CONSOLIDATED FERTILIZERS LTD v DFC of T

Judges:
Cooper J

Court:
Federal Court

Judgment date: Judgment handed down 22 May 1992

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Cooper J

This is an application under section 5 of the Administrative Decisions (Judicial Review) Act 1977 for an order of review in respect of a decision of the respondent to calculate interest payable under section 9 of the Taxation (Interest on Overpayments) Act 1983 (``the Act'') as simple interest rather than as compound interest. The ground relied upon as entitling the applicant to the orders sought was an alleged error of law arising out of the construction of sections 9 and 10 of the Act by the respondent.

The applicant is a taxpayer. On 2 December, 1987 the applicant paid $377,500.38 in compliance with an amended assessment issued by the respondent on 30 October, 1987. The applicant lodged a notice of objection to the amended assessment which objection was dismissed on 14 March, 1988. On 8 November, 1990, Pincus J. allowed the applicant's appeal, set aside the decision of the respondent and ordered that further amended assessments issue in accordance with the Court's judgment. On 6 August, 1991 the respondent's appeal to the Full Court was dismissed.

Amended assessments were issued on 17 September, 1991 and in consequence $360,541.10 became refundable to the applicant by the respondent. On 19 September, 1991 the applicant met with the respondent and sought payment of interest pursuant to the Act calculated on a compound interest basis. By letter dated 16 October, 1991 the respondent advised the applicant's solicitors, inter alia:-

``Reference is made to discussions between Mr Trevor Hauff and yourself and Mr Mark Curran of this office on 19 September 1991 during the course of which you proposed that interest on overpayment of tax in respect of the abovementioned objection be calculated on a compound basis.

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As requested by you, consideration has been given to your contention. However, you are now advised that it is not considered that the scheme of the Taxation (Interest on Overpayments) Act permits the calculation of interest on other than a simple interest basis.''

Written reasons for the decision were given by the respondent on 15 January, 1992 pursuant to section 13 of the Administrative Decisions (Judicial Review) Act 1977. Relevantly the reasons provided:-

• ``(1) It is considered that the interest to which the Taxation (Interest on Overpayments) Act refers is simple interest and not compound interest.
• (2) The Act makes no reference to compound interest. It is contended that in the absence of a specific basis, interest payable is on a simple interest basis.
• (3) It has been generally accepted that the various interest and penalty regimes provided for by the Income Tax Assessment Act and related Acts are on a simple interest basis.
• (4) Sub-sections 9(1) and 10(1) of the Taxation (Interest on Overpayments) Act make reference to the calculation of interest `in respect of' an amount referred to as `the relevant amount' which is the amount of tax originally subject to the dispute.
• (5) There is no accrual period stipulated in the Act for the purpose of any compound interest calculation nor is there any stipulation that amounts of interest are to be regarded as paid into the taxpayer's account prior to the calculation of interest made subseqent to the allowance of the objection.
• (6) The existence of contractually based financing arrangements which exist in the community and which entail payment of interest on a compound basis does not affect the present interpretation of the statutory interest provisions of the Taxation (Interest on Overpayments) Act.''

Section 9 of the Act so far as is presently relevant provides:-

``Entitlement to Interest

9(1) Subject to sections 11, 11A and 12 where-

• (a) an amount of relevant tax is paid by a person to the Commissioner (in this subsection referred to as the `amount paid'); and
• (b) as a result of a decision to which this Act applies, the whole or a part of the amount paid is overpaid by the person and is refunded to the person or applied against any liability of the person to the Commonwealth,

interest calculated in accordance with subsections (2) and (3) and sections 10 and 10A is payable by the Commissioner to the person in respect of-

• (c) in a case where the whole of the amount paid is so refunded or applied - the amount paid; or
• (d) in a case where a part of the amount paid is so refunded or applied - the part of the amount paid so refunded or applied.

9(2) Where an amount of relevant tax has, whether by agreement or otherwise, been paid by a person to the Commissioner in instalments, each instalment shall, for the purposes of subsection 10(1), be treated as a separate amount of relevant tax paid by the person to the Commissioner.

