SEYMOUR v DFC of T

Judges:
Northrop J

Court:
Federal Court

Judgment date: Judgment handed down 1 December 1992

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Northrop J

There are two separate but related matters before the Court. The first matter, No VG 264 of 1992, was commenced in the Supreme Court of Victoria on 12 May 1992. In that matter, the Deputy Commissioner of Taxation (the Commissioner) claimed $1,701,155.83 tax against Brian Cecil Seymour (the taxpayer). The details of the claim were as follows:

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ATC 4776

        "Year of        Date of         Specified      Income Tax
        --------        -------         ---------      ----------
         Income         Issue           Due Date       Assessed
         ------         -----           --------       --------
        30.06.92        8.05.92          8.05.92     $1,701,155.83"

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On 26 June 1992 the taxpayer commenced proceedings in the Federal Court in matter No VG 220 of 1992. Broadly the taxpayer was challenging the validity of the assessment and brought the proceeding under s 39B of the Judiciary Act 1903. On 2 July 1992, the Supreme Court made orders pursuant to s 5 of the Jurisdiction of Courts (Cross-vesting) Act 1987 transferring the Supreme Court proceeding to the Federal Court. That proceeding is identified in the Federal Court as matter No VG 264 of 1992.

The two matters came before the Federal Court on 3 and 4 August 1992. In matter No VG 264, the Commissioner was given leave to amend his application and statement of claim to seek recovery of tax amounting to $1,162,474.20. Particulars of the tax claimed were as follows:

                           ------------------

   "YEAR OF     DATE OF     SPECIFIED      INCOME TAX     MEDICARE
    INCOME       ISSUE      DUE DATE        ASSESSED        LEVY

    30.06.92    03.07.92    06.07.92       $1,132,146.30  $30,327.98

TOTAL
$1,162,474.20"

                           ------------------
      

The Commissioner, pursuant to notice, moved the Court under O 20 r 1 of the Federal Court Rules for judgment against the taxpayer in the sum of $1,162,474.20 together with interest of $8,893.16. The taxpayer opposed the motion, essentially on the grounds set out in his application in matter No VG 220.

The relevant parts of O 20 r 1 are set out:

``1(1) Where, in relation to the whole... of the applicant's claim for relief, there is evidence of the facts on which the claim... is based, and:

• (a) there is evidence given by the applicant or by some responsible person that, in the belief of the person giving the evidence, the respondent has no defence to the claim...

the applicant may move on notice for such judgment for the applicant on that claim... and the Court may pronounce such judgment and make such orders as the nature of the case requires.''

Counsel for the Commissioner led evidence, by affidavit, of the facts on which, taken in conjunction with the evidentiary provisions of the Income Tax Assessment Act 1936 and the Income Tax Regulations and in particular Reg 67, the claim was based. There was evidence, by affidavit, given by a responsible person that in his belief the taxpayer has no defence to the claim. This material was sufficient to justify the Court giving judgment in favour of the Commissioner as sought by the claim as amended.

Counsel for the taxpayer did not challenge that position but contended that on all the relevant facts, the Court should not give judgment as sought since the taxpayer was challenging the validity of the assessment of the Commissioner. The challenge was contained in matter No VG 220 of 1992 and it was argued, in substance, that the taxpayer should be allowed to rely upon the facts alleged in matter No VG 220 by way of defence in matter No VG 264 of 1992. This was to overcome the provisions of s 175 and subs 177(1) of the Income Tax Assessment Act. Those provisions are set out:

``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.

...

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

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ATC 4777

assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part V on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.''

Counsel relied upon
David Jones Finance and Investments Pty Ltd & Anor v FC of T 91 ATC 4315; (1991) 28 FCR 484. In that case, a Full Court of the Federal Court held (Morling and French JJ, Pincus J dissenting) that the jurisdiction conferred on the Federal Court by s 39B of the Judiciary Act 1903 enabled the Court to consider whether an assessment was valid despite the protective provisions of sections 175 and 177(1) of the Income Tax Assessment Act.

The issue raised in David Jones was on a motion to strike out the statement of claim and dismiss the application brought by David Jones as applicant seeking orders that certain assessments issued by the Commissioner be declared invalid on the grounds of absence of power and exercise of power for improper purposes which ``are tantamount to an allegation of bad faith on the part of the Commissioner''. At first instance, the judge hearing the motion, held in substance that by virtue of s 177 of the Income Tax Assessment Act ``Part V of the Act `is in the nature of a code that controls the rights of a taxpayer who wishes to challenge an assessment' ''.

