Intervest Corporation Pty. Limited v. Federal Commissioner of Taxation and Deputy Federal Commissioner of Taxation.

Judges:
Smithers J

Court:
Federal Court

Judgment date: Judgment handed down 15 October 1984.

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Smithers J.

The applicant seeks to review two decisions made by or on behalf of the first or second respondent refusing two requests by the applicant under sec. 105AA of the Income Tax Assessment Act 1936 (the Act) for the first respondent to determine a further period during which the applicant might pay dividends for the purpose of making a sufficient distribution within the meaning of sec. 105A(1) of the Act, the first decision being in relation to the year of income ended on 30 June 1977, and the second decision being in relation to the year ended on 30 June 1978.

The application for review is made pursuant to sec. 5 of the Administrative Decisions (Judicial Review) Act 1977 (ADJR Act). The requests were made in consequence of the second respondent serving upon the applicant a notice of assessment of additional tax pursuant to Div. 7 of Pt. III of the Act in respect of each of those years of income.

On 23 August 1983 the applicant lodged a notice of objection to each assessment and with each objection a request was made to the respondents to determine a further period within which the applicant might make sufficient distribution in respect of each of the years of income 1977-1978. On 20 March 1984 the applicant was notified by the second respondent that the requests were refused.

The respondents challenge the competency of this application for review on the ground that the ADJR Act does not apply to the two decisions in question. They also contend that the application was not brought within the time specified in sec. 11(3) of the ADJR Act. And they submit that in the exercise of its discretion under sec. 10(2) of the ADJR Act this Court should in any event refuse to exercise its jurisdiction under the ADJR Act to review the two decisions.

In relation to the challenge to competency it is said that the decisions are decisions making or forming part of the process of making or leading up to the making of an assessment or calculation of tax or decisions amending or refusing to amend an assessment or calculation of tax within the meaning of cl. (e) of the First Schedule the ADJR Act. If this be so then review under the ADJR Act would not be available to the applicant: see sec. 3 of the ADJR Act.

It is my opinion that neither of the decisions sought to be reviewed is a decision within the description in cl. (e) of the Schedule. It was urged by Mr. Hayes for the respondents that the making of each decision was part of the assessment process and was an integral part of that process. Mr. Hayes referred to views to this effect expressed by Mr. O'Neill, a member of the Board of Review in Case E23,
73 ATC 174 at p. 212 in the following terms:

``In such a context I see no great difficulty in treating refusal of an application for exercise of such a discretion as being an integral part of the function or process of assessment even though it is still open to a taxpayer whose request has been granted to refrain from making a `sufficient distribution' within the further period determined by the Commissioner.''

It may be noted, however, that this view has not been accepted by all members of the Board. For example it was said by Mr. Stevens in Case K57,
78 ATC 551 at p. 564:

``However, for what it is worth on the issue of jurisdiction, it is mentioned that, as at presently advised, I find difficulty in accepting what was a basic tenet of Mr. O'Neill's rationale in Case E23, 73 ATC 174, i.e. the treating of a `refusal of an application for exercise of such a discretion as being an integral part of the function or process of assessment', in a case such as the present where there was no request prior to

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ATC 4747

the issue of the Div. 7 assessment. What might be an integral part if one existed for consideration by an assessor in raising an assessment does not necessarily remain the same if none in fact existed. Also sec. 105AA contains specific provisions relating to notification of the results of his consideration by the Commissioner - otherwise than being reflected in a notice of Div. 7 assessment - and this makes it distinguishable from other sections of the Act. The only time a sec. 105AA application is reflected in an assessment is when further time is granted and an actual distribution is made within that further time (as Mr. O'Neill said one may not in fact be made).''

