Tube''), a wholly-owned subsidiary of RPH. On such a review, the Court's powers were summarised by Toohey J in
Johnson v FC of T 86 ATC 4281 at 4284-4285; (1986) 11 FCR 351 at 355 (``Johnson''):

``... The court does not sit as a court of appeal from the decision-maker and there is no appeal by way of rehearing. A person who invokes the Judicial Review Act must bring himself within one of the grounds in sec 5, at any rate where he clams to be a person aggrieved by a decision as opposed to conduct as described in sec 6. The grounds in sec 5 focus on the decision and the circumstances surrounding its making. The Court may review the decision on any of those grounds. The Court is not empowered to review the decision on the merits except in the sense that it may hold that there was no evidence or other material to justify the making of the decision or that there was an exercise of power so unreasonable that no reasonable person could have so exercised the power or perhaps in the limited way arising from some of the other grounds. The Court is not empowered to substitute its own decision.''

And later [at 4285]:

``... merely by calling evidence which, if accepted by the Court, would show that the assessments were not served until 9 April or thereabouts, with the consequence that the

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objections were lodged in time. The applicant must persuade the Court that the decision-maker erred on one of the grounds in subsec 5(1). That is not to say that an applicant may not give evidence of events leading up to the making of a decision; and sometimes an applicant, without objection, gives evidence going to the merits of the decision.... before exercising any powers under sec 16, the Court must be satisfied that one of the grounds in subsec 5(1) has been made out.''

2. The applicants seek review of the decision by the Commissioner of Taxation refusing them further time to arrange to transfer net capital losses and revenue losses under s 80G and 160ZP of the Income Tax Assessment Act 1936 (Cth) (``the Act''). The applicants claim to be aggrieved because these actions of the Commissioner of Taxation have resulted in increased tax liability for them.

3. At the first directions hearing on 15 February 2002 orders were made that the two matters be heard together, as the evidence is essentially common. The applications were filed out of time, it being originally thought that the appropriate venue was the Administrative Appeals Tribunal. An application for an extension of time in each case was not opposed, and was granted.

4. The decisions, review of which is sought pursuant to s 5 of the ADJR Act can be described in more detail as the decisions of the Commissioner of Taxation to refuse further time:

5. At issue are agreements to transfer both revenue and capital losses.

Statutory Provisions

6. Section 80G(6A) provided (in relation to revenue losses):

``(6A) An agreement under paragraph (6)(c) must be:

  • (a) in writing and signed by the public officer of each of the loss company and the income company; and
  • (b) made before the date of lodgment of the return of income for the income company for the income year or within such further time as the Commissioner allows .''

(Emphasis added)

Paragraph 6(c) provides:

``the loss company and the income company agree that the right to an allowable deduction under subsection 79E(3), 79F(6), 80(2), 80AAA(7) or 80AA(4), as the case requires, in respect of so much of the whole or part of the loss as has not been allowed as a deduction should be transferred to the income company in the income year.''

7. Subsection 160ZP(7AA)(b) provided (in relation to capital losses):

``(7AA) An agreement made under paragraph (7) (c) must be:

  • (a) in writing and signed by the public officer of each of the gain company and the loss company; and
  • (b) made on or before the date of lodgment of the return of income of the gain company for the gain year or within such further time as the Commissioner allows .''

(Emphasis added)

Paragraph 7 (c) provides:

``the loss company and the gain company agree to treat as a capital loss incurred by the gain company during the gain year the proportion of the whole or a part of the net capital loss that has not been taken into account in determining:

  • (i) whether a net capital gain accrued to the loss company; or

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  • (ii) whether the loss company incurred a net capital loss;

...''

