Clyne and Another v. Deputy Federal Commissioner of Taxation and Another.

Judges:
Gibbs CJ
Mason J
Aickin J
Wilson J
Brennan J

Court:
High Court

Judgment date: Judgment handed down 7 August 1981.

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Gibbs C.J.

In this appeal we are called upon to decide some important questions as to the construction of sec. 218 of the Income Tax Assessment Act (1936) (Cth.) as amended (``the Act''). That section is in the following terms:

``(1) The Commissioner may at any time, or from time to time, by notice in writing (a copy of which shall be forwarded to the taxpayer at his last place of address known to the Commissioner), require -

• (a) any person by whom any money is due or accruing or may become due to a taxpayer;
• (b) any person who holds or may subsequently hold money for or on account of a taxpayer;
• (c) any person who holds or may subsequently hold money on account of some other person for payment to a taxpayer; or
• (d) any person having authority from some other person to pay money to a taxpayer,

to pay to the Commissioner, either forthwith upon the money becoming due or being held, or at or within a time specified in the notice (not being a time before the money becomes due or is held) -

• (i) so much of the money as is sufficient to pay the amount due by the taxpayer in respect of any tax and of any fines and costs imposed upon him under this Act, or the whole of the money when it is equal to or less than that amount; or
• (ii) such amount as is specified in the notice out of each of any payments which the person so notified becomes liable from time to time to make to the taxpayer, until the amount due by the

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  taxpayer in respect of any tax and of any fines and costs imposed upon him under this Act is satisfied,

and may at any time, or from time to time, amend or revoke any such notice, or extend the time for making any payment in pursuance of the notice.

(2) Any person who fails to comply with any notice under this section shall be guilty of an offence.

• Penalty: One hundred dollars.

(4) Any person making any payment in pursuance of this section shall be deemed to have been acting under the authority of the taxpayer and of all other persons concerned and is hereby indemnified in respect of such payment.

(5) If the Commissioner receives any payment in respect of the amount due by the taxpayer before payment is made by the person so notified he shall forthwith give notice thereof to that person.

(6) In the foregoing provisions of this section -

• `tax' includes -
  • (a) tax assessed, and a tax of a similar nature to provisional tax notified, under a State income tax law; and
  • (b) any judgment debt and costs in respect of income tax (including tax referred to in paragraph (a));

  `person' includes company, partnership, the Commonwealth, a State and any public authority (corporate or unincorporate) of the Commonwealth or a State.

(7) Any notice to be given under this section to the Commonwealth or a State may be served upon such person as is prescribed, and any notice so served shall be deemed to have been served upon the Commonwealth or a State, as the case may be.''

On 9 July 1979 the first appellant, Peter Clyne, was served with a notice of assessment under the Act for an amount of $236,922.31, which included $118,436.31 income tax assessed in respect of the year ended 30 June 1979 and $50 as a health insurance levy. The amount assessed was stated to be due and payable on 8 August 1979. On 10 July 1979 the Deputy Commissioner of Taxation (the first respondent) served on the Commonwealth Trading Bank of Australia (``the Bank'') at its Kings Cross branch two notices under sec. 218. The notices were identical in substance and it is sufficient to refer to the material parts of one of them, which read as follows:

``I hereby require you being a person by whom any money is due or accruing or may become due to PETER CLYNE... a taxpayer by whom the amount of $118,486.31 is due in respect of tax to pay to me so much of that money as is sufficient to pay the said amount of $118,486.31 due by the taxpayer or the whole of the money if it is equal to or less than that amount and if the money is now due by you to the said PETER CLYNE the payment to me is required to be made forthwith, but if the money becomes due by you to the said PETER CLYNE in the future, the payment to me is required to be made within seven days of the money so becoming due by you.''

On that date Mr. Clyne had three interest bearing deposits with the Bank; they totalled $70,000 and were repayable to Mr. Clyne respectively on 21 September 1979, 9 April 1980 and 20 April 1980. On 4 September 1979 Mr. Clyne by deed assigned the three deposits to the second appellant, Patricia Peacock, as security for future advances to be made by her to him and gave notice of assignment to the Bank. The validity of the assignment as between the appellants and the Bank is not in question. The second appellant made application on summons to the Supreme Court of New South Wales for declaratory relief and McLelland J., who heard the application, declared that neither notice constituted a valid or effective requirement under sec. 218 to pay to the Deputy Commissioner the proceeds of or interest on the deposits. However, the Court of Appeal allowed an appeal from that judgment and ordered that the summons be dismissed. The present appeal is brought from that decision.

The first submission made before us on behalf of the appellants was that at the time when the notices were given no amount was ``due'' by Mr. Clyne in respect of any tax, within the meaning of sec. 218. It is clear that

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no tax was payable at that time; by virtue of sec. 204 of the Act, the tax was not payable before 8 August. It was submitted on behalf of the appellants that ``due'' in sec. 218(1)(i) must mean ``due and payable'', first, because under the Act tax cannot be due before it is payable, secondly, because ``due'' is used elsewhere in sec. 218 in the sense of ``payable'' and it should be assumed to have the same meaning throughout the section and, finally, because one should not impute to the Parliament an intention that the Commissioner should have power to collect tax from persons who owe money to the taxpayer before the tax is payable by the taxpayer himself.

