Deputy Federal Commissioner of Taxation v. Naidoo & Anor.

Judges:
Everett J

Court:
Supreme Court of Tasmania

Judgment date: Judgment handed down 2 October 1981.

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Everett J.

The Deputy Commissioner of Taxation (``the Deputy Commissioner'') is the plaintiff in two separate Supreme Court actions - the first (No. 2729 of 1981) against Dhanaseelan D. Naidoo (to whom I shall refer as ``the first defendant'') and the second (No. 2730 of 1981) against Panjaruthanam Naidoo, the wife of the first defendant. In the first action the Deputy Commissioner claimed an amount of $77,898.96 for income tax assessed under sec. 166 or 167 of the Income Tax Assessment Act 1936, as amended (``the Act''), in respect of each of the six financial years ended on the 30th June 1976, 1977, 1978, 1979, 1980 and 1981. In the second action the Deputy Commissioner claimed an amount of $78,624.37 against the second defendant for income tax assessed under sec. 166 of the Act in respect of the years ended the 30th June 1978, 1979 and 1980. In each case the writ was issued on the 1st September 1981. The pleadings were completed by delivery of an amended statement of claim and a defence. The Deputy Commissioner applied to the Court for summary judgment against each defendant pursuant to O.15 of the Rules of the Supreme Court 1965. By consent the two summonses were heard together.

In the defence to the amended statement of claim in each action, it was pleaded that

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notice of the assessment of the tax claimed was not served on either defendant in accordance with law; secondly, that the Deputy Commissioner did not have reason to believe that either defendant might leave Australia before the expiration of 30 days from the date of service of the notices of assessment and therefore that he was not legally justified in acting pursuant to sec. 205 of the Act. Sections 204 and 205 of the Act are as follows:

``204 Subject to the provisions of this Part, any income tax assessed shall be due and payable by the person liable to pay the tax on the date specified in the notice as the date upon which tax is due and payable, not being less than thirty days after the service of the notice, or, if no date is so specified, on the thirtieth day after the service of the notice.

...

205 Where the Commissioner has reason to believe that a person liable to pay tax may leave Australia before the date on which the tax is due and payable the tax shall be due and payable on such date as the Commissioner notifies to that person.''

Because of the obvious influence which considerations of time had upon the course of events, I set out precisely the chronology of relevant matters. It was agreed that the submissions of counsel should, at least initially, be confined to the application against the first defendant and that they should be repeated merely as a matter of form in relation to the application against the second defendant. The chronology is:

1. 27th August 1981. Four notices of amended assessment and two notices of assessment were delivered by an officer of the Australian Taxation Office to a partner in the Launceston firm of public accountants and registered tax agents which for some unspecified time had acted as accountants and tax agents of the first defendant (``the firm''). In each case the ``issue date'' and the ``due date'' were expressed to be the same - that is, the 27th August 1981.

2. 1st September 1981. Writ issued, claiming $77,898.96. A statement of claim was endorsed on the writ.

3. 3rd September 1981. Writ personally served on defendant.

4. 9th September 1981. An appearance to the writ was entered for the defendant.

5. 11th September 1981. An amended statement of claim was delivered to the defendant's solicitors. The amendments were confined to the expression of the statutory bases for the assessments.

6. 17th September 1981. Summons for summary judgment issued.

7. 22nd September 1981. Defence delivered.

An affidavit was sworn by the plaintiff in support of the summons on the 16th September 1981. Two relevant paragraphs are:

``2. That as a result of assessments of income tax made in relation to Dhanaseelan D. Naidoo for the years ending 30th June 1976, 1977, 1978, 1979, 1980 and 1981 notices of assessment were issued and made due and payable on the 27th August, 1981.

3. That the said notices of assessment (copies of which are annexed hereto and marked `A' `B' `C' `D' `E' & `F' respectively) were addressed to and served on the taxpayer by hand-delivered letter C/- Hart and Jansson, 25 York Street, Launceston on the 27th August, 1981.''