8. Tube lodged its 1995 return on 1 December 1995, and RPH lodged its 1995 return on 4 December 1995.

9. At all relevant times, apart from certain redeemable preference shares which were on issue under a financing arrangement to Suncorp Insurance and Finance from 4 October 1988 to 29 October 1992, the structure was:

10. I am not presently concerned with any question involving the redeemable preference shares.

11. Circumstances leading to the applications to the Commissioner for extensions of time are as follows.

12. In 1992 Adeane owed Tube $8,153,209.00 for moneys lent from time to time. The assets of Adeane included shares in a listed company Koala Corporation Australia Ltd. The market price of those shares had gone down since Adeane bought them, and this had reduced Adeane's then asset backing below the amount of the debt Adeane owed Tube. In 1992 Tube assigned the debt owed to it by Adeane to RPH for its face value. In 1995 RPH assigned that debt and further advances from RPH to Adeane of $1,150,382.00 to Mr Ross Palmer for much less than RPH had paid for it, and thereby made a loss of $7,063,591.00 on that disposal. RPH applied part of that loss to reduce its taxable income for the 1995 year to nil, and agreed to transfer $4,821,980, being part of what was left of the loss, to Tube, which Tube set off against its income in the income tax year ended 30 June 1995 to reduce its income in that tax year to nil. RPH carried forward the remaining $2,241,611.00 of the loss of $7,063.591.00.

13. The Commissioner asserted that the disposal in 1992 by Tube to RPH at face value was at an over value, and that RPH is taken by the market value substitution rules in s 160ZH(9) to have acquired the debt at its actual value, which the Commissioner asserts was $690,092, being a figure based on Adeane's net asset value. The Commissioner says that because of the reduced cost base to RPH, RPH in fact made a gain on the disposal to Mr Palmer of $789,939.00, on the basis that the loan had a market value (based on Adeane's net asset value) of $1,640,618.00.

14. The consequence, according to the Commissioner, was that there was no loss to RPH on disposal in 1995 and for that reason, amongst others, RPH did not have losses to reduce its and Tube's 1995 tax year profits as had been claimed in their income tax returns. Both RPH and Tube say that if the disposal in 1992 by Tube to RPH was at an over value, then the market value substitution rule in s 160ZD(2) gave a loss to Tube in 1992 to set off, possibly against its 1992 income and certainly against its 1993 income, and reduce it to nil, leaving an amount to carry forward and reduce its subsequent income tax year incomes, including the incomes for the 1995 tax years to nil, with a balance available to be transferred to RPH to set off against its 1995 tax income and reduce it to nil. Also, Tube sought to have other losses transferred from Adeane for the 1995 tax year.

15. As a consequence of these circumstances, RPH on 4 July 2001 applied for an extension of time within which there might be an agreement in respect of the transfer of net capital losses. In that application RPH said:

``Circumstances concerning, and the reasons for, the company's failure to make the agreement within the prescribed period are as follows:

  • (a) The gain company was of the view that no capital gain had arisen in the gain year as a result of the transfer of a loan to Ross Leslie Palmer. As a result of a tax audit the Australian Taxation Office maintains that a capital gain arose.
  • (b) Had this matter not been raised by the Australian Taxation Office there would be no reason for the taxpayer to lodge an objection and make an agreement to transfer net capital losses from Tube Securities Pty Ltd.
  • (c) The Australian Taxation Office's final position was not known until the issue of an amended assessment dated 8 May 2001.''

Further, the application said:

``A grant of such an extension of time is necessary if the taxpayer is to be made liable

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only for the amount of tax truly payable under the Act.''

16. It is apparent from that application that the reason that an application had not been made earlier was that the non-availability of the claimed capital loss to RPH came about as a result of a tax audit by the Commissioner and the amended assessment issued dated 8 May 2001.