It would appear by no means certain that a decision refusing a request for determination of a further period to make a sufficient distribution under sec. 105AA of the Act is reviewable by the Board: see sec. 187(1). But interest in these observations is not so much in their relation to that question as in the views of members of the Board as to whether or not a refusal of such a request is an integral part of the process of making an assessment. To my mind it is difficult to accept that it is. Assessment as defined in sec. 6 of the Act is the ascertainment of the amount of taxable income and of the tax payable thereon. The amount of taxable income and the tax payable thereon must be ascertained by the Commissioner by reference to the facts before him concerning the income of the taxpayer. Those facts are established by the taxpayer's return of income and such other information as he may supply voluntarily or on demand of the Commissioner. In this case upon the facts put before the Commissioner by the applicant the Commissioner made assessments of the taxable income and the tax payable thereon in respect of the income years ending 30 June 1977 and 30 June 1978. Those assessments of tax payable, according to the notice of assessments served in respect thereof, included additional tax imposed in respect of undistributed income pursuant to sec. 104(1) of the Act on the ground that in respect of each year the company was not, by sec. 105A, deemed to have made a sufficient distribution. Thereupon pursuant to sec. 105AA(1) there arose in the applicant an entitlement to request the Commissioner to determine a further period in which it might pay dividends for the purpose of making a sufficient distribution in relation to relevant years. On 23 August 1983 the applicant made such requests. Had those requests been granted the applicant might have paid further dividends in such amount as would constitute a distribution sufficient to eliminate or reduce the additional tax imposed under Pt. III Div. 7 of the Act. Had that occurred amended assessments reducing tax payable might have been issued pursuant to sec. 170. Such amended assessments would have been made in respect of the situation concerning taxable income and sufficient distribution taking into account the payment of the further dividends. But as a result of the refusal of the applicant's request for a further period to pay such dividends, the factual situation in relation to the income of the company and the distribution made by it did not change. The notice of assessment of tax and additional tax remained in full force and effect.

A refusal of a request made under sec. 105AA after service of a notice of assessment is relevant to the liability of the applicant to pay the tax demanded in the notice of assessment which has been issued. If the request is granted a reduction in liability may result. If it is refused the chance of any such reduction is eliminated. But there is no sense in which a decision to refuse the request is a decision making an assessment or calculation of tax, or a decision forming part of the process of making an assessment or calculation of tax. A decision refusing a request denies to the taxpayer making the request an opportunity to change the basis of fact by reference to which an assessment, or an amended assessment, depending upon appropriate calculations, might be made.

Also, a decision granting or rejecting a request is not, in my opinion, a decision leading up to the making of an assessment or calculation of tax. Of course a refusal of a request made after the notice of assessment has been given does not in any sense lead up to an assessment. In that case the only assessment ever made is the one already made. Also, the grant of a request which is made after service of a notice of an assessment cannot lead up to an assessment. If it leads up to anything in the nature of an assessment it could only, putting the matter at best for the taxpayer, lead up to the making of an amended assessment. But a decision leading up to the making of an amended assessment is not a decision within the scope of cl. (e) of the First Schedule to the ADJR Act. In so far as that clause refers to decisions which lead up to assessments or calculations of tax, they are

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ATC 4748

decisions ``leading up to the making of assessments or calculations of tax'' and not ``decisions amending or refusing to amend assessments or calculations of tax''.

But to deal with the question of whether or not the grant or refusal of a request for a further period to pay dividends is within the scope of cl. (e) of the Schedule, the most satisfactory course would seem to be to have regard to the nature of that exercise. In
D.F.C. of T. v. Clarke and Kann 84 ATC 4273 at p. 4276, in discussing a demand by the Commissioner made under sec. 264 of the Act that solicitors of a taxpayer company supply information concerning the sale of shares in the company which would possibly have relevance to the assessment of tax under the Taxation (Unpaid Company Tax) Assessment Act 1982, the Full Court of the Federal Court of Australia said:

``Because para. (e) plainly intends to exclude from review some decisions which are made prior to assessment, it must be taken to refer not only to assessments which have been made but to those which will be made.

The decisions which are excluded from review by para. (e) of the Schedule are decisions making assessments, decisions forming part of the process of making assessments, and decisions leading up to the making of assessments. Each category provides for some extension of the former, but the overall effect is to emphasise the essential need for a connection between the decisions and an assessment.