9(3) Where-

• (a) an amount of relevant tax has, whether by agreement or otherwise, been paid by a person to the Commissioner in instalments; and
• (b) as a result of a decision to which this Act applies, a part only of the amount of relevant tax is overpaid by the person and is refunded to the person or applied against any liability of the person to the Commonwealth,

the amount so refunded or applied shall, for the purposes of subsection 10(1), be attributed to the instalments in reverse order to the order in which the instalments were paid to the Commissioner.''

Sections 11, 11A and 12 are not immediately relevant to the matter under consideration.

Section 10 of the Act provides:-

``Amount of Interest

10(1) Interest payable to a person by virtue of section 9 in respect of an amount of relevant tax, or the part of an amount of relevant tax, refunded to the person, or applied against any liability of the person to

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the Commonwealth, as a result of a decision to which this Act applies shall be calculated-

• (a) in respect of the period that commenced on whichever is the latest of the following days, namely:
  • (i) the day on which notice of the assessment, determination or decision, being the assessment, determination or decision in relation to which the decision to which this Act applies was made, was issued to the person by the Commissioner;
  • (ii) the day on which the amount of relevant tax was paid to the Commissioner; or
  • (iii) where-
    • (A) the relevant tax is relevant tax of a kind referred to in paragraph (a), (b), (c), (d), (e) or (g) of the definition of `relevant tax' in subsection 3(1) and sub- subparagraph (AA) does not apply - 14 February, 1983;
    • (AA) the relevant tax is relevant tax of a kind referred to in paragraph (a) of the definition of `relevant tax' in subsection 3(1) and the decision to which this Act applies is a decision of the kind referred to in paragraph (ca) of the definition of `decision to which this Act applies' in that subsection - 1 July 1986;
    • (B) the relevant tax is relevant tax of a kind referred to in paragraph (ba) of the definition of `relevant tax' in subsection 3(1) - 14 December 1984;
    • (C) the relevant tax is relevant tax of a kind referred to in paragraph (bb) of the definition of `relevant tax' in subsection 3(1) - 1 September 1983; or
    • (D) none of the preceding sub- subparagraphs is applicable in relation to the relevant tax - 20 December 1984,
• and ended on the day on which the amount of the relevant tax or the part of the amount of relevant tax, as the case may be, was so refunded or applied; and
• (b) at such rate of interest as is, or such rates of interest as are, applicable under the regulations.

10(2) Regulations made for the purposes of paragraph (1)(b) may prescribe different rates of interest in respect of different periods.

10(3) Until regulations are made for the purposes of paragraph (1)(b), interest payable to a person by virtue of section 9 shall be calculated at the rate of 14.026% per annum.

10(4) Where an amount of interest calculated in accordance with subsection (1) is not a multiple of 1 cent, the amount of the interest shall be-

• (a) if the amount of the interest is a multiple of 0.5 cent - increased by 0.5 cent; or
• (b) in any other case - increased or decreased, as the case requires, to the nearest multiple of 1 cent.''

Section 10A of the Act provides:-

``10A Interest is not payable to a person by virtue of section 9 in respect of an amount of relevant tax or part of an amount of relevant tax, being relevant tax of a kind referred to in paragraph (f) or (m) of the definition of `relevant tax' in subsection 3(1), in respect of any period in relation to which the amount of the relevant tax or the part of the amount of relevant tax, as the case may be, has been passed on by the person to another person and has not been refunded to that other person by the first-mentioned person.''

It was common ground that the sum of $360,541.10 was ``an amount of relevant tax'' or ``part of an amount of relevant tax'' within the meaning of section 3(1) and section 9(1)(a) of the Act. So too, it was common ground that the money became refundable in consequence of a ``decision to which this Act applies'' within the meaning of section 3(1) and section 9(1)(b) of the Act. The applicant therefore is entitled, pursuant to section 9(1) of the Act, to interest on the sum of $360,541.10 and this was not disputed by the respondent.