In an affidavit, sworn on the 22nd September 1981 by Mr. P.W. Bushby, a public accountant and an employee of the firm, it was stated, inter alia:

``...

4. On the 27th day of August, 1981 I was present at 25 York Street, Launceston when Notices of Amended Assessment and Notices of Assessment pursuant to the Income Tax Assessment Act being the Notices referred to in this action were delivered by Colin West an officer of the Australian Taxation Office to Anthony Gerald Hart a partner in the Firm.

5. As appeared by the last Return of Income filed with the Plaintiff on behalf of the Defendant the postal address for service of Notices on the Defendant was:

`C/-P.O. Box 122,

Launceston, 7250.'

6. P.O. Box 122 is the post office box of the Firm situate in the premises of the

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General Post Office, Cameron Street, Launceston.''

In a supplementary affidavit, sworn on the 24th September 1981, the Deputy Commissioner set out the reasons why he had acted under sec. 205 of the Act as follows:

``...

3. Prior to the issuing of the Notices of Assessment mentioned in my previous affidavit, I had reason to believe that the defendant may leave Australia before the date on which the tax would have ordinarily been payable.

4. My reasons for entertaining this belief were as follows:

• (a) From the 13 July, 1979 onwards an anonymous informant (`the informant') informed me by letters that the defendant could be avoiding his liability to taxation, naming specific instances of alleged avoidance.
• (b) As a result of this information I instructed officers of my Department to institute investigations and found that the specific instances named in the informant's letter were accurate.
• (c) Discussions with the defendant and his Tax Agent, Messrs. Hart and Jansson of 25 York Street, Launceston (`the agent') on the 17 February, 1981 and examination of records obtained from the defendant revealed large discrepancies in the defendant's tax returns.
• (d) At a further interview with the agent on the 9th June, 1981 an indication was given of the probable tax debit that would be raised against the defendant.
• (e) On the 15th June, 1981 the informant stated that the defendant and his family were leaving Australia permanently within one or two weeks.
• (f) Investigations revealed that the defendant had reserved seats for his children from Launceston to Sydney on T.A.A. flight TN592 for Friday the 28th August, 1981. He had also reserved seats for his wife and himself on the 18th October, 1981 for T.A.A. flight TN522.
• (g) Further enquiries revealed that the defendant and his family were booked on South African Airlines flight S.A. 281 from Sydney to Mauritius on the 20th October, 1981, Mauritius to `BLZ' on 25th October, 1981 and `BLZ' to Salisbury on 26th October, 1981.
• (h) On the 7th August, 1981 the informant rang my office and stated that the defendant had sold his house for $135,000 by private treaty to a Launceston accountant and the contract was due for settlement at that time. He also stated that the defendant was leaving Australia within three weeks.
• (i) On the same date enquiries were conducted at the Lands Titles Office and local council which revealed that the settlement had not as yet taken place.
• (j) The informant further advised my office that the defendant was in the process of selling his Ravenswood dental practice and also his main dental practice and buildings at 100 Tamar Street, Launceston by private sale.
• (k) The informant stated that the buildings at 100 Tamar Street, in the name of the defendant's family trust (Tshaka Unit Trust), had been offered to him but that he had declined the offer.

5. At the time of service of the said notices of assessment it was disclosed by the agent that they were aware that the defendant and his family were going overseas, that the defendant was trying to sell his motor vehicles, that negotiations were on foot for the sale of the defendants' Ravenswood dental practice and that other arrangements were being made in relation to the defendants' Tamar Street dental practice.

6. I considered that this information confirmed my belief that the defendant and his family may leave Australia before the date on which the tax was ordinarily due and payable and accordingly the notices were duly served as due and payable on the 27th August, 1981.''