It is inappropriate to attempt to define the boundary between those decisions which are and those which are not `decisions leading up to' the making of an assessment. However, a decision does not lead to the making of an assessment merely because it precedes the making of an assessment or because its purpose is to enable or facilitate the making of any assessment which may be made. A decision is not a decision leading up to the making of an assessment unless the making of an assessment has followed or will follow from the decision.

The notices are decisions because they are demands for information (Judicial Review Act, para. 3(2)(e)). Although a sharp distinction cannot be drawn between the appellant's inquisitorial function and his assessment function, where, as in this case, no assessment has been made and there can be no certainty that an assessment will be made, it cannot be concluded that a demand for information which does not form part of the making of an assessment necessarily is leading up to the making of an assessment. The information produced by the demand may result in an assessment, or in a decision not to assess, or may be of no utility. There is not sufficient relationship between the demands for information and the making of an assessment to attract para. (e) of the Schedule.''

The distinction between the Commissioner's assessment function and his administrative function is relevant in this case. It is in his administrative function that he may or may not sanction the taking of steps by a taxpayer which, if taken by him, may produce a state of facts by reference to which an amended assessment may be made which might differ from that upon which the assessment already made was made. When he approaches the task of making an assessment with reference to the facts before him and makes the necessary calculations for that purpose he is exercising his assessment function. But however widely the net is cast by the words of cl. (e) it does not cover a decision not being part of the process of assessment and which relates only to the question whether a taxpayer shall be permitted to carry out transactions which may reduce the amount of income upon which he is liable to pay tax. It may result in the making of an amended assessment. But it is so far removed from the assessment process that it does not, in the relevant sense, lead up to the making of an assessment. It provides an opportunity for the taxpayer to make payments, the making of which will introduce new elements into his financial affairs by reference to which the amount of income on which he is liable to pay tax may be reduced and the amount of his taxable income may be ascertained. Decisions making or forming part of the process of making an assessment or calculation of tax are clearly made in the process of assessing tax. Decisions leading up to the making of an assessment may not necessarily be so confined. But, in my view, a decision not being connected directly or indirectly with the process of the making of an assessment is not within the category specified in cl. (e) of the Schedule merely because the making of an assessment or a particular

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ATC 4749

assessment thereafter was a consequence of business dealings which flowed from the decision and affected its income position and tax liability but did not otherwise operate upon or have any other significance in respect of the assessment.

The observations of Ellicott J. in
Tooheys Ltd. v. Minister for Business and Consumer Affairs (1981) 36 A.L.R. 64 at p. 78 are relevant. In that case an applicant sought review under the ADJR Act of the refusal of the Minister of a request for a determination that a particular item of the Customs Tariff should apply to certain goods. His Honour said:

``It is one of the provisions in the light of which customs duty is to be calculated. The making of it is not part of the process of calculations of duty nor is it, in my view, a decision which can properly be said to be a decision `leading up to the making' of the calculation of duty. The words `leading up to the making' are intended to point to decisions which have to be made or, in the circumstances, it is appropriate to make, before the actual process of assessment or calculation can begin. A determination may be made under sec. 273 relating to particular goods but the process of calculating duty does not depend on it any more than it depends on the existence of the general provisions of the Act relating to value or duty.

In other words, what para. (e) is directed to is the process whereby the liability to tax or duty is calculated in a particular case. A decision to make a by-law or determination is a decision which affects liability. It is not a decision dealing with the calculation of liability.''

These observations were approved on appeal by the Full Court: see (1982) 42 A.L.R. 260 at p. 271.

Having regard to the above, I am of the opinion that the decision to refuse the applicant's requests for determination of further periods in which to pay dividends is not excluded from the operation of the ADJR Act by cl. (e) of the First Schedule to that Act.