Prior to the enactment of the Act, a taxpayer had no statutory right to interest on money ultimately accepted by the Commissioner for Taxation, or determined by the Court or a Tribunal or Board, not to have been properly

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assessable and payable as tax. The Act was at the time of its enactment remedial in character and ought, the applicant submits, be given a broad and liberal interpretation to remedy a perceived defect viz, to compensate a person in the position of the applicant for the loss of use of its money pending resolution of its dispute as to its liability to tax in accordance with the amended notice of assessment dated 30 October, 1987.

It was submitted on behalf of the applicant that the word ``interest'' where it appears in sections 9 and 10 of the Act is capable of any one of three constructions. The first is that the term is confined to simple interest. The second is that the term includes compound interest. The third is that the term means such interest as the circumstances require and that the determination of whether simple or compound interest is to be paid is left to the discretion of the Commissioner as the person designated by section 4 of the Act to administer its provisions. The Act, it was submitted, is entirely neutral as to which of these constructions ought to be applied. Having regard to the remedial nature of the Act, the applicant submitted that the second or alternatively the third construction ought to be applied.

Counsel for the applicant formulated two propositions which he submitted supported the construction the applicant contended for. The propositions were:

• 1. In circumstances where a person has been deprived of the use of money, in principle, in order to provide proper compensation for that deprivation, compound interest is ordinarily appropriate at least in circumstances where the person who was deprived of the use of money was carrying on a business.
• 2. There are examples of statutes which make clear that the power of a court to allow interest is confined to simple interest. Otherwise, where interest is allowable or dealt with by the Courts under a statute it is not necessarily confined to simple interest.

The first proposition, it was submitted, was demonstrable from a reading of the judgments in
Hungerfords v. Walker (1988-1989) 171 CLR 125 at 145-146, 149-150 and 152, and
Wallersteiner v. Moir (No. 2) [1975] 1 QB 373 CA at 388, 397 and 406.

The second proposition, it was submitted, was demonstrable from the statutory exclusion prohibiting the granting of interest on interest contained in, for example, section 51A of the Federal Court of Australia Act 1976 and section 72 of the Common Law Practice Act 1867 (Qld.) which are to be contrasted with the discretion under section 73 of the Common Law Practice Act to award interest on judgments which, although in neutral terms, allows the granting of compound interest. (In
Re Gould, unreported, OS 801 of 1982, Supreme Court of Queensland, 7.10.91.)

Whether or not the first proposition as stated is a correct statement of the common law and equitable principles applicable when the Court seeks to effect restitutio in integrum in circumstances where a person has been wrongfully deprived of his or her money, those principles do not determine either the approach to be taken by the Court to the construction of the Act, or the meaning to be ascribed to the words contained in it. Nor does the second proposition operate to exclude the construction contended for by the respondent, simply because other statutes have used different wording to achieve a particular result.

The legislative purpose of the Act and the proper construction of its provisions are to be determined from the language of the Act read as a whole. The starting point to determine the proper construction of the Act is to give the words of the sections their ordinary and usual grammatical meaning unless there is some canon of construction which requires another meaning to be applied to the words. The remedial nature of the Act, while entitling a liberal approach to be taken to its construction so as to provide the most complete remedy of a situation with which it was intended that the words in the Act would deal, does not allow a construction to be given which is clearly beyond the actual language employed and what is fairly open (
Khoury v. Government Insurance Office (NSW) (1983-1984) 165 CLR 622 at 638-639).

The word ``interest'' is a term in ordinary English usage. In the context of the payment of money it means ``compensation for injury `damages''' or ``money paid for the use of money lent (the principal) or for forbearance of a debt, according to a fixed ratio''. (The Oxford English Dictionary, 2nd Ed. (1980) Vol VII at 1099), or ``a charge for the use of credit or

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borrowed money; such a charge expressed as a percentage per time unit of the sum borrowed or used''. (Collins English Dictionary (Australian Edition) (1982) at 761.) At law the different senses of the ordinary usage of the word have been reflected in the concepts of ``interest proper'' (being interest due under a contract, statute or due for any reason in law) and ``interest by way of damages'' (being interest for deprivation of the use of money or delay in its payment) (
Riches v. Westminster Bank Ltd. [1947] AC 390 at 400). A useful definition of ``interest'' in its common usage, and, at law and in equity, is that given by Rand J. in
Re: The Farm Security Act 1944 of the Province of Saskatchewan [1947] SCR 394 at 411:-

``Interest is, in general terms the return or consideration or compensation for the use or retention by one person of a sum of money, belonging to, in a colloquial sense, or owed to, another

...

