KALIS NOMINEES PTY LTD v DFC of T

Judges:
Olney J

Court:
Federal Court

Judgment date: Decision handed down 14 August 1995

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Olney J

The application

The applicant seeks orders pursuant to ss 459G, 459H and/or 459J of the Corporations Law setting aside a Creditor's Statutory Demand for Payment of Debt served on it on 8 September 1994. Other associated relief is also sought.

The facts

The applicant has at all relevant times been the trustee of a family trust. On 31 August 1993, pursuant to s 99A of the Income Tax Assessment Act 1936 (the ITAA), the respondent (the Commissioner) issued assessments of income tax to the applicant in respect of each of the years of income ending 30 June 1988 to 1992 (inclusive). In each case the tax assessed was due for payment on 4 October 1993. The tax assessed totalled $139,091.13. The applicant gave notice of objection to each assessment on 28 October 1993 and on 23 March 1994 the respondent advised that the objections had been considered and disallowed (the objection decisions).

The Commissioner caused a Creditor's Statutory Demand for Payment of Debt (the demand) to be issued on 6 September 1994 and same was served on the applicant on 8 September 1994.

The amount specified in the demand is made up as follows:

        
  (a)   Tax assessed for year ended 30 June 1988         $27,186.93
  (b)           ''          ''      30 June 1989         $53,824.30
  (c)           ''          ''      30 June 1990         $48,399.73
  (d)           ''          ''      30 June 1991         $ 5,544.62
  (e)           ''          ''      30 June 1993         $ 4,135.55
                                                           --------
                                                        $139,091.13
  (f)   Additional tax due and payable pursuant
        to s 207 of the ITAA for late payment of
        income tax calculated at the rate of 16%
        per annum to 6 September 1994                   $ 20,547.38
                                                          ---------
                                                        $159,638.51
                                                        ===========
      

On 20 October 1994 the applicant applied to the Administrative Appeals Tribunal (the AAT) for an extension of time within which to seek a review of the objection decisions and on 24 March 1995 the AAT extended the time for lodging each application to 21 October 1994. The review applications have not yet been dealt with by the AAT.

The grounds for seeking relief

The applicant challenges the demand on 3 bases, namely:

• (a) The Commissioner was not entitled to issue the demand;
• (b) There is a genuine dispute about both the existence and the amount of the debt claimed; and
• (c) In the circumstances, the Court should exercise its discretion under s 459J(1)(b) to set aside the demand or alternatively, the time for compliance should be extended until after the AAT has determined the review applications.

The Commissioner's standing

A person may serve a demand under s 459E(1) relating to ``2 or more debts that the company owes to the person, that are due and payable''.

I do not understand the applicant to dispute that the amounts of tax assessed and the additional tax claimed are ``due and payable''. In view of the provisions of ss 204 and 207 of the ITAA any contrary suggestion could not be sustained. What is said is that by reason of the provisions of s 208, the amounts which are due and payable are not ``2 or more debts that the company owes to (the Commissioner)'' (emphasis added).

Section 208 provides:

``208(1) Income tax when it becomes due and payable shall be a debt due to the Commonwealth, and payable to the Commissioner in the manner and at the place prescribed.

208(2) In subsection (1), `income tax' includes interest under section 170AA or 207A and additional tax under section 207 or Part VII.''

The first question for determination in this proceeding is whether the amount claimed in the demand is for the purposes of s 459E(1) to be regarded as a debt that the applicant ``owes to (the Commissioner)''.

The case put by the applicant has its origin in obiter comments I made in
Hoare Bros Pty Ltd v DFC of T 95 ATC 4156. The facts of that case were relevantly identical to this case. Rather than rehearse the argument I set out below what I said in Hoare (at 4162-4163):

``In the course of preparing these reasons it occurred to me that there may be some doubt as to the standing of the Commissioner to serve a statutory demand pursuant to s 459E of the Corporations Law. The matters which raised my concern had not been the subject of argument but because I considered them to be of some importance I drew the attention of counsel to my concern and invited their further submissions.

The matters to which I drew the attention of counsel were as follows. Under s 459E of the Corporations Law the entitlement to serve a statutory notice depends upon the circumstance that the company served owes a debt or debts to the person serving the notice. It appears from s 208 of the ITAA that the debt created following the service of a notice of assessment of income tax on a

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ATC 4522

taxpayer is a debt due to the Commonwealth and not to the Commissioner and this is so notwithstanding that the debt is payable to the Commissioner and that the Commissioner is entitled to sue for and recover in his official name any tax unpaid including additional tax payable under s 207.

The debts the subject of the statutory demand are (to adopt the words of s 459E(1)(b)) `2 or more debts that the company owes (to the Commonwealth), that are due and payable and whose amounts total at least the statutory minimum'. Thus the statutory demand and the affidavit accompanying it would appear to be inconsistent with s 208 insofar as it is asserted that the debts are now due and payable to the creditor (i.e. the Deputy Commissioner of Taxation) by the company.

