Federal Commissioner of Taxation v. G.J. Coles & Coy. Limited.

Judges:
Menhennitt J

Court:
Supreme Court of Victoria

Judgment date: Reasons for judgment handed down 6 March 1974.

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Menhennitt J.: On 13 February 1974 I made an order and a ruling in this matter and stated certain conclusions I had reached, intimating at the same time that I would state my reasons in full at a later date, which I now do.

This is an appeal by the Commissioner of Taxation, to whom I shall refer as the Commissioner, from a decision of a Board of Review, the respondent being G.J. Coles & Coy. Limited (to which I shall refer as the taxpayer). The appeal was to the High Court by notice dated 7 May 1973 and was accordingly an appeal pursuant to sec. 196 of the Income Tax Assessment Act as it stood before amendment by the Income Tax Assessment Act (No. 3) 1973. Pursuant to sec. 8(2) of that lastmentioned Act, the High Court remitted the appeal to this Court.

In its return of income for the year ended 28 June 1969 the taxpayer claimed as a deduction from its assessable income $29,170.71 in respect of expenditure incurred by it in making improvements on land being Crown Allotment 13 of section 60 of the City of Port Melbourne. In his assessment dated 22 December 1969 and his letter associated therewith dated 22 December 1969 the Commissioner allowed only $2,855 of the deduction of $29,171 so claimed and thereby added $26,316 to the taxable income. By notice dated 17 February 1970 the taxpayer objected against the assessment and claimed an allowance of the further sum of $26,316 in addition to the sum of $2,855 allowed by the assessment and stated eleven grounds upon which the taxpayer relied. By written notice dated 10 April 1970 the Commissioner disallowed the objection. On 25 May 1970 the taxpayer expressed itself dissatisfied with the decision of the Commissioner and requested that the decision be referred to a Board of Review for review. In his statement to the Board in accordance with Reg. 35(1) of the Regulations under the Income Tax Assessment Act, the Commissioner stated his reasons for disallowing the taxpayer's claim.

The hearing before the Board of Review took place on 29 and 30 June 1972 and the Board gave its decision on 6 April 1973. The decision of the Board of Review was that ``for the reasons herewith, the Board, by majority, decides to allow the company's claim''. In their reasons the majority said that the taxpayer was entitled to the deduction claimed by it. Hence, the decision of the Board was, as I see it, that the taxpayer be allowed a deduction of $29,171 from the taxpayer's assessable income in respect of expenditure incurred by the taxpayer in making improvements on land being Crown Allotment 13 of section 60 of the City of Port Melbourne in substitution for the deduction of $2,855 allowed by the Commissioner.

At an early stage of the proceedings before me, counsel for the appellant, the Commissioner, intimated that he desired and proposed, if permitted, to rely upon two submissions which it was acknowledged had not been raised before the Board of Review and of which no notice prior to that moment had been given to the respondent taxpayer.

Those submissions were stated under the heading that in relation to sec. 88(2)(b) of the Income Tax Assessment Act no improvements made by the taxpayer were improvements which he was required to make under the provisions of a lease. The two submissions were, first, that the lease under which the taxpayer assignee held the land did not include any requirement to make improvements because the covenant in the Crown lease was not a covenant which on assignment of part of the land bound the assignees of the part assigned, and secondly, that the improvements were not improvements which the taxpayer was required to make if it would have been bound by the covenant, as it was saved from being bound by the fact that the covenant had been wholly performed prior to the assignment. I shall for convenience refer to those two submissions as the Commissioner's two additional submissions.

Counsel for the respondent taxpayer objected to the Commissioner being permitted to rely upon those two additional submissions and counsel for the Commissioner foreshadowed that if necessary he would seek an amendment to his grounds of appeal to add the additional ground that the company, the taxpayer, was not required to make any improvements under the provisions of a lease of the land, and counsel for the Commissioner did eventually seek leave to amend the

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Commissioner's grounds of appeal by adding that additional ground.

I heard argument from both sides as to both matters, namely whether the Commissioner should be permitted to rely upon those two additional submissions and whether he should be granted leave to amend his grounds of appeal, I having intimated in the course of argument by counsel for the Commissioner that in my view the grounds of appeal as they originally stood did not cover those two additional submissions.

The matters raised involved issues of general importance and some complexity, I decided the order and ruling I should make but did not have sufficient time to enable me to state all the conclusions I had reached in relation thereto or my reasons for those conclusions. What I did therefore was to make the order and ruling and give what I believed would be an indication of certain conclusions I had reached sufficient to enable the hearing to proceed without interruption, subject to any application which might be made by counsel for either party in the light of the order and ruling I made.