The word ``due'' is ambiguous; it can mean owing, although not payable until some future date, or it can mean presently payable. The meaning of the word must be determined by the context. In sec. 204, 205, 206, 207 and 208 of the Act, which deal with the payment of tax, and in sec. 170(2), (3), (4) and (6), which deal with the amendment of assessments, the expression ``due and payable'' is used, and although the expression appears on any view to be tautological, the change of words appears to be intended to indicate a change of meaning, so that ``due'' in that phrase must mean ``owing''. In
Gordon Edgell & Sons Pty. Ltd. v. F.C. of T. (1949) 9 A.T.D. 43 at p. 46 , Williams J. said that the effect of sec. 204 and 208 is to make the debt for tax due at the same time as it is payable. He went on to say, at p. 46:

``Service of notice of the assessment does not therefore make the taxpayer legally liable to pay the tax although its payment rests in the future. It is not a case of debitum in praesenti solvendum in futuro. But when the respondent makes an assessment of the amount of the tax and serves notice of the assessment, the taxpayer is bound to pay the tax within the thirty days or incur the penalty provided by s. 207. The Act therefore plainly contemplates and intends that a taxpayer shall pay the tax within the thirty days. I am of opinion that a taxpayer is not taxed until he is served with the notice of assessment...''

With all respect, not all of this reasoning can be accepted. The tax is imposed by the relevant Income Tax Act, not by the Income Tax Assessment Act, and in sec. 6(1) of the Act ``income tax'' or ``tax'' is accordingly defined as ``income tax... imposed as such by any Act, as assessed under the Income Tax Assessment Act 1936, or under that Act as amended at any time''. Section 17 of the Act provides that, subject to the Act, income tax at the rates declared by the Parliament is levied and shall be paid upon the taxable income derived during the year of income by any person. These provisions suggest that the tax is due, in the sense of owing, once the taxable income during a year of income has been derived because there then arises a legal liability to pay it, notwithstanding that the extent of the liability remains to be ascertained and that payment is to be made in the future. That this is so, at least for certain purposes, is shown by the decision in
Commr. of Stamps (W.A.) v. West Australian Trustee Executor & Agency Co. Ltd. (1925) 36 C.L.R. 98 , especially at pp. 102, 104, 116, 118 and
Re Mendonca ; Ex parte Commr. of Taxation (1969) 15 F.L.R. 256 , especially at pp. 259-260 , and by statements in the judgments of Knox C.J. in Commr. of Stamps (W.A.) v. West Australian Trustee Executor & Agency Co. Ltd. (1926) 38 C.L.R. 63 at p. 66; Latham C.J. in
Aitken v. F.C. of T. (1936) 56 C.L.R. 491 at p. 497 and Kitto and Taylor JJ. (dissenting) in
D.F.C. of T. v. Brown (1958) 100 C.L.R. 32 at pp. 58, 63-64 . On the other hand it has been said that tax is not due until it is assessed (see
George v. F.C. of T. (1952) 86 C.L.R. 183 at p. 207 and per Dixon C.J. in D.F.C. of T. v. Brown at p. 40). This may be the correct view for most practical purposes. Certainly a notice under sec. 218 could not be given before the taxpayer had been assessed, for until that time ``the amount due by the taxpayer'' could not be ascertained. However, all the authorities to which I have referred are opposed to the view which Williams J. expressed in Gordon Edgell & Sons Pty. Ltd. v. F.C. of T. and seems to have repeated in D.F.C. of T. v. Brown at p. 50, that tax becomes due only when it is payable. At the latest when tax is assessed it becomes a debt due to the Crown although it is not payable until the later date specified in the notice of assessment. For these reasons when the word ``due'' is used in the Act, without the accompanying words ``and payable'', it will prima facie mean simply owing. This distinction between

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``due'' and ``payable'' is clearly drawn in sec. 255(1), which requires a person in receipt or control of money belonging to a non-resident to ``pay the tax due and payable by the non-resident'' (para. (a)) and ``to retain... so much as is sufficient to pay the tax which is or will become due by the non-resident'' (para. (b)). (See also sec. 254(1)(d).)