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When the summons was called on for hearing on the 28th September 1981, the following certificate was tendered on behalf of the Deputy Commissioner pursuant to reg. 53 of the Income Tax Regulations:

``Pursuant to Regulation 53 of the Income Tax Regulations, I Denis James Cortese, Deputy Commissioner of Taxation for the State of Tasmania, hereby certify that:

1. Dhanaseelan D. Naidoo is a taxpayer.

2. Assessments of income tax were duly made against the said Dhanaseelan D. Naidoo in respect of the years ended the 30th June, 1976, 1977, 1978, 1979, 1980 and 1981.

3. Particulars of the assessments are as follows:

  Year Ended           Issued        Date Due & Payable     Amount Assessed
 30 June 1976      27 August 1981      27 August 1981          $ 4,644.60
      ''   1977          ''                 ''                 $23,979.55
      ''   1978          ''                 ''                 $28,219.47
      ''   1979          ''                 ''                 $18,195.55
      ''   1980          ''                 ''                 $ 2,687.37
      ''   1981          ''                 ''                 $   172.42
          

4. The notices of assessment were duly served on the said Dhanaseelan D. Naidoo.

5. At the date hereof the sum of $77,516.87 is due by Dhanaseelan D. Naidoo to the Queen on behalf of the Commonwealth in respect of income tax.''

(sic)

It is convenient to dispose at once of one of the two arguments submitted on behalf of the defendant - that is, that the Deputy Commissioner was not justified in acting pursuant to sec. 205 of the Act by fixing the time at which the tax became due and payable as the date on which the notices of assessment were served. It should be recorded that during a period of several months prior to the 27th August 1981, there were discussions between officers of the Australian Taxation Office and the tax agents of the defendant. On the 9th June 1981 an indication was given to the agents of the probable amounts of the assessments in relation to the defendant.

I regard this contention as completely without merit. The information which it was not contested was available to the Deputy Commissioner demonstrated clearly that, at the relevant time, the defendant was in the course of disposing of substantial personal assets in Launceston and that his departure with his family permanently from Australia for an overseas destination was imminent. In my view the Deputy Commissioner was fully justified in the opinion he obviously formed that the defendant would, if he could, evade his obligations under the Act. The appropriate statutory provision aimed at preventing such evasion is sec. 205 of the Act. It was properly used. Any argument to the contrary is untenable.

The remaining argument against the application of the Deputy Commissioner for liberty to sign final judgment is that the notices of assessment were not served on the defendant in accordance with law.

It is beyond question that no legal obligation in respect of the payment of income tax was imposed on the defendant until notice of assessment was served on him in a manner required or authorised by law. In
Batagol v. F.C. of T. (1963) 109 C.L.R. 243, Kitto J., in considering the definition of ``assessment'' for the purposes of the Income Tax and Social Services Contribution Assessment Act 1936-56 (Cth.), said at pp. 251-2:

``The word `assessment' is defined in sec. 6 to mean, unless the contrary intention appears, the ascertainment of the amount of taxable income and of the tax payable thereon. There is nothing in sec. 170 to show the contrary intention. But the definition is not sufficient by itself to answer the question before us, because `ascertainment' is a word the force of