The order which I made was that the appellant Commissioner be allowed an amendment to his notice of appeal by adding to the grounds of appeal the further ground (ii)(a) -

``That the company was not required to make any improvements under the provisions of a lease of the land.''

The ruling I made was that, on the hearing of this appeal, the Commissioner may rely upon his two additional submissions. My reasons for the order and ruling are as follows.

The remission of the appeal by the High Court to this Court made applicable to the appeal the provisions of, inter alia, sec. 8(3)(c) of the Income Tax Assessment Act (No. 3) 1973. Section 8(3)(c) provides -

``8(3) Where a proceeding is remitted by the High Court to the Supreme Court of a State under this section -

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(c) the Supreme Court shall proceed as if the proceeding had been originally instituted in that Court and as if the same proceedings had been taken in that Court as had been taken in the High Court, and all subsequent proceedings shall be in accordance with the practice and procedure that would be applicable if it had been instituted in the Supreme Court after the commencement of this section;''

The provision that this Court shall proceed as if the proceeding had been originally instituted in this Court produces the result that the appeal is deemed to be in the same position as an appeal to the Supreme Court from a decision of a Board of Review which involves a question of law pursuant to sec. 196 of the Income Tax Assessment Act (No. 3) 1973 as substituted by sec. 4 of that Act. Section 8(3)(c) then provides that this Court is to proceed as if the same proceeding had been taken in this Court as had been taken in the High Court.

It is well established that, although termed an appeal, a proceeding before the High Court on appeal from a Board of Review is one involving the exercise of the original jurisdiction of the High Court (
F.C. of T. v. Munro 38 C.L.R. 153 at 196,
Ruhamah Property Co. Ltd. v. F.C. of T. 41 C.L.R. 148 at 155,
F.C. of T. v. Miller 73 C.L.R. 93 at 104,
Rowdell v. F.C. of T. 111 C.L.R. 106 at 119 and 120-121 and
Buckland v. F.C. of T. 12 A.T.D. 166 at 169).

The provisions of sec. 8(3) to which I have referred appear to me to produce the result that the proceeding in this Court is one in original federal jurisdiction of this Court vested pursuant to sec. 77(iii) of the Constitution of the Commonwealth of Australia and that decisions of the High Court in relation to the nature of the jurisdiction exercised by the High Court on an appeal from a Board of Review apply, mutatis mutandis, to appeals to this Court from a Board of Review. Both parties argued the matter before me on this basis.

It is of course necessary to determine what is the decision of a Board of Review and the extent to which it is the subject of appeal.

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Within the ambit of an appeal so defined, it appears to me to have been authoritatively established that, on an appeal by the Commissioner to the High Court from a decision of a Board of Review involving a question of law, it is open to the Commissioner to have the decision of the Board of Review set aside or varied on any ground open on the material before the High Court, whether or not that ground was raised before the Board of Review, provided the ground is within the grounds of appeal in the Commissioner's notice of appeal.

In
F.C. of T. v. Wade 84 C.L.R. 105 which involved an appeal by the Commissioner of Taxation to the High Court from a Board of Review, Kitto J. said at pp. 116 to 117 -

``If the £2,016 formed part of the taxpayer's assessable income by reason of sec. 26(j), as I think it did, its inclusion in his assessable income in the course of making the assessment was right, whether or not the commissioner referred to sec. 26(j), and even though he described the amount inaccurately. No conduct on the part of the commissioner could operate as an estoppel against the operation of the Act: cf.
Commr. of I.R. v. Brooks (1915) A.C. 478, at pp. 491, 492;
Maritime Electric Co. Ltd. v. General Dairies Ltd. (1937) A.C. 610.''

In
Rowdell v. F.C. of T. 111 C.L.R. 106, which was a case stated in relation to a decision of a Board of Review, Dixon C.J. said at p. 119 -

``The case stated on the reference under sec. 18 of the Judiciary Act asked certain questions. (Cf.
Watson v. F.C. of T. (1953) 87 C.L.R. 353, and cf.
Official Receiver v. F.C. of T. (1956) 96 C.L.R. 370.) The first of these relates to the proceedings before the Board of Review and subsequently in relation to objections against amended assessments and assessments notified in 1951. These proceedings were the subject of certain communications which, it is said, prevent the Board of Review acting as it did. I think the answer to the matter raised by question 1 simply is that before this Court there is a judicial proceeding in the original jurisdiction of the Court and the Court must decide the issues according to its view of what is legally correct. This question should therefore not be answered because the competence or propriety of the course taken by the Board of Review is not an issue upon which liability depends.''

Kitto J. said at p. 120-121 -

``The appeal - it must be called that because the Act so describes it - is a proceeding in the original jurisdiction of the Court, in which the Court must give its own decision upon the questions that were before the Board. Any arguments which Rowdell may wish to submit may be fully presented here, whether they were heard by the Board or no, so long as they fall within the grounds of objection.''