17. In respect of Tube the application under par 80G(6A)(b) was made on 4 July 2001, and included the following explanation:

``Circumstances concerning, and the reasons for, the company's failure to make the agreement within the prescribed period are as follows:

  • (a) The gain company was of the view that no tax was payable on the basis that a capital loss was available for transfer in the gain year by Ross Palmer Holdings Pty Ltd (another member of the same wholly owned group) as a result of the transfer of a loan to Ross Leslie Palmer. As a result of a tax audit the Australian Taxation Office maintains that no capital loss arose on the transfer of the loan, and consequently that no capital loss was available for transfer to the gain company.
  • (b) Had this matter not been raised by the Australian Taxation Office there would be no reason for the taxpayer to lodge an objection and make an agreement to transfer losses from Adeane Pty Ltd.
  • (c) The Australian Taxation Office's final position was not known until the issue of an amended assessment to Ross Palmer Holdings Pty Ltd dated 8 May 2001 and the issue of an assessment to the gain company dated 24 May 2001.''

The claim was again made:

``A grant of such an extension of time is necessary if the taxpayer is to be made liable only for the amount of tax truly payable under the Act.''

The application by Tube under par 160ZP(7AA)(b) provided the same description of the circumstances in respect of capital losses as was made in RPH's application. The application by Tube in respect of capital losses was made on 11 September 2001.

18. The Commissioner refused the extensions for RPH by letter dated 26 September 2001 and for Tube by letter dated 26 September 2001. In respect of the application under subs 80G(6A) for Tube to transfer revenue losses for the year ended 30 June 1995 from Adeane to Tube, the Commissioner said:

``The date of lodgement of the return of income for [Tube] was 1 December 1995. Over five years have elapsed since the time when the transfer document should have been executed and the [sic] lodged under subsection 80G(6A).

Taxation Ruling TR 98/12 states (at paragraph 18) that the Commissioner, in exercising the discretion contained in paragraph 80G(6A)(b), is guided by the principles of administrative law, including an obligation to identify and consider all factors that may be relevant in the exercise of the discretion and to give them an appropriate weighting. The general principles in respect of statutory considerations as outlined by Wilcox J in Hunter Valley Developments Pty Ltd and Ors v Minister for Home Affairs and Environment are relevant considerations in determining the exercise of the Commissioner's discretion contained in subsection 80G(6A). Following from the Hunter Valley Developments case the statutory time limit is not to be ignored and, prima facie, agreements must be made within time. The onus is on the taxpayer to provide an adequate explanation for the delay.

The Commissioner's view as expressed in TR 98/12 is that these general considerations need to be balanced with the considerations of the underlying policy of section 80G and the wider consideration of the proper administration of the Act. TR 98/12 continues (at paragraph 92): `It is considered that there is nothing within the subject matter, scope and purpose of section 80G (or the rest of the taxation legislation) that would imply any limitation upon the Commissioner to consider the conduct of a company group giving rise to an adjustment as being a relevant factor to the exercise of the discretion.'

Taxation Ruling IT 2465 states (in paragraph 39) in relation to the exercise of the Commissioner's discretion contained in subsection 80G(6A) that it should not be

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assumed that the discretion will be exercised in a case in which the capacity to absorb a group company loss has increased as a result of the discovery of an overclaimed deduction by the income company and the adjustment of the taxable income results in the imposition of penalty under Part VII of the ITAA 1936.

In the current case, [Tube] were issued an amended assessment on 24 May 2001 for the year ended 30 June 1995 after the ATO conducted a specific issue audit. [Tube] were denied a deduction for $4,821,980 of capital losses transferred from RPH. The amended assessment for [Tube] resulted in an increase in tax payable of $1,409,840.45 and the imposition of penalties under Part VII of the ITAA 1936 of $353,460.11 and interest of $939,584.83.

In the letter of advice from Mr Graham Sorensen of Coopers & Lybrand to Mr Bruce Matthews of Palmer Tube Mills Limited date 2 April 1993 it was stated that `due to the operation of the capital gains tax cost base rules in subsection 160ZH(9) of the Act, RPH will only be deemed to have acquired the loan for its market value at the time of acquisition'. Despite this advice, RPH proceeded to claim a deduction for the capital loss based on the face value of the loan at the time of acquisition rather than the market value. Part of the self-assessed capital loss was then transferred to [Tube].