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which depends upon the context. It is here used in an Act under which the service of a notice of assessment is the levying of the tax. Assessment in the sense of mere calculation produces no legal effect. No step that the Commissioner may take, even to the point of satisfying himself of the amount of the taxable income and of the tax thereon, has under the Act any legal significance. But if the Commissioner, having gone through the process of calculation, serves on the taxpayer a notice that he has assessed the taxable income and the tax at specified amounts, the tax becomes by force of the Act due and payable on the date specified in the notice or (if no date is specified) on the thirtieth day after the service of the notice: sec. 204. Thus, and thus only, there is brought about an `ascertainment' of the taxable income and of the tax, in the sense that thereafter it is possible to say what could not have been said before: that amounts have been fixed so that they are to be taken for all purposes (except those of appeal: see sec. 177) to be the result flowing from the application of the Act in the particular case. The respective amounts of the taxable income and the tax have been rendered certain. The word `ascertainment' being understood in this sense, the definition of `assessment' means, in my opinion, the completion of the process by which the provisions of the Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case. The idea coincides with that which Isaacs J. expressed in
F.C. of T. v. Hoffnung & Co. Ltd. (1928) 42 C.L.R. 39 in relation to war-time profits tax when he said: `If an assessment definitive in character is made, it assumes that, so far as can there be seen, a fixed and certain sum is definitely due, neither more nor less. In short, it ascertains a precise indebtedness of the taxpayer to the Crown' (1928) 42 C.L.R., at p. 55. On this construction of the Act nothing done in the Commissioner's office can amount to more than steps which will form part of an assessment if, but only if, they lead to and are followed by the service of a notice of assessment.''

It is clear from the judgment of Owen J. in the same case that the process of ``assessment'' (defined in the Act as meaning ``the ascertainment of the amount of taxable income and of the tax payable thereon'') is not complete until notice of it has been effectively given (and cf. the decisions of the High Court of Australia in
F.J. Bloemen Pty. Ltd. v. F.C. of T. 81 ATC 4280 and
Clyne & Anor. v. D.F.C. of T. & Anor. 81 ATC 4429). In the latter case, Mason J. said (at p. 4437) that ``the correct view in my opinion is that income tax is due when it is assessed and notice is served of that assessment and that the tax does not become payable before the date fixed by sec. 204'' (my emphasis).

These authorities are sufficient to dispose of the argument that due service of a notice of assessment may be avoided by invoking the provisions of sec. 175 of the Act that ``the validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with''. They also leave no room for the argument advanced on behalf of the applicant that the amounts payable pursuant to the assessments become ``due'' at the time the assessments are made and any defect in the service of the notices on the taxpayer does not affect the obligation to pay the tax assessed by the date specified. The question at issue is not the validity of the assessments; it is whether or not notice of the assessments was properly served on the defendant so as legally to ground his obligation to pay the tax assessed on the date specified - that is, the 27th August 1981. It was his failure to pay which was the alleged basis of the Supreme Court writ and the subsequent application for summary judgment.

It is convenient to state the steps for which the Act provides in the course of the establishment of the liability of a person to pay income tax.

At the heart of the liability is an ``assessment'', defined in sec. 6(1) of the Act as meaning ``the ascertainment of the amount of taxable income and of the tax payable thereon''.

Section 166 of the Act provides:

``166 From the returns, and from any other information in his possession, or

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from any one or more of these sources, the Commissioner shall make an assessment of the amount of the taxable income of any taxpayer, and of the tax payable thereon.''

Section 174(1) is in these terms:

``174(1) As soon as conveniently may be after any assessment is made, the Commissioner shall serve notice thereof in writing by post or otherwise upon the person liable to pay the tax.''

I consider that the proper interpretation of the words ``by post or otherwise'' in the total context of the Act and Regulations does not assist the applicant. A distinction must be drawn between an ``assessment'' and a ``notice of assessment''. In R. v. D.F.C. of T. (S.A.);
Ex parte Hooper (1925-26) 37 C.L.R. 368, at p. 373, Isaacs J. said:

``An `assessment' is not a piece of paper: it is an official act or operation; it is the Commissioner's ascertainment, on consideration of all relevant circumstances, including sometimes his own opinion, of the amount of tax chargeable to a given taxpayer. When he has completed his ascertainment of the amount, he sends by post a notification thereof called `a notice of assessment'. And then, says the Act (sec. 54), `income tax shall be due and payable sixty days after the service by post of a notice of assessment'. The section adds that, where by amendment of an assessment additional income tax is thereby payable by a taxpayer, it is due and payable thirty days after notice of amended assessment. But neither the paper sent nor the notification it gives is the `assessment'. That is and remains the act or operation of the Commissioner.''

