Deputy Federal Commissioner of Taxation v. Smith.

Judges:
Southwell J

Court:
Supreme Court of Victoria

Judgment date: Judgment handed down 2 July 1987.

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Southwell J.

This appeal raises a short point concerning the application of sec. 177(1) of the Income Tax Assessment Act 1936 ("the Act"). The plaintiff by writ issued 28 August 1986 sued the defendant for taxation assessed in the years 1976 to 1983 for $77,870 income tax, $10,648.96 additional tax imposed pursuant to sec. 226(1) of the Act, and additional tax for late payment (sec. 207 of the Act) of $61,277.64, a total of $149,520.63. The defendant appeared, and on 11 February 1987 the plaintiff issued a summons for final judgment.

The matter came on for hearing before Master Brett on 14 May 1987, when both parties were represented. The Master gave judgment for the plaintiff for $11,688.23, but gave leave to defend in respect to the balance of the claim. It is from that order that the plaintiff wishes to appeal.

By a combination of a misunderstanding of the rules by the plaintiff's solicitor (who was under the impression that the rules allowed 14 days in which to appeal from an order of the Master), and some problems in the vast machinery of the bureaucracy of the Department of Taxation, the notice of appeal was not served within the five day period fixed by r. 77.05(4). Accordingly, it is necessary first to consider whether there should be an extension of time granted pursuant to r. 77.05(6).

It may be observed that no special question of prejudice to the defendant arises. The defendant appeared, by his solicitor, upon the return day, 19 June, when Murphy J. adjourned the summons until today, when there was no appearance of the defendant. Generally speaking, a party will not be punished by reason of an oversight of his solicitor, such as here occurred. Furthermore, affidavits filed on behalf of the plaintiff demonstrate that the appeal raises a question of considerable importance in the administration of tax recovery procedures. In my opinion, it is in the public interest that the matter be decided. Accordingly, the time for appeal will be extended until this day.

The material filed in support of the summons shows that notices of the relevant assessments were served upon the defendant, and extracts of those notices were exhibited to the affidavits in support. Section 177(1) of the Act provides:

"The production of a notice of assessment, or of a document under the hand of the Commissioner, or 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."

Section 177(4) provides:

"The production of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of or extract from any return or notice of assessment shall be evidence of the matter therein set forth to the same extent as the original would be if it were produced."

No point was raised before the Master, nor I think could it sensibly have been raised, that the extracts exhibited did not fall within the umbrella of sec. 177(4).

Before the Master, the defendant succeeded upon a submission that since there was evidence in the form of an affidavit of the

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ATC 4744

defendant, with some support from other affidavits, that he was not resident in Australia in the relevant years and earned no income here, then there was no basis upon which a valid assessment could have been made. It appears that the Master thought that an arguable defence had been put forward.

Reliance was placed upon the judgments in
Briggs v. D.F.C. of T., 86 ATC 4748. In that case the Full Court of the Federal Court was considering the application of sec. 177 upon certain agreed facts, among which were:

"Before the issue of the notices of amended assessment and assessment, none of the taxation officers had made any attempt to ascertain the taxpayer's taxable income, nor intended to undertake any relevant process of calculation. The notices were issued for the purpose of forcing the taxpayer to consult with the Commissioner or his officers.

Before the making of the amended assessment and assessment, none of the taxation officers carried out any, or any proper, investigation of the taxpayer's affairs.

There was no material having any rational or probative force to justify the issue of the notices of amended assessment and assessment."

The Full Court there found that a distinction has to be made between a genuine attempt to ascertain the taxable income of a taxpayer and one where, on the admitted facts, no such genuine attempt had been made at all.

In the instant case, there are no such agreed facts, and the question is whether the mere allegation by the defendant that there may be facts which tend to show that there was no sound basis for the assessment can be held to operate so as to avoid the application of sec. 177(1).

In the second Briggs case referred to, reported at 87 ATC 4278, Shepherd J. explained how the Commissioner could validly make an assessment, albeit that the process may go close to guesswork, be inexact, and perhaps incorrect.

Neither of those cases, in my opinion, provides a sound basis for the argument put forward with success before the Master.

In
F.J. Bloemen Pty. Ltd. v. F.C. of T. 81 ATC 4280; (1981) 147 C.L.R. 360, the meaning and application of sec. 177 was under scrutiny. At p. 377, Mason and Wilson JJ. (with whom Stephen and Aickin JJ. agreed) said, in referring to sec. 175 and sec. 177:

"... it is difficult to understand how it can be said, consistently with those sections, that a notice which appears to be a final notice of assessment is nevertheless not what it appears to be because there was no assessment at all...

The Commissioner may be right or wrong in his view of the facts, but it would appear to be incontrovertible that the figure on the notice of assessment which records the Commissioner's view of the taxable income evidences that a process of assessment was actually undertaken however cursory or inadequate that process may have been."

At p. 379 Murphy J. said:

"Section 177(1) operates so that production of a notice or document purporting to be a copy of a notice of assessment is conclusive evidence of due making, and so prevents an inquiry directed to establishing that there has been no assessment. Such production prevents any challenge to the fact, validity or correctness of an assessment, except in proceedings on appeal, when the correctness only of the assessment can be challenged. Part V provides an elaborate scheme (of objections and appeals) for questioning and establishing whether the assessment is excessive."

I respectfully adopt those last dicta, and it follows that this is not the jurisdiction in which to challenge the correctness of an assessment.

I am of opinion that sec. 177(1) applies in its terms, and that the material tendered must be held to be conclusive evidence of the matters referred to in that subsection.

Accordingly, the plaintiff is entitled to judgment for the whole of the amount claimed. The appeal will be allowed, the order of Master Brett set aside, and in lieu thereof there will be judgment for the plaintiff for $149,520.63, with costs to be taxed.