In exercising the discretion of the Commissioner it is considered that the actions of the group companies, including [ Tube], weighs against the favourable exercise of discretion. When weighed with the other considerations including the length of the delay, it has been decided that the Commissioner will not exercise his discretion to allow Adeane Pty Ltd and [ Tube] to make an agreement to transfer losses under section 80G of the ITAA 1936 for the income year ended 30 June 1995.''

(Emphasis added)

19. For similar reasons the Commissioner refused the application under subs 160ZP(7AA). The Commissioner's refusal in respect of the application by RPH under subs 160ZP(7AA) was to similar effect to the refusal in the case of Tube. Both relate to the issue of amended assessments in May 2001 after the ATO conducted a specific issue audit. Both referred to the letter of advice from Coopers and Lybrand, and advance as an important reason against granting the extensions sought that the relevant company claimed deductions of capital losses based on the face value of the loan and the length time of delay, despite professional advice to the contrary.

20. The letter to RPH was more expansive in relation to the considerations which the Commissioner said guided the exercise of discretion. That letter of 26 September said, in part:

``... in exercising the discretion the Commissioner is guided by principles of administrative law including an obligation to identify and consider all factors that may be relevant to the exercise of the discretion and to give them an appropriate weighting. The following principles in respect of statutory discretions as outlined by Wilcox J in
Hunter Valley Developments Pty Ltd and Ors v Minister for Home Affairs and Environment (1984) 3 FCR 344; (1984) 58 ALR 305 are relevant considerations in determining the exercise of the Commissioner's discretion:

  • 1. Whether the applicant provided an acceptable explanation for the delay such that it would be fair and equitable in the circumstances to extend the time.
  • 2. Any action taken by the applicant to make the Commissioner aware that the decision was being contested.
  • 3. Any prejudice to the Commissioner which may have resulted from the delay.
  • 4. Any wider prejudice to the general public in terms of disruption to established practices.
  • 5. The merits of the application.
  • 6. Consideration of the fairness between applicants and other persons in like positions and the wider public interest.

Following from the Hunter Valley Developments case the statutory time limit is not to be ignored and, prima facie, agreements must be made within time. The onus is on the taxpayer to provide an adequate explanation for the delay.''

21. I turn now to a consideration of the submissions by the parties. I again note the observations of Toohey J in Johnson (supra) at

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ATC 4284; FCA 354 that the function of the Federal Court under the ADJR Act is:

``... to review the legality, not the merits, of administrative decisions, and the Court does not substitute its own decision for that of the decision-maker.''

22. It is necessary that one of the grounds in s 5 of the ADJR Act has been made out. For the Commissioner it was submitted that none of the grounds of review in s 5 of the ADJR Act is made out in respect of any of the three decisions or, alternatively, if any ground of review is made out then no relief should be given pursuant to s 16 of the ADJR Act.

23. In each application the respective applicant contended that the Commissioner erred in making the decision in that he wrongly relied on the ``Guidelines'' set out in
Hunter Valley Developments & Ors v Minister for Home Affairs & Environment (1985-1986) 58 ALR 305 (``the Hunter Valley Developments case'') in respect of applications for extension of time under other legislation, and he wrongly relied on the Taxation Ruling TR 98/12 which ruling relied on the decision in the Hunter Valley Developments case. At the hearing counsel for the applicants qualified this ground, accepting that subject to the comments of Hill J in
Brown v FC of T 99 ATC 4516 (``Brown'') at pars 41 and following, (which case was affirmed at
99 ATC 4852), and also to the observations in
Zizza v FC of T 99 ATC 4711 at 4715-4716, and taking into account the different context in which the relevant provisions were formulated, the Hunter Valley Developments case is a convenient starting point for determining the principles to be applied.