(Amendments of the legislation since this judgment was delivered do not affect the distinction which his Honour discussed.)

The words ``by post or otherwise'' in sec. 174(1) of the Act are merely descriptive of the prescribed alternative means of service (reg. 59) and do not, in my opinion, enlarge the prescribed authority. If there had been any such intention I would have expected it to be expressed in clear, definite words; such is not the case. The author of the 12th ed. of Maxwell ``The Interpretation of Statutes'' cites at p. 33 the words of Lord Mersey in
Thompson v. Goold & Co. (1910) A.C. 409 at p. 420:

``It is a strong thing to read into an Act of Parliament words which are not there, and in the absence of clear necessity it is a wrong thing to do.''

Section 175 states:

``175 The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.''

It is clear that the validity of the actual assessments is not in issue in the present case and therefore sec. 175 is not relevant to the determination of the application.

Section 177(1) is referred to for completeness. It reads:

``177(1) The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and (except in proceedings on appeal against the assessment) that the amount and all the particulars of the assessment are correct.''

Plainly, the operation of sec. 177(1) is confined to an assessment as defined in the Act and does not extend to matters relating to the service of a notice of assessment.

Section 185, which confers a right of objection against an assessment, expresses clearly the distinction under the Act between an assessment and a notice of assessment.

When Parliament enacted the special provision (sec. 205) for abridging time for payment of tax if the Commissioner has reason to believe that a person liable to pay tax may leave Australia before the date on which the tax is due and payable, it was careful to provide expressly that in such a case ``the tax shall be due and payable on such date as the Commissioner notifies to that person''.

The final provision in the Act which is relevant to the application is contained as follows in sec. 208:

``208 Income tax when it becomes due and payable shall be a debt due to the King on

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behalf of the Commonwealth, and payable to the Commissioner in the manner and at the place prescribed.''

In my opinion it is clear, on principle, in the light of the scheme for assessment and payment of tax contained in the Act and Regulations, and such authority as exists, at least by analogy, that no debt arises under sec. 208 until the relevant tax has become due and payable after proper notice to the taxpayer given in accordance with law.

That simple proposition leads to an examination of the provisions in respect of service of documents as contained in the relevant regulations, as follows:

``27 Every person who furnishes a return shall, in the return, give an address in Australia for service.

28 Every person who has given an address for service and who subsequently changes his address shall, within one month after the change, give to the Commissioner, at the place where he furnished his return, notice in writing of his new address in Australia for service.

29 The address for service last given to the Commissioner by any person shall, for all purposes under the Act and Regulations, be his address for service, but where no address for service has been given to the Commissioner, or where the departmental records disclose that such person has subsequently changed his address and he has not notified the Commissioner, either in the return or by separate written advice, of such change, then the address of the person, as described in any record in the custody of the Commissioner, shall be his address for service.

30 The address for service as prescribed in the last preceding regulation shall, for all purposes under the Act and Regulations, be deemed to be the last known place of business or abode in Australia of any person.

31 Any person who changes his address and fails to give to the Commissioner notice of his new address in Australia for service shall not be permitted to plead such change of address as a defence in any proceedings (whether civil or criminal) instituted against him under the Act or Regulations.

...

59 Any notice or other communication by or on behalf of the Commissioner may be served upon any person -

• (a) by causing it to be personally served on him; or
• (b) by leaving it at his address for service; or
• (c) by posting it by pre-paid letter post, addressed to him at his address for service;

and in any case to which paragraph (c) of this regulation applies, unless the contrary is proved, service thereof shall be deemed to have been effected at the time when it would, in the ordinary course of post, have arrived at the place to which it was addressed.''

Although reg. 53 provides that a certificate in writing signed by a Deputy Commissioner certifying, inter alia, that notice of an assessment ``was duly served'' upon a taxpayer shall be prima facie evidence of that fact, I do not interpret reg. 53 as relieving the Court of the obligation of determining whether or not; on a proper view of the law, due service was effected.