The contention that this application is out of time depends upon the provisions of subsec. (1)(c) and 3(b)(iii) of sec. 11 of the ADJR Act. Section 11(1)(c) provides that an application to the Court for an order to review shall be lodged with the Registry of the Court within the prescribed period or within such further time as the Court (whether on, before or after the expiration of the prescribed period) allows. Section 11 (3)(b)(iii) provides, in relation to a situation such as that in this case, that the prescribed time is the period commencing on the day on which the decision is made and ending on the 28th day after the day on which a document setting out the terms of the decision is furnished to the applicant.

The requests to the respondents under sec. 105AA in respect of each relevant year for further time to pay dividends for the purpose of making a sufficient distribution was made on 23 August 1983 in the same communication as that in which notice of objection to each of the assessments was lodged. That communication was answered by the second respondent by letter dated 20 March 1984 which reached the applicant on 5 April 1984. This application was lodged with the Registry of this Court on 10 July 1984. In the letter of 20 March 1984 the second respondent referred to the communications of 23 August 1983, stated that the requests for a further period for payment of dividends had been refused with respect to each relevant year, and continued, ``therefore it is proposed to maintain the Div. 7 assessments and you are advised that moneys outstanding (if any) should be remitted forthwith to this office''. The letter did not mention the notices of objection. To that letter the applicant replied on 18 May 1984 as follows:

``I refer to your letter dated 20 March 1984 (received 5 April 1984), demanding payment of Division 7 assessments issued for the years ended 30 June 1977 and 30 June 1978.

The assessments issued on 29 June 1983 subsequent to disallowance of deductions effected during the two financial years. Objections dated 23 August 1983 were lodged, against the disallowance of deductions and the issued Division 7 assessments. Each objection included a request for referral of all assessments until such time as the objections are determined and where appropriate, an application under section 105AA, for additional time in which to declare dividends.

The taxpayer is dissatisfied with the decision by the Commissioner denoted in your letter dated 20 March 1984, and requests that the decision be referred to a Board of Review. The fee of $2.00 for the referral is enclosed.

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ATC 4750

The taxpayer further states that the Commissioner has acted unreasonably and contrary to law, having regard to the requirements of section 105AA and/or any other provisions of the Income Tax Assessment Act, the matters referred to in the relevant objection and requests by the taxpayer and all other relevant facts and circumstances, in denying the taxpayer additional time pursuant to section 105AA in which to declare dividends and further states that such additional time should have been until 60 days after the final determination (after all appeals have been exhausted) of the matters the subject of the aforementioned objections by a Board of Review or a Court.''

It would seem that the applicant regarded the letter of 20 March 1984 as a decision relating to the objections of which notice had been given on 23 August 1983. But, actually, the decision on those objections was not given to the applicant until 4 June 1984.

On 28 June 1984 the second respondent informed the applicant as follows:

``Reference is made to your letter dated 18 May 1984 requesting Reference to a Board of Review.

Your attention is drawn to section 187(1) of the Income Tax Assessment Act, which provides that, inter alia, where a taxpayer is dissatisfied with the decision on an objection he may, within 60 days after service of the written notice of the decision, request the Commissioner to refer the decision to a Board of Review for review.

According to records in this office the notices of determination of your objections were issued on 1 June 1984.

As the letter dated 18 May 1984 requesting reference to a Board of Review was lodged before service of the written notices of determination of objections, it does not therefore constitute a valid request for reference in terms of section 187(1) of the Act.

Pending receipt of a valid request for reference the amount of $2.00 forwarded with the said letter will be retained in this office. Please note that 1 August 1984 is the expiry date for lodgment of a valid request for reference to a Board of Review.

It should also be noted that a further $2.00 should be forwarded as the required fee to request reference to a Board of Review is $2.00 per assessment.''