24. Hely J said in
Elias v FC of T 2002 ATC 4579 at 4585 [34]; [2002] FCA 845 at par 34:

``The Commissioner is entitled to adopt a policy to provide guidance as to the exercise of the discretion, provided the policy is consistent with the statute by which the discretion is conferred. Thus if the statute gives a discretion in general terms, the discretion cannot be truncated or confined by an inflexible policy that it shall only be exercised in a limited range of circumstances. A general policy as to how a discretion will `normally' be exercised does not infringe these principles, so long as the applicant is able to put forward reasons why the policy should be changed, or should not be applied in the circumstances of the particular case. See
Re Drake v Minister for Immigration & Ethnic Affairs (No 2) (1979) 2 ALD 634 at 640-641;
Chumbairux v Minister for Immigration & Ethnic Affairs (1986) 74 ALR 480 at 492-493.''

25. In Brown, Hill J said at [at 4524] par 41:

``In the comments which follow I propose to examine the matters raised by Wilcox J [in the Hunter Valley Developments case] and their relevance to taxation objections generally and to the present case in particular. In doing so I would repeat that I should not be taken to be suggesting that in the present case the Tribunal erred in law in approaching the matter by reference to Hunter Valley Developments for this was the approach which the parties suggested to the Tribunal. And it must be said that at least some of the factors enunciated as guide lines in Hunter Valley may have relevance, notwithstanding the differing context in which they were formulated. Nor should I be seen to be criticising the comments which the Tribunal made in considering the Hunter Valley guidelines, other than the approach it took to the merits of Mr Brown's case. The Tribunal's comments, however, do serve to demonstrate that a number of the Hunter Valley Developments `guidelines' will often have no relevance to an inquiry such as the present for they are framed by reference to a quite different context. Too slavish an adherence to them should, in my view, be avoided.''

26. His Honour, at par 45 referred to the decision of the Full Court of the Federal Court in
Comcare v A'Hearn (1993) 119 ALR 85. In that case a Full Court comprising Black CJ, Gray and Burchett JJ held that although in an application for extension of time, an explanation for the delay in bringing the substantive application will normally be given, such an explanation is not an essential pre- condition for the granting of the extension. The Court said at 88:

``We note that the Tribunal used language that might be taken to suggest that it is a pre- condition 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

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an essential pre- condition: see
Dix v Crimes Compensation Tribunal [1993] 1 VR 297 at 302 per Brooking J, with whom Fullagar and Tadgell JJ agreed; cf
Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344 at 348 and
Maric v Comcare (1993) 40 FCR 244 at 247-249.''

27. Hill J in Brown noted at [at 4525] par 47, concerning the explanation for delay:

``While, therefore, the explanation for delay in lodging the objection will be an important factor, it is necessary to bear in mind that the decision maker should take into account all the circumstances of the particular case against the background that Parliament has enacted a procedure to permit extensions of time being granted. An extension should be granted where the justice of the case requires, cf
Wedesweiller v Cole (1983) 47 ALR 528 at 531 per Sheppard J, cited with approval in the present context by Sweeney J in
Fardon v FC of T 92 ATC 4339 at 4348. Neither the Commissioner nor the Tribunal on review should approach the question of determining whether an extension of time should be granted on the basis that it will only be in an exceptional case that an extension is granted.''

28. Brown, of course, was a case where an objection to an assessment was lodged outside the time prescribed, and the question was whether an extension of time to object should be granted. In that context, Hill J said at [at 4526] par 49:

``In summary it is clear that in considering an extension of time the Commissioner (or Tribunal) must take into account the circumstances surrounding the failure to object in time and any explanation for delay which is given. The length of delay will likewise be relevant. But these are factors to be weighed against other matters, particularly the fact that to deny a taxpayer the right to have the assessment reconsidered by the Commissioner, or ultimately by the Tribunal or the Court, may be conducive to injustice.''