It is against the factual and statutory background which I have outlined that the short question to be decided arises. That question is: was the manual delivery of the notices of assessment to a partner of the firm of accountants and tax agents of the defendant due service in accordance with law. I was informed by counsel that they were not aware of any published authority on the point.

The most significant of the Regulations is reg. 59, which provides for three options for the means of service of notices, none of which in fact was used in this case. The manual delivery of the notices to a person at the office of the defendant's agent did not, as a matter of fact, amount to ``leaving'' them at the taxpayer's address for service. Such address was ``C/- P.O. Box 122, Launceston, 7250''. I am in no doubt that the action of the officer of the Australian Taxation Office in taking the more direct and expeditious course of visiting the offices of the defendant's tax agents and personally delivering the notices of assessment to a

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partner of the firm was properly motivated, but I feel bound to hold that it did not comply with relevant provisions of the Act and Regulations. It is obviously an advantage to the Australian Taxation Office in some cases to be able to serve notices and other communications by following the method prescribed by either para. (b) or para. (c) of reg. 59, but I consider that, if it does so, it is bound to adhere strictly to the letter of the regulation. Any departure from a plain and natural interpretation of the words of reg. 59 could bring doubt and uncertainty into an area which is clear and definite. Regulation 59 is a protection for the Deputy Commissioner against taxpayers who may seek to evade their tax obligations by avoiding service of documents. The Taxation Office merely has to follow an appropriate option given by reg. 59 to be able to pursue its administrative duties. It will only encounter legal difficulties if it disregards strict compliance with reg. 59, even though the departure may appear completely technical and really of no significance. However, I pointed out to counsel during argument some cases in which in my opinion it would be theoretically possible for a taxpayer to be unaware of a notice or communication by or on behalf of the Commissioner if reg. 59 were to be disregarded to any degree whatsoever.

I see no difference between the nature of the documents in this case - notices of assessment requiring payment on the day of delivery to an agent of the defendant of large sums for tax - and those considered by the Master of the Rolls, Sir Wilfrid Greene, in
Re A Debtor (1939) 1 Ch. 251 when he said at pp. 257-258:

``It is no exaggeration to say that the practice in regard to writs and the requirements of the law in regard to the service of writs are, and have always been, regarded as matters strictissimi juris. In the case of the service of a bankruptcy petition, I can see nothing in the section and Rules which can fairly be construed as relaxing the strict requirements which are to be found in the case of the service of writs and other documents under the Rules of the Supreme Court.''

It must be borne in mind that the due service of a notice of assessment is a condition precedent to the creation of a legal liability to pay the tax assessed. The obligation to do so is personal so far as the taxpayer is concerned. The consequences of failing to carry out the obligation also obviously are personal to the taxpayer. The existence and extent of the obligation must, by an application of ordinary principles, be brought to the notice of the taxpayer either personally or by an alternative means for which there is specific legislative provision (cf. the observations of Fox J. in
Golden-Brown v. Hunt (1972) 19 F.L.R. 438, at p. 447 in respect of the obligation to notify ordinances under the Seat of Government (Administration) Act 1910-1972 (Cth.) in the prescribed manner).

Despite the natural belief of the Deputy Commissioner in this case that the circumstances warranted the most expeditious and certain means in his judgment of bringing the obligation of the defendant to his personal notice, it remained necessary to comply with the provisions of the Act and the Regulations. For the reasons I have expressed I do not consider there was adequate or proper service on the first defendant of the six notices of assessment. This defect is not cured by the entry of appearance on behalf of the defendant to the writ. Consequently the cause of action pleaded in the writ and amended statement of claim was not properly based and the summons for summary judgment must be dismissed.

For the same reasons, the summons against the second defendant also is dismissed.