But the definition... assumes that interest is referrable to a principal in money or an obligation to pay money.''

The term ``interest'' is used in section 9(1) of the Act in its widest sense and includes both the concept of a return on the money represented by the overpaid tax or compensation for the loss of its use for such period as it has been held by the revenue. The terms ``simple interest'' and ``compound interest'' do not alter the essential character of interest. Rather, the adjective denotes the method of calculation and thus the type of interest. Simple interest is the interest paid on the principal lent or, the obligation to pay money. Compound interest is the interest eventually paid on a principal periodically increased by the addition of each fresh amount of interest as it becomes due and remains unpaid. The type of interest contemplated by section 9(1) of the Act is determined by the method of calculation specified in section 10.

The method of calculation of interest in section 10 is a simple interest calculation.

There are three matters to be ascertained under section 10 of the Act when the calculation of the interest payable is undertaken. They are:

• 1. The amount of relevant tax, or the part of an amount of relevant tax, refunded to the person, or applied against any liability of the person to the Commonwealth as the result of a decision to which this Act applies (section 10(1)).
• 2. The period that commenced on the latest of the dates provided in paragraph (i)(ii) or (iii) of subsection 10(1)(a) and ended on the day on which the amount of relevant tax or the part of the amount of relevant tax, as the case may be, was refunded or applied (section 10(1)(a)).
• 3. The rate of interest applicable under the regulations (section 10(1)(b)).

Interest is payable on the sum ascertained, which sum must have the relevant tax character, for the period ascertained, at the prescribed rate of interest. Except in the case where the prescribed rate of interest changes during the relevant period ascertained in accordance with section 10(1)(a) or section 9(2) operates in respect of tax paid in instalments, the section provides for one calculation to cover the entire period. If different rates are prescribed for different periods then separate calculations are required for each part of the relevant period using the prescribed rate of interest applicable to that period. Under section 9(2) each instalment of tax, for the purpose of section 10(1), is to be treated as a separate amount of relevant tax paid by the taxpayer. The form of the calculation provided for in section 10 conforms with the standard formula for simple interest calculations, viz:

                         P x R x T
                   SI =  ---------
                            100
      

where P equals the principal sum on which interest is payable (section 10(1)), R equals the rate of interest to be paid (section 10(1)(b)) and T equals the time for which interest is payable (section 10(1)(a)).

Section 10 of the Act does not comprehend the calculation of interest as compound interest for at least two reasons; the first is that the only sum upon which interest is to be calculated is the overpayment of relevant tax as defined in section 3(1) of the Act; the second is that, save where different prescribed rates apply or tax has been paid by instalment, only one calculation by reference to the period ascertained under section 10(1)(b) is provided for.

Section 10(1) makes no provision for interest to be calculated on interest, and interest payable by virtue of section 9(1) never acquires the character of ``an amount of relevant tax''. Interest which is capitalised for the purpose of

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compound interest calculations never loses its character as interest under the law (
Bank of New South Wales v. Brown (as Official Liquidator of Tom the Cheap (WA) Pty. Ltd. (In Liq)) (1982-1983) 151 CLR 514).

Compound interest calculations in long form require a series of separate calculations at each rest period. Otherwise, the calculation requires the inclusion in the formula of a figure for the rest period additional to a figure for the entire period for which interest is payable. Section 10 expressly does not provide for the use of any rest period and specifically does not contemplate a series of annual or other periodic calculations. The reference to a rate of 14.026% per annum in section 10(3) is merely the rate at which interest is payable per unit of time. It does not mean that annual rest periods are to be implied into or to be allowed to be incorporated in the calculation specified in section 10(1).