29. The reasons for decision of the Commissioner, in refusing the applications for the relevant extensions of time, were provided by Mr Robert Zuanetti. In par 31 of an affidavit filed in Q 282 of 2001 on 25 March 2002, Mr Zuanetti said:

``The terms of TR 98/12 obliged me to identify and consider all factors relevant to the exercise of the discretion and to give them appropriate weighting. In undertaking this exercise, I had regard to the policy of Sections 80G and 160ZP within their context in the Act. TR 98/12 also obliged me to have regard to the principles in respect of statutory discretions outlined by Wilcox J in
Hunter Valley Developments Pty Ltd & Ors v Minister for Home Affairs and Environment (1984) 3 FCR 344 those factors being summarised in my letter of 26 September 2001...''

That summary has earlier been set out.

30. Mr Zuanetti continued:

``In applying the factors to the circumstances of these matters I concluded that the legislative policy contemplated agreements being made within time. Here over five years had elapsed since the agreement should have been made. Accordingly the issue of most weight was the explanation for that delay.''

He then referred to the taxpayer's submissions, and said under the heading ``Relevant Facts'':

``The following factual matters were in my view, pertinent to the exercise of the discretion:

  • (a) the relevant agreements should have been entered into more than five years ago, prior to the lodgement of the relevant returns;
  • (b) the requests only arose following audit action against the Applicants which revealed a significant understatement of taxable income for the 1995 year;
  • (c) that understatement of income arose because the applicants deliberately treated the taxation implications of the 1992 and 1995 transfers of the Adeane loan in a certain way, contrary to the advice given to them by Cooper and Lybrand in 1993. That is, this was not a case where the applicants had recently discovered an inadvertent mistake which they were seeking to remedy by the transfer of available losses;
  • (d) the applicants did not explain why they had delayed in making their requests other than as a response to the Respondent's actions following audit;

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  • (e) for the purposes of Q282 the carry- forward capital losses said to arise in [ Tube] for the 1992 year that were sought to be transferred were only contended to arise following the audit action of the Respondent.

DECISION

35. Having taken the above factors into account, and placing primary weight on the reasons for the delay of more than 5 years in seeking to make the relevant agreements, I concluded that the proper course was to refuse these requests.''

31. Nowhere does it appear that Mr Zuanetti considered whether the justice of the case required further time to be given, so that the applicants would not be subjected to more tax than the tax laws actually required them to pay.

32. The true position concerning delay is that there was an explanation provided by the applicants to the Commissioner for the delay, namely that it was thought that there were no deductible losses in respect of the disposal by Tube to RPH. This was the state of mind of the applicants until, subsequent on the specific issue audit, amended assessments issued in May 2001. Reasonably promptly thereafter, the applications for an extension of time were made and the claim was made in those applications that:

``A grant of such an extension of time is necessary if the taxpayer is to be made liable only for the amount of tax truly payable under the Act.''

33. The findings just made are relevant to what is said to be the errors made by the Commissioner in items (d), (e) and (f) of the application for order of review filed 24 December 2001:

``(d) wrongly relied on the passage of time in that in the circumstances there was no detriment to him from the passage of time, and in particular, failed to have regard to the fact that the onus is on the Applicant to show that the assessment is wrong, so that if time caused any detriment to any party, it is likely to have been caused to the Applicant;

(e) failed to consider whether there was any detriment to himself in the circumstances, and failed to find that there was no such detriment, and failed to give weight to the fact that there was no such detriment;

(f) failed to give any or due weight to the fact that his decision will result in his recovering more tax than the 1935 Act contemplates will be exigible in the present circumstances.''

34. A very important factor in the Commissioner's declining to exercise the discretion conferred by the relevant sections is the opinion expressed by Mr Zuanetti that the applicants acted in deliberate defiance of professional advice given to them that ``RPH will only be deemed to have acquired the loan for its market value at the time of acquisition''. The advice from Coopers and Lybrand to Palmer Tube Mills Ltd dated 2 April 1993 was not advice given to either applicant. The advice did not conclude that the market value was less than the face value, and that advice was given by Coopers and Lybrand.