It would seem that once the Commissioner has sued for the amount of any unpaid tax and obtained judgment for same in a court of competent jurisdiction, there would then be a judgment debt due and payable to the Commissioner but unless and until judgment is obtained the debt would remain due to the Commonwealth. If this be so, the question arises as to what standing the Commissioner has to serve a statutory demand in respect of unpaid tax for which no judgment has been obtained. Further, if the Commissioner had no standing to serve the statutory demand, would this be an appropriate occasion for the exercise of the Court's power under s 459J(1)(b) to set the statutory demand aside or `some other reason'?

By way of response, counsel for the company has referred me to decision of the High Court in James v DFC of T (1957) 97 CLR 23 and in particular to the passage from p 35 the judgment of Dixon CJ, Fullagar and Kitto JJ where their Honours said:

`We think that the commissioner or deputy commissioner is empowered to take proceedings in bankruptcy for the recovery of the tax as a Crown debt. The officer may proceed in his own name but he sues for the Crown and as plaintiff or actor it is not in his own right but that of the Crown that he proceeds.'

In the present matter the company does not challenge the Commissioner's standing to serve the statutory demand and in those circumstances I will proceed on the basis that the demand was properly made. But that is not to say that I accept that the issue is beyond question nor that James v DFC of T is decisive of, or indeed relevant to, the issue. The facts in James were that the Deputy Commissioner had obtained a judgment for the amount of tax due to the Commonwealth and had issued a bankruptcy notice on the strength of that judgment. It has long been held that a power to sue for and recover a debt on behalf of another extends to taking proceedings in bankruptcy but I remain unconvinced that the same reasoning necessarily applies to the case of the Commissioner seeking to create a deemed insolvency under the Corporations Law in circumstances in which judgment has not first been obtained. As Hayne J said in Mibor Investments Pty Ltd & Ors v Commonwealth Bank of Australia (1993) 11 ACLC 1062 at p 1066:

`... the (statutory) demand is no more than a precursor to an application for winding-up in insolvency.'

Be that as it may, the applicant is content to accept that the Commissioner had standing to serve the statutory demand and the application will be dealt with accordingly.''

The issue for determination is one more of language than of law. The question is whether a debt due to the Commonwealth which is payable to the Commissioner (s 208(1)), for which the Commissioner may sue to recover when it becomes due and payable (ITAA s 207(2)) is a debt that the taxpayer owes to the Commissioner.

Dictionary definitions of the verb to ``owe'' include the following meanings:

• (a) to have to pay;
• (b) to be under obligation to pay or repay (money etc);
• (c) to be indebted in, or to the amount of;
  • (Shorter Oxford English Dictionary, 3rd edition)
• (d) to be indebted or beholden to;

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  ATC 4523

• (e) to be under an obligation to pay or repay or to render to;
  • (The Macquarie Dictionary, 2nd Revised edition).

The same dictionaries define ``payable'' thus:

• (i) a sum of money or bill etc that is to be paid;
• (ii) due;
• (iii) falling due (usually at or on a specified date, or to a specified person);
  • (Shorter Oxford)
• (iv) owed;
• (v) to be paid;
• (vi) due.
  • (Macquarie)

There does not appear to be any Australian authority directly on point but the decision of Street J of the NSW Supreme Court in
Re W. Carter Smith; Ex parte The Commissioners of Taxation (1908) 8 SR (NSW) 246 involved a very similar question.

Section 49 of the Land and Income Tax Assessment Act 1895 (NSW) provided that land and income tax and additional sums imposed by way of fine were a debt due to the Crown and payable to the Commissioners appointed under the Act and by s 51 it was provided that any such tax and fines could be sued for and recovered by action in any court of competent jurisdiction by the Commissioners suing on behalf of the Crown. It was argued that the Commissioners were not creditors of the defaulting taxpayer but were merely agents of the Crown with a precisely limited power that did not include the power to present a petition in bankruptcy. Street J was of the contrary view. He said (at p 249) that the word ``action'' as used in s 51 was intended to bear its proper legal meaning and referred to all legal proceedings which may be available for the recovery of unpaid taxes. In response to the further argument that, assuming that the Commissioners could present a petition in bankruptcy, they could not do so alone but that the Crown must be joined as co-petitioner his Honour said (at p 250):

``In support of this contention (counsel) relied upon sec. 49 of the Act which provides that when the tax becomes due or is payable, it is to be deemed to be a debt due to His Majesty; and upon the well-known rule of bankruptcy law that where there is a bare legal owner of a debt of which someone else is the absolute beneficial owner, the beneficial owner must join in presenting a petition for sequestration against the debtor. This rule of bankruptcy law only applies, however, to the case of a person who is a bare trustee for a cestui que trust who can deal with the debt in any way he pleases and who has power to effectually release it, and I do not think that it has any application to the present case. Under the Act the only persons who are entitled to receive the tax and who can give a good receipt for it are the Commissioners, and, in my opinion, sec. 49 in declaring that the tax shall be deemed to be a debt due to the Crown was only introduced for the purpose of enlarging the powers of the Commissioners and facilitating the recovery of the debt by giving it the status of a Crown debt.''