It is clear from the affidavit of Mr. Robertson, the partner of H. White & Co. - the applicant's accountants, who acts as accountant and tax agent for the applicant, that he had no knowledge that the decision of 20 March 1984 could be challenged under the ADJR Act until, at the earliest, 22 June 1984 when Mr. Gilbertson, the applicant's managing director, was advised by counsel that that decision could be so reviewed. It would appear that Mr. Robertson regarded the request for further time to pay dividends as something bound up with the fate of the notices of objection and proper to be disposed of if necessary, by the Board of Review when dealing with the objections. If the objections were upheld the requests would be irrelevant. It was only because the assessments made by the second respondent reflected the disallowance of deductions which had been claimed by the applicant that any question arose as to the sufficiency under Div. 7 of the Act of the distribution made by the applicant. It is, I think, a reasonable inference that the delay in proceeding under the ADJR Act proceeded from Mr. Robertson's ignorance of the availability of review under that Act and his view that the relevance of the request under sec. 105AA depended upon the fate of the objections to the assessment and a belief on his part that it would ultimately be dealt with by the Board of Review in connection with its decision on the validity of the objections.

It is in these circumstances that the applicant seeks an order of the Court allowing the period ending on 10 July 1984 as the period within which to lodge this application. It is clear from sec. 11 that the limitation of the period in which an application may be made is regarded as a matter of importance: see
Ralkon v. Aboriginal Development Commission (1982) 43 A.L.R. 535 at p. 550. An allowance of a further period should certainly not be made as of course. On the other hand, the terms in which the period is limited in sec. 11(1)(c) are in a form pursuant to which the lodging of the application is disallowed only after the expiration of such further time, after the prescribed 28 days, as the Court allows. It is not a provision where there is a loss of a right at a fixed date subject to revival by leave. There are no express statutory

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ATC 4751

guidelines as to the principles to be applied in relation to the allowance of a further period beyond the prescribed 28 days. Principles applicable to the exercise of the discretion to allow further time have been considered in a number of cases in this Court. In
Hickey & Ors. v. Australian Telecommunications Commission (1983) 47 A.L.R. 517 Lockhart J. referred with approval to views expressed by Fitzgerald J. in
Lucic v. Nolan & Ors. (1982) 45 A.L.R. 411 at pp. 416-417 and added [at p. 523]:

``Applications for enlargement of time to bring applications under the Judicial Review Act are not merely inter partes adversary proceedings. Questions of public interest are involved. Delay by an applicant in bringing his application is relevant. What weight the court should give to mere delay unaccompanied by prejudice, if there could be such a case under the Judicial Review Act, is entirely a matter for the court to determine in the particular case, but delay unaccompanied by prejudice is not necessarily to be placed to one side as irrelevant or as not operating against the success of the applicant's case. Delay without prejudice to the defendant in equity proceedings may not constitute laches sufficient to debar the plaintiff from equitable relief, but the Judicial Review Act is concerned with public considerations as well as private grievances attributable to decisions made under Commonwealth enactments. In some cases delay unaccompanied by prejudice may be a telling consideration against the exercise of discretion to enlarge time for bringing an application under the Judicial Review Act.

Although sec. 11 does not in terms place an onus on an applicant seeking an allowance for further time within which to lodge an application for an order of review, it is nevertheless incumbent upon him to satisfy the court that the extension of time should be granted. It is not for the decision-maker to establish that the applicant does not have a case for an extension of time. The applicant seeks an indulgence. It is for him to prove that he is entitled to it. But the court should not surround the exercise of its discretion with unnecessary constraints such as a requirement that there be special circumstances or considerations of that kind. The statute does not require them. Nor should the courts. It is best left to the good sense of the judge hearing each case to determine whether, on the evidence before him, the court's discretion should be exercised in favour of granting an enlargement of time to bring an application for an order of review.''

I also refer to the general discussion of the relevant principles of Wilcox J. in
Hunter Valley Developments Pty. Ltd. & Ors. v. The Honourable Barry Cohen, 5 July 1984, No. G426 of 1983, unreported.