35. However, and in any event, that advice has fairly to be seen in context. It did not stand alone. Advice from Klynveld Peat Marwick Goerdeler (``KPMG'') to Tube of 8 March 1993 was to the contrary of the advice from Coopers and Lybrand. That advice expressed the view that on consideration the Commissioner would ``determine the amount of consideration to be the face value of the loan.''

36. In addition to the advice from KPMG which justified the returns that were submitted, there was also advice from the solicitors for Tube to Tube dated 12 March 1993. The letter from Coopers and Lybrand to Palmer Tube Mills Ltd dated 2 April 1993 was written after the return was lodged and, in any event, was not the only professional information available concerning the treatment of the disposal in 1993. Clearly, the advice from Coopers and Lybrand to Palmer Tube Mills Ltd does not appear to be a sufficient basis for Tube to reject the advice of KPMG and Tubes' solicitors, which advice it should be remembered meant that Tube failed to claim losses in the years of income in question, and thus paid more tax than was exigible.

37. It was simply not the case that there was a deliberate defiance of professional advice in the way that Mr Zuanetti indicated was the case.

38. My conclusion is that Mr Zuanetti misapplied every single positive factor that he took into account, and failed to address perhaps the most significant factor in the exercise of the respective discretions, namely whether, having

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regard to the intention of Parliament expressed as to how group losses might be dealt with, it would be unjust in all the circumstances to refuse an extension of time. The exercise of discretion by Mr Zuanetti, in my view, was tainted by error of law in the
House v R (1936) 55 CLR 499 (``House v R'') sense.

39. 
House v R (1936) 55 CLR 499, of course, was an appeal against the exercise of the sentencing discretion. I acknowledge that an appeal against sentence is not the same as review of a decision declining to exercise a statutory discretion pursuant to the ADJR Act. Nonetheless, par 5(1)(e) of the ADJR Act provides a ground that the making of the decision was an improper exercise of the powers conferred by, in this case, pars 80G(6A)(b) and 160ZP(7AA)(b) of the Act. Paragraphs 5(2)(a) and 5(2)(b) of the ADJR Act provide grounds of taking into account irrelevant considerations or failing to take into account relevant considerations. It is further, in my view, an error of law within par 5(1)(f) to exercise a discretionary power without having regard to the purposes of the exercise of that power which, in my judgment, occurred in the present case. Those considerations are not discordant with the established principles concerning appeals from the exercise of a discretion. There, Dixon, Evatt and McTiernan JJ said:

``It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.''

40. In
Asiamet (No 1) Resources Pty Ltd & Ors v FC of T 2003 ATC 4117; [2003] FCA 35 (``Asiamet''), Emmett J held that the taxpayer companies should succeed in their application for review of a decision by the Commissioner not to grant an extension of time in respect of the transfer of losses within a company group. The judgment is presently the subject of appeal. The factual circumstances in that case are far removed from the present, and my decision is not based on any aspect of his Honour's findings, save for the paramount need to consider the exercise of discretion against the purpose of the relevant sections.

41. The Commissioner had made a determination under the anti-avoidance provisions of the Part IVA of the Act, and concluded that interest payments made by Australian Financial Times Pty Limited to Consolidated Press (Finance) Limited in respect of loans made by CPF to AFT to enable AFT to subscribe for redeemable preference shares in a company, Murray Leisure Group Pty Ltd (``MLG'') which was an Australian resident. The payments were made in the income years ended 30 June 1992 to 30 June 1998. As a consequence of that finding, AFT did not have losses to transfer to the taxpayer companies, who sought an extension of time to transfer other losses, being losses incurred by CPF.