Kitto J. said in F.C. of T. v. Wade 84 C.L.R. 105 at 116, in relation to the observations made by Latham C.J. and Starke J. in
Danmark Pty. Ltd. v. F.C. of T. 7 A.T.D. 333 at 344 and 352 -

``I do not understand those observations to mean more than this, that where there are two provisions of an assessment Act, each giving the commissioner a power to make an assessment, and each creating a liability to tax in the event of the power it confers being exercised, an assessment made in exercise only of the power given by one of those sections cannot be supported as effective under the other.''

The powers under consideration in Danmark's case were separate discretionary powers in the Commissioner.

Having regard, inter alia, to the sequence of the sections of the Income Tax Assessment Act before amendment by the Income Tax Assessment Act (No. 3) 1973, sec. 199 of that Act did not I think apply expressly to an appeal to the High Court from a Board of Review but only to an appeal direct from the Commissioner to the High Court or a Supreme Court. However, the original jurisdiction of the High Court under sec. 196 as it stood before amendment by the Income Tax Assessment Act (No. 3) 1973 would I think have comprehended,

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inter alia, all the powers expressly stated in sec. 199. In
Perpetual Executors and Trustee Association of Australia Ltd. v. F.C. of T. 77 C.L.R. 1 the High Court held, in relation to a provision in the Estate Duty Assessment Act similar to sec. 199 of the Income Tax Assessment Act, that it was open to the Commissioner to support an estate duty assessment on grounds different from those upon which he had made it (see pp. 15, 23, 26 and 34).

What was said in
Krew v. F.C. of T. 71 ATC 4091; 45 A.L.J.R. 325 by Walsh J. at p. 4093 and in the cases there referred to related, it seems to me, to questions of the effect of a decision of a Board of Review and the extent of an appeal therefrom and not to affect the conclusions I have stated. The decision of two members of the Board of Review in Case A48,
69 ATC 282 at pp. 283-284 and 285 is concerned with a different issue, namely the extent of a reference to a Board of Review of a decision of a Commissioner which put only one of two separate and distinct deductions in issue.

It follows from all I have said that on an appeal by the Commissioner to this Court from a decision of a Board of Review, the Commissioner is in a similar position to what he was in on an appeal to the High Court from a Board of Review and that, within the ambit of the appeal, where the decision of the Board of Review involves a question of law, it is open to the Commissioner to have the decision of the Board of Review set aside or varied on any ground open on the material before this Court, whether or not that ground was raised before the Board of Review, provided the ground is within the grounds of appeal in the Commissioner's Notice of Appeal.

As to the ambit of the present appeal, the decision of the Board of Review was, as I have stated, that the taxpayer be allowed a deduction of $29,171 in respect of expenditure incurred by it in making improvements on the land in question in substitution for the deduction of $2,855 allowed by the Commissioner and the appeal by the Commissioner is against the whole of this decision.

If either of the Commissioner's two additional submissions were made out it would lead to the conclusion that the taxpayer was not entitled to any deduction at all in respect of the expenditure incurred by it in making the relevant improvements. One consequence would be that the decision of the Board of Review substituting the higher amount for the lesser amount allowed by the Commissioner would be erroneous and should be set aside.

Counsel for the Commissioner intimated that this was the only order he asked me to make. In the light of this intimation counsel for the taxpayer submitted that if I acceded to either of the Commissioner's two additional submissions I would be giving a decision in relation to a hypothetical set of circumstances. In my view, this would not be so. The circumstances I would be considering would be the actual ones and a conclusion that the Board of Review's decision was erroneous and should be set aside would be actual and real, whatever the reasons for that conclusion.

Counsel for the taxpayer also contended that the Commissioner was precluded from relying upon his two additional submissions because in his assessment and in the documents accompanying it and in his reasons for disallowing the taxpayer's claim he had allowed the lesser amount as a deduction and had indicated the provision of the Income Tax Assessment Act pursuant to which he had allowed it. But these contentions involved, I think, the erroneous view that what the Commissioner did could operate as an estoppel against the operation of the Act. The decisions of the High Court to which I have referred establish, it seems to me, that on this hearing the issues must be decided according to what I conceive to be the correct operation of the Income Tax Assessment Act regardless of any conduct or previous concession on the part of the Commissioner.

Nor does anything in the agreed statement of facts lead to any different conclusion. In particular, para. 2 thereof is, I think, quite neutral on this whole matter and does not involve any concession on the part of the Commissioner.

Accordingly, in my view, nothing stood in

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the way of the Commissioner relying upon his two additional submissions, except the grounds of appeal in his notice of appeal.