In the reasons for judgment, Morling and French JJ referred to s 39B of the Judiciary Act which provides that ``the original jurisdiction of the Federal Court of Australia includes jurisdiction with respect to any matter in which a writ of mandamus or prohibition or an injunction is sought against an officer or officers of the Commonwealth''. They referred also to s 75(v) of the Constitution which confers original jurisdiction on the High Court of Australia in any matter ``In which a writ of mandamus or prohibition or an injunction is sought against an officer of the Commonwealth''. Their Honours considered provisions of the Income Tax Assessment Act and a number of authorities and then said at ATC pp 4324-4325; FCR pp 495-6:

``In summary therefore, para. 75(v) of the Constitution confers a jurisdiction upon the High Court which cannot be limited or qualified by any statute. That jurisdiction authorises the Court to control excesses of power or failure of duty by officers of the Commonwealth. It is ambulatory to the extent that its exercise will depend upon the constitutional and statutory boundaries of the powers or duties in question. To determine those boundaries in a given case may involve questions of the construction of the relevant legislation. And that process may require that account be taken of any privative provisions able to be construed as extending the powers or contracting the duties. It is against this background that s. 39B of the Judiciary Act and its interaction with s. 177 of the Income Tax Assessment Act 1936 may be considered.''

Their Honours then considered the nature of the jurisdiction conferred on the Federal Court by s 39B of the Judiciary Act and the interaction of that section with s 177 of the Income Tax Assessment Act and at ATC pp 4330-4331; FCR pp 503-4 concluded:

``For the preceding reasons, the first limb of s. 177(1), if it is to be regarded as an empowering provision, does not authorise conduct of the assessment process in bad faith. And to some extent that must mean that it will not authorise the conduct of the process for improper purposes. On the pleadings in the present case, it is alleged that the assessments in question were made in the exercise of an abuse of power and for improper purposes which are tantamount to an allegation of bad faith on the part of the Commissioner. And to that extent the inquiry raised by those allegations would not be affected by the operation of the first limb of s. 177(1).

Given that the first and second limbs of the section between them cover `the whole ground which by law it is the function of an assessment to cover' - McAndrew (supra) at ATD p. 133; CLR p. 269 - then if not covered by the first limb, the matters raised in the pleading fall within the second. But it is beyond argument that the second limb which operates only to channel disputed assessments into the Pt. V process, has no effect on power. It rather defines the jurisdiction in which the inquiry may be undertaken into whether `the amount and all the particulars of the assessment are correct'. For reasons earlier outlined, that cannot displace the jurisdiction conferred

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ATC 4778

upon this Court by s. 39B of the Judiciary Act 1903.

The point was made by senior counsel for the Commissioner that in Bloemen's case the jurisdiction of the Supreme Court to grant declaratory relief must have derived from s. 39 of the Judiciary Act conferring upon the State Court jurisdiction in matters in which the High Court has original jurisdiction. In that case the particular jurisdiction invoked related to a proceeding in which the Commonwealth was a party and therefore derived ultimately from para. 75(iii) of the Constitution. It is apparent, however, from the judgment in Bloemen's case, that no question of the kind now before the Court was considered. The relationship of the jurisdiction conferred by s. 39 to the constitutional jurisdiction of the High Court and the implications of any such relationship for the construction of s. 39 and the operation of s. 177 of the Income Tax Assessment Act 1936 were not debated. A fortiori the case has nothing to say about the relationship between the privative operation of s. 177 and the jurisdiction conferred on the Court by s. 39B.

The learned Judge at first instance disposed of the motion before him relying upon Bloemen's case and on the basis that, by virtue of s. 177, Pt. V of the Act `is in the nature of a code that controls the right of a taxpayer who wishes to challenge an assessment'. But with respect to his Honour, that approach gives to s. 177 an operation that would displace the jurisdiction conferred on the Court by s. 39B. But for the effect he gave to s. 177 in the present case, his Honour at first instance would not have been prepared to strike out the appellants' pleadings. It is not necessary for present purposes to determine finally whether the nature of the abuse and excess of power alleged by the appellants would, if established, fall within the scope of the first proviso in the Hickman case. It is sufficient to say, notwithstanding the notice of contention, that the point is arguable. The appeal should be allowed with costs. The orders made by the Judge at first instance should be set aside and in lieu thereof orders made that the respondent's motion be dismissed with costs.''

The decision in David Jones is binding upon me. Counsel for the Commissioner conceded that but contended that David Jones was wrongly decided thus laying the basis for an appeal.

By his application in No VG 220 of 1992, the taxpayer is challenging the validity of the amended assessment. He is, in substance, contending that the assessment was issued in bad faith. On the motion before the Court, it is not necessary to determine whether the taxpayer will succeed in his application. The Court must determine whether, on all of the evidence before it, the matters raised by the taxpayer are arguable so as to justify the Court in refusing to give judgment for the Commissioner on his motion.