42. In the present applications there is no suggestion of the anti-avoidance legislation having any application, the need for an agreement to transfer losses flowing in this case from a difference in view as to the correct value of inter-company loans.

43. Emmett J referred to the ruling TR 98/12 and to the ``two broad categories'' into which applications for the exercise of the discretion usually fall, the first category being where there has been delay on the part of the taxpayer that results in non-compliance with s 80G(6A); the second category being where the request for an extension of time arises out of an adjustment to the tax position of the relevant company group by the Commissioner. His Honour referred to pars 91 to 93 of that ruling, which bear setting out:

``In this category, there is generally compliance with the requirement to enter into loss transfer agreements within the time stipulated in [s 80G(6A)]. However, as a

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result of an adjustment to the taxation position of the group by the Commissioner, there is a request for an extension of time to enter into a further agreement or further agreements.

In
Bond Corporation Holdings Ltd and Ors v Australian Broadcasting Tribunal (1988) 84 ALR 669, Gummow J stated the range of factors that can be considered in the exercise of an unfettered discretion (such as that contained in [s 80G(6A)] is unconfined, subject to any implied limitation within the relevant legislation. It is considered there is nothing within the subject matter, scope and purpose of section 80G (Subdivision 170-A) (or the rest of the taxation legislation) that would imply any limitation upon the Commissioner to consider the conduct of a company group giving rise to an adjustment as being a relevant factor to the exercise of the discretion.

Accordingly, where an adjustment is made, for example, as a result of fraud or evasion, or a scheme to which Part IVA applies, then this factor generally weighs heavily against a favourable exercise of the discretion. In a sense, it could be said in these circumstances the delay is directly attributable to the actions of the taxpayer. Conversely, in cases where it cannot be said the conduct of the group is culpable in respect of its failure to comply with its obligations under the law, this is a factor which weighs in favour of an extension of time being granted (e.g., where a company was unclear as to the appropriate tax treatment for bill discounts prior to the High Court decision in
Coles Myer Finance Ltd v FC of T (1993) 176 CLR 640).''

44. The present is not a case that the adjustment leading to the amended assessments in May 2001 were not made as a result of ``fraud or evasion, or a scheme to which Part IVA applies''.

45. The errors of law identified by Emmett J in Asiamet are not the same errors of law which in my judgment affect the present decisions. Emmett J held that there was a policy which is unlawful that was applied in Asiamet, namely, the view that it would be inconsistent with the general intention of the Act to grant an extension of time to transfer losses once Part IVA applied to disallow a deduction. His Honour also concluded that the concept of the ``common controller'' which was relied upon by the decision maker in Asiamet in making the decisions under s 80G(6A)(b) was wrong in law, and his Honour held that the decision by the Commissioner to ignore the separate legal entity doctrine for the purposes of s 80G was not open as a matter of law. His Honour also found that the Commissioner, in focusing his attention on the wrong dates, asked himself the wrong question and erred in law in so doing.

46. The failure by Mr Zuanetti to consider whether the justice of the case in all the circumstances required the grant of an extension of time was, in my opinion, a failure to take into account the very purpose of s 80G of the Act, as acknowledged in TR 98/12, which is to permit and facilitate the transfer of losses within a group of companies so that there is no difference in the tax treatment of a group of companies, each carrying on separate enterprises, as against a single company that carries on the same enterprises in separate divisions.

47. In all the circumstances, in each of the three cases, the decision refusing an extension time is set aside. Since, as I have been at pains to point out, this is not an application involving merits review, the appropriate order is to direct, in each case, that the matter be remitted to the Commissioner for further consideration in accordance with law.

THE COURT ORDERS THAT:

1. In each proceeding, the decisions of the respondent refusing an extension of time be set aside.

2. The applications for an extension of time be remitted to the respondent for further consideration in accordance with law.

3. The respondent is to pay the applicants' costs of the applications, to be taxed if not agreed.

 

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