Upon maturer consideration, and with the advantage of argument from counsel, I am of the opinion that the reservations I expressed in Hoare, whilst superficially attractive, lacked any real substance. In my opinion the effect of the income tax legislation is that the income tax and additional tax specified in the demand constitutes 2 or more debts owed to the Commissioner. As a matter of ordinary English usage, it is appropriate to say that tax which is payable to the Commissioner is a debt owed to the Commissioner. This being so, the Commissioner had the necessary standing to issue the demand.

Genuine dispute

The question of whether there is a genuine dispute between the applicant and the Commissioner about the existence or amount of the debt to which the demand relates is in my opinion foreclosed by the provisions of the ITAA.

Income tax assessed to a taxpayer is due and payable by the person liable to pay the tax on the date specified in the notice of assessment as the date on which tax is due and payable, not being less than 30 days after the service of the notice (ITAA s 204). The Commissioner has produced extracts from notices of assessments of tax addressed to the applicant for the years ended 30 June 1988, 1989, 1990, 1991 and 1992 certified under the hand of a Deputy Commissioner of Taxation pursuant to s 177 of the ITAA. By operation of s 177(1) and (4)

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ATC 4524

there is conclusive evidence before the Court in this proceeding of the due making of the assessments and that the amounts and all the particulars of the assessment are correct. The fact that a review of the Commissioner's decision to disallow the applicant's objections to the assessments is pending in the AAT does not in the meantime interfere with, or affect, the Commissioner's decisions and any tax, and additional tax remains recoverable as if no review were pending (Taxation Administration Act 1953, s 14ZZM).

Having regard to the legislative provisions referred to above, for the same reasons as I outlined in Hoare at pp 4163-4165, I am of the opinion that there is no genuine dispute between the parties about the existence or the amount of the debt to which the demand relates.

Some other reason

The Court's discretion to set aside a demand under s 459J(1)(b) for ``some other reason'' appears to be unlimited but in the context in which it appears it would seem that the legislative intention is to provide an occasion for granting relief in cases where it would be just to do so.

The legislative policy of the tax law is clear enough. Once tax is due and payable it may be recovered from the taxpayer notwithstanding that the taxpayer has sought to exercise his rights of review or appeal under Part IVC of the Taxation Administration Act. The policy of the law would be defeated if a demand were set aside under s 459J(1)(b) simply because a review of an objection decision is pending. A taxpayer must, in the context of a case of this nature, demonstrate more than the fact that he disputes his liability for the tax as assessed and that he is actively pursuing his remedies. It is both unnecessary and undesirable to endeavour to list the circumstances which would justify the exercise of the discretion under s 459J(1)(b) except to say that in a case in which the Commissioner is not shown to have acted oppressively or to have treated the applicant in a manner different from other taxpayers in a similar position, it is not appropriate that the discretion to set aside the demand should be exercised. Section s 459J(1)(b) does not provide an occasion for the Court to express its view on the reasonableness or otherwise of the taxation legislation.

In the circumstances of this case I would decline to exercise my discretion in favour of the applicant.

Extension of time

The basis on which the applicant seeks an extension of time to comply with the demand is the same basis as it asserts that there is a genuine dispute about the existence and amount of the debt and also the same basis as it seeks the exercise of the Court's discretion under s 459J(1)(b), namely, that review applications are currently pending in the AAT.

Section 459F(2)(a) contemplates that on an application under s 459G, or upon a discrete application under that paragraph itself, the Court may make an order extending the period for compliance with a demand. The context of this provision, namely in a subsection which deals with the period of time for compliance with a demand, suggests that its purpose is to allow, in an appropriate case, some relief from the requirement to comply within what in some cases could be an unreasonably short time. In many cases a solvent company with substantial assets may require more than 21 days within which to raise the funds necessary to satisfy a demand. It is appropriate that the Court have power to extend time in cases where the interests of justice so dictate and that in my opinion is the purpose intended by s 459F(2)(a)(i). It would be an inappropriate exercise of power under that paragraph to in effect grant a stay of the operation of the provisions of the taxation law to which reference has been made above.

Conclusion

For the reasons expressed I am of the view that the respondent had the necessary standing to issue the demand, that there is no genuine dispute between the parties as to the existence or amount of the debt and that there are no other reasons warranting the Court making an order to set aside the demand.

Further, I decline to make an order extending the time for compliance with the demand.

The application will be dismissed with costs.

THE COURT ORDERS THAT the application herein be dismissed with costs.