CASE Y57

Members:
RA Balmford

Tribunal:
Administrative Appeals Tribunal

Decision date: 22 November 1991

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RA Balmford (Senior Member)

This is an application under sub-section 188A(3) of the Income Tax Assessment Act 1936 (``the Act'') for review of a decision of the respondent made under sub-section 188A(1) of the Act. The respondent refused an application by the applicant, under sub-section 188(1) of the Act, that an objection to the assessment of his taxable income in respect of the year ending 30 June 1988 be treated as having been duly lodged. The assessment issued on 1 May 1989 and the objection was sought to be lodged on 28 January 1991. The application is an ``extension of time application'' in terms of the definition in section 14ZB of the Taxation Administration Act 1953.

2. The Tribunal had before it the documents lodged by the respondent pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 and numbered T1 to T13, together with all material lodged at the hearing. Evidence was given at the hearing by the applicant, who was unrepresented. The respondent was represented by an officer of the Australian Taxation Office.

3. The relevant provisions of the Act are:

``185(1) A taxpayer dissatisfied with any assessment under this Act may, within 60 days after service of the notice of assessment, lodge with the Commissioner an objection in writing against the assessment stating fully and in detail the grounds on which he relies.''

``188(1) Where the period for the lodgment by a taxpayer of an objection against an assessment has ended, the taxpayer may, notwithstanding that the period has ended, send the objection to the Commissioner together with an application in writing requesting the Commissioner to treat the objection as having been duly lodged.

...

(3) An application under sub-section (1) or (2) shall state fully and in detail the circumstances concerning, and the reasons for, the failure by the taxpayer to lodge the objection or request as required by this Act.''

``188A(1) The Commissioner shall consider each application made under sub-section 188(1) and may grant or refuse the application.

(2) The Commissioner shall give to the taxpayer who made the application notice in writing of the decision on the application.

(3) A taxpayer who is dissatisfied with a decision under sub-section (1) in respect of an application made by the taxpayer may apply to the Tribunal for review of the decision.

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(4) Where an application under sub-section 188(1) has been granted, the taxpayer who made the application shall, for the purposes of this Part, be treated as having duly lodged the objection to which the application relates.''

4. On the basis of the evidence before me, I find the facts to be as set out in this and the following four paragraphs. The applicant was one of the two founders of A Limited, and one of his main duties was to attract finance for the company by selling the unissued shares. On 26 February 1985, a total of 2,158,470 shares in A Limited were issued to the applicant and the other founder of the company, Mr B. The terms of that issue were that those shares were to be held in escrow and be released progressively as follows:

         ``Date             Number         Percentage
                          Shares           Released
      31 July 1986       215,847             10%
      31 July 1987       647,541             30%
      31 July 1988       647,541             30%
      31 July 1989       647,541             30%''
        

5. The applicant's taxation return for the year ending 30 June 1988 included a declaration that his assessable income for the year included $284,918 as the market value of shares acquired by him in July 1987 from A Limited for services rendered as an employee. An assessment issued to him on 1 May 1989. The last day provided by section 185 of the Act for the lodging of an objection to that assessment was 30 June 1989.

6. The Board of A Limited had resolved on 20 August 1987 ``that it would be inappropriate for directors to sell any of their shareholdings in the company during a promotional phase''. The applicant and Mr B were actively promoting the company from July to November 1987. After the market crash of October 1987 the shares dropped from 60 to 20 cents. Long drawn out negotiations for a take-over of the company were unsuccessful, and the shares became worthless.

7. The applicant considered that he was not in a position to sell the shares while their value was high, because of the agreement which had been made. On the basis that this constituted an additional restriction on the right to dispose of the shares, and accordingly they should be taken to have been acquired only when that restriction ceased to operate in November 1987, his accountants wrote to the respondent on 7 March 1990 requesting an amended assessment. Correspondence and meetings ensued, culminating in the applicant's seeking to lodge an objection to the assessment on 28 January 1991.

8. Because the shares had lost value and he did not have the money to pay the tax, the applicant endeavoured to, as he said, realise on his intellectual assets, by setting up a fresh undertaking. Only when this proved impossible did he turn to selling other assets which enabled him to pay a substantial proportion of the tax. The respondent has commenced proceedings in the Supreme Court to recover the balance. The applicant now wishes to have the opportunity to pursue the submission raised in the letter of 7 March 1990 referred to above. He had not been aware of that ground of objection at the time when the period for lodging an objection expired.

9. In
Hunter Valley Developments Pty Ltd and Others v Cohen (1984) 7 ALD 315, Wilcox J. considered the principles applicable in the consideration of an application to extend time for the lodging of an application for review under section 5 of the Administrative Decisions (Judicial Review) Act 1977. Those principles have frequently been adopted in this Tribunal as an appropriate basis for consideration of similar applications under the AAT Act. (See for example
Re Bonavia and Secretary, Department of Social Security (1985) 9 ALD 97,
Re Commonwealth Scientific and Industrial Research Organisations and Barbara (1987) 11 ALD 447, Case X75,
90 ATC 558.) His Honour said (at 319-321):

``Section 11 of the Administrative Decisions (Judicial Review) Act does not set out any criteria by reference to which the court's decision to extend time for an application for review under s 5 is to be exercised. Already there have been a number of decisions of judges of this court, all sitting at first instance, dealing with the approach proper to be taken. They differ a little, both in language and in emphasis, but I venture to suggest that from them may be distilled the following principles to guide, not in any exhaustive manner, the exercise of the court's discretion:

• (a) Although the section does not, in terms, place any onus of proof upon an

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  ATC 496

  applicant for extension an application has to be made. Special circumstances need not be shown but the court will not grant the application unless positively satisfied that it is proper to do so. The `prescribed period' of 28 days is not to be ignored:
  Ralkon v Aboriginal Development Commission (1982) 43 ALR 535 at 550. Indeed it is the prima facie rule that proceedings commenced outside that period will not be entertained
  Lucic v Nolan (1982) 45 ALR 411 at 416. It is a precondition to the exercise of discretion in his favour that the applicant for extension show an `acceptable explanation of the delay' and that it is `fair and equitable in the circumstances' to extend time: Duff at 485;
  Chapman v Reilly (unreported, Neaves J, 9 December 1983, at 7).
• (b) Action taken by the applicant, other than by making an application for review under the Act, is relevant to the consideration of the question whether an acceptable explanation for the delay has been furnished. A distinction is to be made between the case of a person who, by non-curial means, has continued to make the decision-maker aware that he contests the finality of the decision (who has not `rested on his rights': per Fisher J in
  Doyle v Chief of Staff (1982) 42 ALR 283 at 287) and a case where the decision-maker was allowed to believe that the matter was finally concluded. Compare Doyle, Chapman, Ralkon and Douglas v Allen unreported (Morling J, 3 April 1984, at 18) with Lucic at 414-15 and
  Hickey v Australian Telecommunications Commission (1983) 48 ALR 517 at 519. The reasons for this distinction are not only the `need for finality in disputes' (see Lucic at 410) but also the `fading from memory' problem referred to in
  Wedesweiller v Cole (1983) 47 ALR 528.
• (c) Any prejudice to the respondent including any prejudice in defending the proceedings occasioned by the delay is a material factor militating against the grant of an extension: see Doyle at 287, Duff at 484-5, Hickey at 525-7 and Wedesweiller at 533-4.
• (d) However, the mere absence of prejudice is not enough to justify the grant of an extension: Douglas at 18; Lucic at 416; Hickey at 523. In this context, public considerations often intrude (Lucic, Hickey). A delay which may result, if the application is successful, in the unsettling of other people (Ralkon at 550, Becerra at 12-13) or of established practices (Douglas at 19) is likely to prove fatal to the application.
• (e) The merits of the substantial application are properly to be taken into account in considering whether an extension of time should be granted: Lucic at 417, Chapman at 6.
• (f) Considerations of fairness as between the applicants and other persons otherwise in a like position are relevant to the manner of exercise of the court's discretion: Wedesweiller at 534-5.

In considering the authorities it is, I believe, important to bear in mind the point made by Sheppard J in Wedesweiller at 531, relating to the diversity of decisions of which review may be sought under the Act: `... there will be some cases which may be decided upon considerations which affect only the immediate parties. It will be appropriate to consider whether the delay which has taken place has been satisfactorily explained, the prejudice which may be caused to an applicant by the refusal of an application, the prejudice which may be suffered by the government or a particular department if the application is granted and, generally, what the justice of the case requires. In other cases wider considerations will be involved'.

He went on to mention the reference to public interest made by Fitzgerald J in Lucic at 416.

It is in relation to the former category of cases, ie those `which affect only the immediate parties' that the approach adopted by Bray CJ in
Lovatt v LeGall (1975) 10 SASR 479 at 485 in respect of private litigation but adopted in this context in both Doyle at 287 and Duff at 485, is apposite namely: `If the defendant has suffered no prejudice, as when he was well within the limitation period of the plaintiff's

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claim, or where excess period of time is small, or where he cannot show that he has lost anything by reason of the delay, it may well be that the court will not find it difficult to come to the conclusion that it is fair and equitable in the circumstances to grant extension'.

By contrast, in cases involving public administration, especially day to day matters such as personnel management, the public interest may well dictate refusal of an extension even after only a short delay.''

10. The explanations given by the applicant for the delay in lodging his objection were first, that before turning his mind to the possibility of objecting he had devoted his efforts to endeavouring to put himself in a position where he would be able to pay the whole of the tax assessed; and second, that it was some time before he had become aware of the ground for objection on which he now seeks to rely. While I appreciate the difficulty of his position in the matter, I do not consider that those matters justify the delay. He was well aware of the difficulties of his position at the time when the assessment issued, and was at that time advised by a substantial and experienced firm of accountants. The lodging of an objection would not in any way have interfered with his ability to continue with the other activities which he described.

11. It was almost nine months before the respondent was made aware that the applicant was not ``resting on his rights''. The respondent's representative submitted that should this application be granted the respondent would be prejudiced in his proceedings to recover the balance of the tax, and in his dealings with Mr B. I accept that submission.

12. The substantive argument on which the applicant seeks to rely depends on the provisions of sub-section 26AAC(15) of the Act as it stood at the relevant time. That provision read:

``26AAC(15) Where -

• (a) a taxpayer acquires a share in a company under a scheme for the acquisition of shares by employees; and
• (b) by reason of any conditions or restrictions (being conditions or restrictions applicable only to shares in the company acquired under such a scheme) attached to, or to the issue of, the share... the right of the taxpayer to dispose of the share is restricted...

the acquisition of the share by the taxpayer shall be deemed for the purposes of this section to have taken place at the time when the right of the taxpayer to dispose of the share ceases to be so restricted... or the time immediately before the taxpayer disposes of the share, whichever first happens.''

Taking into account only the passage in brackets in paragraph (b) of that sub-section, I would have doubt as to the viability of that argument.

13. For all of these reasons, I have formed the view that considering the matter in the light of the principles enunciated by Wilcox J in Hunter Valley it is not appropriate to treat the applicant's objection as having been duly lodged. The decision under review will be affirmed.