It is no answer, in my judgment, to submit that the absence of rest periods in the section can be overcome by the Court construing section 10 to require or permit annual rests, as are usually applied by Courts where compound interest is ordered to be paid by fiduciaries for the wrongful use of property in respect of which the fiduciary owes a duty (see Wallersteiner at 388, 406;
Southern Cross Commodities Pty. Ltd. (in liq) v. Ewing (No. 2) (1988) 6 ACLC 647 at 674-675; (1988) 14 ACLR 39 at 70; Halsbury's Laws of England 4th Ed. vol. 48, para 956), to be used in a calculation under section 10(1). The fixing of such a period, or some other period, involves the exercise of a discretionary judgment by the Court to seek, so far as is possible, to make complete restitutio in integrum in the particular case then before the Court. It is not clear that the legislative purpose of the Act was to provide complete restitutio in integrum. The sum to be paid by way of interest is by the Act provided to be calculated upon the tax overpaid for the relevant period at the prescribed rate. This may or may not provide complete restitutio in integrum depending upon the particular circumstances of the taxpayer. There is, however, nothing in section 9 or section 10 of the Act which would indicate an intention that the sections were to discriminate between taxpayers in their operation depending upon the particular circumstances of each taxpayer. As I have said earlier in these reasons the word ``interest'' in section 9(1) is used in its widest sense and includes both the concept of a return on the money represented by the overpaid tax or compensation for loss of its use. The ordinary sense of the words in sections 9 and 10 is that the sections will apply uniformly in all cases.

The alternative submission of the applicant that the interest provided for in section 9(1) is such as the circumstances require and determined as a matter of discretion of the Commissioner is answered by a consideration of section 10(1) and 10A. The words ``interest payable to a person by virtue of section 9'' (in section 10(1)) and ``interest is not payable to a person by virtue of section 9'' (in section 10A) make it clear that the entitlement to interest is sourced in section 9. Subject to such limitations as exist in sections 11, 11A and 12, if the conditions specified in section 9(1)(a) and (b) are met the taxpayer has a right or entitlement to interest (``interest... is payable''). The right is to have interest ``calculated in accordance with subsections (2) and (3) and sections 10 and 10A''. There is no room for a discretion to operate on the question of entitlement under section 9(1) and none is given either expressly or impliedly to the Commissioner. Section 10(1) provides that ``interest payable... by virtue of section 9... shall be calculated...''. The terms of the section are mandatory and there is no discretion in the Commissioner to calculate the interest other than in accordance with the section. The mandatory nature of section 10 is also fatal, in my judgment, to the submission set out above that the Court ought to construe section 10 as permitting or requiring annual rests to be used to facilitate the calculation of compound interest.

To construe sections 9 and 10 in the manner contended for by the applicant would require the Court to rewrite section 10 to provide specifically for a mechanism to enable interest to be paid on interest i.e. to calculate interest on a compound basis. Notwithstanding the remedial nature of the Act, such a course is clearly beyond the language employed which provides for interest to be paid on relevant tax overpaid and no further. A construction of the Act which permits for the payment of compound interest is not fairly open. The construction contended for by the applicant is also contrary to the ordinary grammatical meaning of the sections in the context where they appear.

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To construe section 10(1) of the Act as requiring interest to be calculated as simple interest does not give the Act an operation which was obviously not intended by the legislature, nor one which is not in conformity with the evident legislative purpose of the Act, namely to give to a taxpayer a return on, or compensation for the loss of the use of, money paid as tax pending resolution of the issue of whether the tax paid was properly assessable and payable where that issue is resolved in favour of the taxpayer. There is therefore no reason to depart from such a construction or to seek to alter, modify or add to such a construction in any way.
Mills v. Meeking (1989-1990) 169 CLR 214 at 223;
Cooper Brookes (Wollongong) Pty. Ltd. v. FC of T 81 ATC 4292 at 4295-4296, 4305-4307; (1981) 147 CLR 297 at 304-305, 320-323).

The decision of the respondent reveals no error of law as contended for by the applicant.

The application for the orders sought is refused with the consequence that the applicant must pay the respondent's costs of and incidental to the application to be taxed.

THE COURT ORDERS:

1. The application is dismissed.

2. The applicant pay the respondent's costs of and incidental to the application to be taxed.