It appears to me to be relevant that the issue in this case, as in many cases under the ADJR Act, arises between a citizen and a Government department concerning the implementation of a public law which places a burden upon the citizen in the interests of the community generally. It is in the public interest that the administration of the law should not be inappropriately hampered by the extension of indulgences to undeserving persons, but it is in accordance with justice and the public interest that a citizen should not lose an entitlement by delay which is neither reprehensible nor excessive. The problem stands on a different footing from that arising between two citizens where by reason of a statute of limitation an unconditional right of one of them has been lost by his delay.

In the present case I have regard to the fact that within 28 days from 15 April 1984 the applicant made clear his intention to challenge the decision of 20 March 1984 according to law before a tribunal. The tribunal specified was the Board of Review. This reference to the Board of Review was premature and for that reason invalid. The availability of the ADJR Act to test the decision was not then known to Mr. Robertson. The application was lodged with the Registrar of the Court well within 28 days of the applicant becoming aware of the availability of the ADJR Act as a possible avenue of challenge to the decisions. I would not regard as unreasonable Mr. Robertson's notion that the matter of the request for further time to pay further dividends was bound up with the fate of the objections to the assessments. And it is clear that the delay caused no prejudice to the respondents.

In the absence of knowledge of availability of the ADJR Act as an avenue by which to seek relief against the decision, the existence of uncertainty as to whether the letter of 20 March

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ATC 4752

1984 indicated not only that the request under sec. 105AA was refused but also that the objections to the assessment were rejected, the effort of the applicant to seek relief in respect of the decisions in the context of an appeal against the rejection of the objections to the assessment, the applicant appears to me to have done what it could within 28 days of the decision, namely on 18 April 1984, to challenge them according to law.

In these circumstances I consider that in the exercise of the discretion the Court should allow further time, namely, a period extending until 10 July 1984 for the applicant to lodge this application with the Registry.

It was said, finally, that this Court should exercise its discretion under sec. 10(2)(b)(i) of the ADJR Act to refuse to grant the application on the ground that the applicant has sought a review by another Court of the decisions otherwise than under that Act, or alternatively under sec. 10(2)(b)(ii) on the ground that adequate provision is made by a law other than the ADJR Act under which the applicant is entitled to seek review by the Court or another Court, or by another tribunal, authority or person, of the decisions.

It was said that on 27 June 1984 the applicant informed the respondents that it was dissatisfied with the decisions made on 4 June 1984 with respect to the objections to the relevant assessments for the income years ending 30 June 1977 and 30 June 1978, and requested, under sec. 187(1)(b) of the Act, that each objection be treated as an appeal and be forwarded to the Supreme Court of the State of Victoria. No appeal or reference to the Board of Review save that of 18 May 1984 has been made. As previously indicated, I am not satisfied that an appeal to the Board of Review against a refusal of such a request is provided for under sec. 187 of the Act.

The appeals against the disallowance of the objections are not appeals against the decision of 20 March 1984 refusing the request for the grant of a further period of time within which to make a sufficient distribution. They are therefore of no relevance to sec. 10(2)(b)(i). So far as sec. 10(2)(b)(ii) is invoked it is to be observed that the appeals to the Supreme Court are not, and it would seem could not be, appeals against the decision of 20 March 1984 to refuse the applicant's requests under sec. 105AA for further time to pay dividends. The relief available to a successful applicant under sec. 5 of the ADJR Act would be different in nature from that obtainable upon successful appeals to the Supreme Court against the rejection of the applicant's objections to the assessments of tax payable by it.

Also, I would regard the application for the exercise of the Court's discretion under sec. 10(2) as premature. Such an application would be more appropriately considered when the question of granting relief or particular relief arises in the light of the issues dealt with or arising on the hearing.

Having regard to the foregoing I reject the respondents' objection to the competency of the application for review. I allow the period for lodging the application with the Registrar to be the period ending on 11 July 1984 and I make no order under sec. 10(2)(b)(i) or 10(2)(b)(ii).

The respondents should pay the costs of and incidental to this application.

THE COURT ORDERS THAT:

1. Each of the parties have liberty to apply for directions in this matter.

2. The costs be reserved.