The only ground which it was contended covered the Commissioner's two additional submissions was ground (ii) which reads -

``(ii) that the said Board of Review was wrong in deciding that improvements carried out on the said land and involving an expenditure substantially in excess of $150,000 were improvements which the company was required to make under the provisions of a lease of the land and should have decided that such improvements were not so required.''

That ground on its ordinary reading would be taken I think to refer to something the Board of Review consciously decided. It is true that the actual decision of the Board in fact involved a decision that the improvements carried out on the land were improvements which the taxpayer was required to make under the provisions of a lease of the land. However, the use of the opening words ``that the Board of Review was wrong in deciding'' and the presence of the words ``involving an expenditure substantially in excess of $150,000'' lead I think to the conclusion that the ground is referring to the allowance by the Board of the higher amount claimed by the taxpayer in substitution for the lower amount allowed by the Commissioner and not the question to which the Board did not advert, namely whether any deduction at all should be allowed. Hence I considered that the grounds of appeal as they originally stood did not cover either of the Commissioner's two additional submissions.

As I have said, I exercised my discretion in favour of allowing the Commissioner an amendment to the notice of appeal by adding the further ground I have stated. My reasons for so deciding, which I did not attempt to state in full at the time, are as follows.

In exercising the discretion, it is, I think, proper to bear in mind the basic propositions I have stated as to what is open to the Commissioner on an appeal to this Court from a Board of Review and all relevant aspects of fairness and justice to both parties.

In submitting that I should not exercise my discretion to permit the Commissioner to amend his grounds of appeal, counsel for the taxpayer relied upon all the arguments they had advanced in support of the view that it was not open to the Commissioner to rely upon his two additional submissions, whether his grounds of appeal were amended or not. Included in these arguments were the submissions based upon the Commissioner's assessment and the documents accompanying it and his reasons for disallowing the taxpayer's claim. However, it appears to me that if the Commissioner could have relied upon his two additional submissions if his grounds of appeal had covered them, the real issues are whether the taxpayer had adequate notice of the proposed amendment and whether to grant the amendment would be unjust or prejudicial to the taxpayer in any way that could not be dealt with adequately by either an adjournment or an award of costs.

Where the Commissioner intends to take the course of relying upon submissions which were not advanced before the Board of Review, I consider that it is desirable that adequate notice thereof be given to the respondent taxpayer, whether or not they are covered by the grounds of appeal, but particularly so where they are outside the grounds of appeal. In the present case I think it would have been preferable for such notice to have been given a reasonable time before the hearing. However, notice was given for the first time at an early stage in the course of the hearing before me and one question which arose was whether that notice was adequate. Notice so given near the outset of the proceedings was in contrast with the late application for leave to amend a notice for appeal made during argument in reply in
F.C. of T. v. Lewis Berger & Sons (Australia) Ltd. 39 C.L.R. 468, see p. 471-472.

Insofar as the Commissioner's two additional submissions involved questions of law, it was not submitted on behalf of the taxpayer that the notice given at the outset of the hearing was insufficient to enable the taxpayer's counsel to prepare and present legal argument in relation thereto, and it appeared to me that by the time the

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respondent came to argue there would have been sufficient time to prepare and present such arguments, although I stated that that was not a concluded decision.

As to questions of fact, on the material before me when the application for leave to amend was made, nothing had emerged which had established that the taxpayer would be at a disadvantage in terms of evidence. The second of the two submissions involves no more than establishing that the covenant had been wholly performed prior to assignment in respect to the whole of the land the subject of the original Crown lease and counsel for the Commissioner pointed to evidence which he submitted established that this had happened. The submission does not involve it being established that any part of the covenant had been satisfied in respect of the portion of the land the subject of the assignment.

However, although the parties had agreed that the evidence before the Board of Review as recorded in the transcript was to be evidence before me, subject to objections taken before the Board, they each reserved the right to call additional evidence. In ruling that I would allow the amendment I specifically left open to counsel for the taxpayer liberty to apply for an adjournment in the light of the ruling. After I allowed the amendment counsel for the taxpayer sought an adjournment to permit an examination to be made of files which were in evidence and other material in order to decide whether further evidence would be called on behalf of the taxpayer. I readily granted the adjournment which, indeed, was not opposed by the Commissioner. I also intimated that in my view some part of the costs of the proceedings up to the adjournment should be borne by the Commissioner in the circumstances.

Having left open to the taxpayer liberty to apply for an adjournment and having regard to the other matters I have mentioned, it appeared to me that no injustice or prejudice resulted to the taxpayer from me allowing the Commissioner to amend his grounds of appeal to add the further ground which I allowed and it follows from all I have said that, as I ruled, on the hearing of this appeal, the Commissioner may rely upon his two additional submissions.