The question then is whether a notice can be given under sec. 218 in respect of a taxpayer whose tax is due but not payable. There can be no doubt that the word ``due'', where it appears in para. (a) of sec. 218(1), and in the words ``forthwith upon the money becoming due'' and ``not being a time before the money becomes due'' in that subsection, means ``presently payable''. This is clearly indicated by the fact that para. (a) refers not only to money due, but also to money ``accruing'', that is, falling due as a result of natural increase, e.g., by way of interest. If ``due'' simply meant ``owing'', it would include moneys accruing, and that word would add nothing to the meaning of the paragraph. Paragraph (a) obviously refers to moneys which are, will be, or may be payable. Moreover it would be drastic, and generally speaking unconscionable, to require a third party to pay to the Commissioner money which was owed to the taxpayer but which was not yet payable to him, and doubts might be raised as to the constitutional validity of such a provision. In the event of any ambiguity, sec. 218 should be construed to avoid the unjust result that a third party should be required to pay to the Commissioner moneys that were not yet payable to the taxpayer. For all these reasons ``due'' in the passages mentioned must mean ``payable''.

It is then understandably argued that the same meaning should be attached to the word ``due'' where it appears elsewhere in the section. No doubt there is a presumption that where the same word is used on more than one occasion in a section it is intended to have the same meaning in each case, but this is not a presumption of very much weight; there is no rigid rule; it all depends on the context: see
McGraw-Hinds v. Smith (1979) 53 A.L.J.R. 423 at p. 425 . The context in which ``due'' appears in para. (a) shows that where reference is made to money ``due'' by the third party to the taxpayer, what is meant is ``payable''. No similar context controls the meaning of ``due'' in the phrase ``the amount due by the taxpayer''. The word should therefore be given the meaning which it consistently bears in the Act since the context does not require a departure from that meaning. It is true that it is natural to recoil from a construction that will permit the Commissioner to recover the amount of tax from the third party before it is payable by the taxpayer to the Commissioner, although having regard to the provisions of sec. 204 the period of acceleration would not be likely to exceed 30 days. However the section is obviously designed to confer exceptional powers on the Commissioner to facilitate the collection of tax, particularly in a case where the taxpayer might otherwise escape payment, and I can see no justification for departing from the ordinary meaning which the word ``due'' bears in the Act. I should add that in the present case, although the notice was given before the date on which the tax was payable, the times specified by the notice as those by which payment was to be made were after that date.

The second submission made on behalf of the appellants was that when the moneys became payable by the Bank (i.e. after the deposits matured) they were, because of the assignment, due to the second appellant and not to the taxpayer, and that in these circumstances the notices did not effectively require payment to the Deputy Commissioner. In disposing of this argument, it is not, in my respectful opinion, necessary to have recourse to the doctrine that an assignee of an equitable interest takes subject to the equities and to the infirmities of the assignor's title. The section itself answers the appellants' contentions. The conditions for the giving of a valid notice are laid down in sec. 218(1). If those conditions exist at the time when the notice is given there is a valid requirement in respect of the money to which the notice refers, which, in a case under para. (a), will be money which is due or accruing or may become due by the person to whom the notice is given to the taxpayer. The words by which the Parliament grants the power to make the requirement necessarily imply that the person to whom the requirement is given will obey it. Subsequent actions by the taxpayer cannot render the requirement

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nugatory or ineffective. If that were not so it would be possible for a taxpayer, in a case such as the present in which the notice required payment within seven days of the money becoming due, himself to obtain payment of the money immediately it became due, with the result that when the time came for compliance with the notice there would be no money to which the notice related. It would indeed be possible, in every case in which the money was not payable to the taxpayer at the time when the notice was given, entirely to defeat the purposes of the section. However, once the notice is given, it operates to prevent any subsequent dealing with the money which will prevent compliance with the notice when the time for compliance arrives. An assignment made by the taxpayer after the date of the notice will be ineffective to relieve the person to whom the notice is given of his statutory obligation to pay the money to the Commissioner. Notwithstanding the assignment, the money will be ``due'' at the time when it would have become payable to the taxpayer if it had not been for the subsequent assignment whose effect is to be ignored. Section 218(4) recognises that if it had not been for the notice other persons than the taxpayer might have acquired rights to the money, for any payment made in pursuance of the section is deemed to have been made ``under the authority of the taxpayer and of all other persons concerned''.

The appellants relied on a decision of Jenkinson J. in
Sicree and Watt v. D.F.C. of T. 80 ATC 4302 . That was a decision given under sec. 38 of the Sales Tax Assessment Act (No. 1) 1930 (Cth.), as amended, which closely resembles sec. 218. There a debenture created a floating charge over the company's assets but the charge did not crystallise until receivers were appointed. The debentures were issued before but the receivers were appointed after a notice was given to certain persons who were debtors of the company requiring them to pay to the Deputy Commissioner money which they owed to the company. It was held that the notice did not oblige the debtors to pay anything to the Deputy Commissioner until the debt secured by the debentures had been paid. The case is clearly distinguishable, and although I could not accept all of the reasoning by which the learned judge reached his conclusion, it is unnecessary to consider the correctness of the actual decision.

For these reasons the notices validly required the Bank to pay the amounts of the deposits and interest thereon (not exceeding $118,486.31) to the Deputy Commissioner, at the times specified, unless of course the tax had been paid in the meantime.

I would dismiss the appeal.