The facts relied upon by the taxpayer are contained in the affidavits read at the hearing of the motion including affidavits filed on behalf of the Commissioner. None of the deponents were cross-examined. No oral evidence was given.

Although there are differences between the original assessment and the amended assessment, reference will be made to the facts relevant to the amended assessment. At the same time it is noted that the difference between them does, to some extent, illustrate a lax approach by the Commissioner which could support a contention that he was prepared to do anything to achieve a desired end.

The applicant claims that he is not a resident of Australia but is a resident of South Africa. He says he derived his income from selling jewellery manufactured in Swaziland to various customers in Asia but was paid for the jewellery in Australia. On 17 April 1992 he was arrested by Federal Police and charged with various offences relating to false passports and cocaine and also under the Financial Transaction Reports Act 1988. He was said also to be an illegal immigrant awaiting deportation. Since his arrest he has been detained in custody. He has not sought bail. At the time of his arrest it appears he was in possession of large sums of money, of documents showing that significant amounts of money had been deposited in overseas bank accounts, documents indicating that he had used a variety of aliases and that he held a variety of passports in false names.

The taxpayer was served with the first assessment on 8 May 1992. At the same time he was served with a departure prohibition order

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ATC 4779

under s 14S of the Taxation Administration Act 1953. Under that Act, the taxpayer commits an offence if, while the order is in force, he departs from Australia without the authorization of the Commissioner under s 14R; generally see
Edelsten v DFC of T & Anor 92 ATC 4285; (1992) 108 ALR 195. On 25 May an objection to the assessment was lodged on behalf of the taxpayer. This was done in conformity with the second limb of subs 177(1) of the Income Tax Assessment Act. The writ in the Supreme Court was issued on 12 May 1992.

On 3 July, the amended assessment was issued and served on the taxpayer. A second departure prohibition order dated 3 July 1992 was issued and served on the taxpayer. An objection to the amended assessment was lodged on 13 July 1992. In summary, the objection is based on the grounds that it is not a proper assessment, that the Commissioner had not made a genuine attempt to ascertain the taxable income of the taxpayer, that the Commissioner had not considered whether the taxpayer was a resident of Australia and the source of any income or whether sums of money were income or capital. In addition the taxpayer claims the amended assessment is void on the grounds that in making the assessment the Commissioner acted ultra vires. It was contended further that the assessment was issued in order to found the departure prohibition order, it being suggested in the course of argument that if such an order is in existence, other agencies will prevent the person the subject of the order from departing from Australia. No authority for such action was referred to in argument.

The issue before the Court is whether this material is sufficient to justify the refusal to give judgment to the Commissioner. It must be remembered that the claim for the payment of tax will remain in existence and the hearing of the matter will proceed in the normal way. It is easy to speculate that the desire for speedy judgment is to obtain a judgment, and all that goes with that, including using it as a basis to obtain a sequestration order against the estate of the taxpayer.

Counsel for the taxpayer, in submissions, entered into a far ranging consideration of the relevant provisions of the Income Tax Assessment Act. He referred to a number of authorities. In
Briggs v DFC of T and Ors; Ex parte Briggs 86 ATC 4748; (1986) 12 FCR 301, a Full Court of the Federal Court had to consider, on a case stated, whether the Court could challenge the validity of an assessment under s 39B of the Judiciary Act. Two questions of law were referred to the Full Court on a statement of agreed facts. This case was determined before the David Jones case. The Full Court consisted of Bowen CJ, Sheppard and Beaumont JJ, who gave a joint judgment. A statement of the effect of the agreed facts appears in the [FCR] headnote at p 301:

``According to the admitted facts, the assessments were issued without any attempt to (i) ascertain the prosecutor's taxable income, (ii) carry out any proper investigation of his affairs, or (iii) to consider any facts provided by the prosecutor to the respondent prior to the issue of the notices. There was no material having any rational or logical probative force to justify the issue of the notices and the Commissioner admitted that they were issued for the purpose of forcing the prosecutor to consult with him and his officers.''

On those facts, the Full Court held that s 177 of the Income Tax Assessment Act did not preclude the Court from determining the grounds relied upon by the taxpayer in challenging the assessment.

In the present case, the only submissions which, in reality, go to the issue of validity of the assessment are directed to the question of why the assessment was issued. The Commissioner is given very wide powers to issue assessments. An assessment may be issued even though no return has been forwarded by a taxpayer. The Commissioner may issue an assessment from any information in his possession.

In the present case, apart from what is said in the affidavit of Nikhil Sunderp Singh sworn 29 July 1992 and filed by and read on behalf of the Commissioner, there is no evidence of what information was in the possession of the Commissioner when he made the first assessment or the amended assessment. It is strange that the Commissioner did not rely solely on the provisions of the Income Tax Assessment Act and the Income Tax Regulations to support the motion for judgment. By descending into the area of disclosing some of the information in his possession at the time of making the assessment, the Commissioner has,

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ATC 4780

to some extent, opened the door to invite further examination on the issue of whether the assessment is valid.

In the course of submissions, reference was made to the sections of the Income Tax Assessment Act relating to returns and assessments and in particular sections 161, 166, 167 and 168. In the present case it was conceded that the taxpayer was not in default in furnishing a return and so the assessment was not a default assessment under s 167. Counsel for the Commissioner contended that the assessment was in truth what is called a special assessment under s 168. Sub-section (1) of that section provides:

``168(1) The Commissioner may at any time during any year, or after its expiration, make an assessment of the taxable income derived in that year or any part of it by any taxpayer and of the tax payable thereon.''

That section, when read in conjunction with s 166, gives ample power to the Commissioner to make a special assessment in the absence of a return. Section 166 provides:

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

As Dixon CJ said in
George v FC of T (1952) 10 ATD 65 at 68; (1952) 86 CLR 183 at 203, s 167 is epexegetical to s 166 of the Income Tax Assessment Act, so also is s 168 epexegetical to s 166. In his affidavit Mr Singh said that the first assessment was ``a Default of (sic) Assessment... raised pursuant to Section 168''. On all the material, there is no doubt that the amended assessment was issued under s 168 of the Income Tax Assessment Act.

That is not the end of the matter. The amended assessment, which must be treated as a separate and distinct assessment, was issued on 3 July 1992 and was due to be paid on 6 July 1992. The first assessment was issued on 8 May 1992 and required payment on 8 May 1992.

Section 204 of the Income Tax Assessment Act provides that income tax assessed shall be due and payable on the date specified in the notice of assessment being not less than 30 days after the service of the notice, or if no date is specified on the thirtieth day after the service. That provision does not apply here. Counsel for the Commissioner submitted that subs 205(1) applied. That sub-section provides:

``205(1) 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.''

From the material in the affidavit of Mr Singh, the Commissioner knew that the taxpayer had been arrested on serious criminal charges, that he was being held in custody pending the trial of those charges, that Mr Singh attended a hearing on 11 May 1992 when the taxpayer was remanded in custody to appear for a committal mention on Monday 3 August 1992 and that the taxpayer would not make any application for bail; see the affidavits of Mr Singh and the second affidavit of Anne Hennessy sworn 30 July 1992. Despite having this information, on 3 July 1992 the Commissioner issued the amended assessment making the tax due and payable on 6 July 1992. In order to do that the Commissioner had to have ``reason to believe that (the taxpayer) may leave Australia before the date on which the tax is due and payable'' presumably under the provisions of s 204.

There is no doubt that s 205 has application to a far wider range of persons than those in circumstances similar to the taxpayer. Visiting overseas entertainers constitute such a group. Nevertheless, on the facts of this case, and having regard to the information in the possession of the Commissioner relating to the taxpayer, there are grounds suggesting that the Commissioner could not have had ``reason to believe that (the taxpayer) may leave Australia before the date on which the tax is due''.

This of itself is not sufficient to say that the amended assessment is invalid. However, the material supports the suggestion that the amended assessment was issued for purposes other than those contained in the Income Tax Assessment Act. In other words, there is a basis for the taxpayer alleging that the amended assessment was made in the exercise of an abuse of power or for improper purposes and for an allegation of bad faith on the part of the Commissioner. As discussed earlier, the Court is not required to decide that allegation on this motion.

In all the circumstances, the taxpayer should be permitted to rely upon the allegations

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ATC 4781

contained in his application in matter VG No 220 of 1992. The procedural methods to enable that to be done will be determined at a directions hearing. It is sufficient for me to say that having regard to all the facts before the Court, the Commissioner should not have judgment under O 20 r 1.

The motion on behalf of the Commissioner in matter No VG 264 of 1992, notice of which is dated 29 July 1992, is refused. Costs of the motion are reserved. The directions hearing in each matter is adjourned to a date to be fixed. Having regard to the importance of the issue of the relationship between s 39B of the Judiciary Act and s 177 of the Income Tax Assessment Act, leave is granted to the Commissioner to appeal against the interlocutory order made dismissing his motion.

The Court orders that:

1. The Applicant's Motion, notice of which is dated 29 July 1992, is refused.

2. Costs of the Motion are reserved.

3. The directions hearing is adjourned to a date to be fixed.

4. Leave is granted to the Applicant to appeal against the interlocutory order dismissing the Motion.