A.R.M. Constructions Pty Ltd & Ors v. Commissioner of Taxation [1986] FCA 108

Federal Court of Australia|1986-04-03|Before: Burchett J, Sydney P

The decisions under ss.206 and 207 of the Income Tax

Assessment Act 1936 the subject of the application be

The application of the taxpayer company made under those sections the subject of the application be remitted to the Deputy Commissioner of Taxation for further

Settlement and entry of orders is dealt with by Order 36 of the Federal Court Rules.

) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. 197 of 1985 ) )

BETWEEN : ' E. & M. GHOSN (DEVELOPMENTS ) PTY. LTD. Applicant AND: DEPUTY COMMISSIONER OF TAXATION Respondent MINUTE OF ORDERS Judge Making Order: Burchett J. Date of Order: 3 April 1986 Where Made: Sydney THE COURT ORDERS THAT: (1) The decisions under ss.206 and 207 of the Income Tax

Assessment Act 1936 the subject of the application be set aside.

(2) The application of the taxpayer company made under those sections the subject of the application be remitted to the Deputy Commissioner of Taxation for further consideration according to law.

NOTE: Settlement and entry of orders is dealt with by Order 36 of the Federal Court Rules.

Judge Making Order: Burchett J. Date of Order: 3 April 1986 Where Made: Sydney

The decisions under ss.206 and 207 of the Income Tax

Assessment Act 1936 the subject of the application be

The application of the taxpayer company made under those

sections the subject of the application be remitted to the Deputy Commissioner of Taxation for further

Settlement and entry of orders is dealt with by Order 36 of the Federal Court Rules.

These applications concern a group of companies, and 1t was agreed the same considerations apply to each. They were

The applications seek review, under the Administrative

Decisions (Judicial Review) Act 1977, of the decision of the

Deputy Commissioner of Taxation, in each case, to refuse an

extension of time pursuant to s.206 of the Income Tax Assessment

Act 1936 for payment of a disputed assessment of income tax. Review is also sought of the refusal of the Deputy Commissioner

to grant a substituted date or remission in respect of penalty

The various assessments 1ssued on 7 and 11 March 1985,

fixing dates for payment being just over 30 days after the dates of the assessments. The amounts involved were $936,440.76 (A.R.M. Constructions Pty. Limited), $383,378.26 (E. & M. Ghosn Pty. Limited), $318,512.96 (E. & M. Ghosn (Developments) Pty. Limited), and $318,363.96 (E. & M. Ghosn (Builders) Pty. Limited, a total of $1,956,695.94. of that total, over one miilion

dollars represented tax assessed upon the basis of a bringing

t into the assessable income of each company of the value of

certain home units in reliance upon s.36 of the Act. The balance

of approximately $782,000 represented penalties imposed under the

The. companies disputed the applicability to the circumstances of s.36, and by applications variously dated 10 and 12 April 1985, together with letters of 17 and 18 April 1985, they sought an extension in each case under s.206, and also requested the exercise of discretion under' s.207. As foreshadowed in these applications, objections were lodged in the first half of May. Thereafter, on 15 May, the extensions sought

were refused, and on 23 May reasons were requested under s.13 of

the Administrative Decisions (Judicial Review) Act. On 7 June,

the objections were allowed in part, i.e. to the extent that the total additional tax of $782,758 was reduced by $622,252 to $160,506, and were otherwise disallowed. A request to forward

the objections as appeals to the Supreme Court of New South Wales

followed on 12 June. On 22 July the reasons requested on 23 May were supplied, and the applications to this Court were filed eight days later. On 19 August, the request of 12 June having been ignored, a notice was given under s.189, but as at 7

November the Commissioner had still not forwarded the objections

The Applications for Extension were in similar terms,

and I extract the grounds set out in that of A.R.M. Constructions

The taxpayer is in the process of objecting against the assessment issued in respect of the increase of taxable

income over that which was returned by the taxpayer and accordingly contends

that there is no additional taxable income and thus no additional tax payable. This objection will-be lodged with you on or before the last day for

The objection wiil be found to be genuinely based on substantial grounds and the taxpayer avers that opinion from lawyers skilled in income tax has been given to that effect.

The taxpayer has not the necessary liquid funds to pay the tax but will have this same within a reasonable period of time and certainly by the time this dispute is determined by the appropriate authority should you not

obliged to make such a payment would substantially restrict, if not prohibit,

A requirement to pay the tax liability forthwith would unfairly prejudice the taxpayer in the event that the objection succeeds. This is because the taxpayer is advised by his bankers that the necessary funds to pay the amount assessed could be borrowed = at an

interest would not, it is suggested, be an allowable deduction to the taxpayer under any provision of the Act. If the taxpayer is successful in the objection our client will be entitled to be paid interest pursuant to the Taxation (Interest on Overpayment) Act 1983 at the rate of 14.026 per cent, which interest will assessable income pursuant

resulting in a very minimal return to the taxpayer and a loss of around 8 per cent in total.

The discrepancy of 8 per cent amounts to a substantial sum each year on_ the amount assessed. Your most recent annual report to Parliament highlighted the likely delays in having appeals

suggests that it would be unlikely that the final resolution of the taxpayer's liability would occur within less" than

five years: a total cost to _ the taxpayer in that event of $374,600.00."

These grounds were supplemented by the letter of 17

April which enclosed a balance sheet and accounts as at 15 March

1985, and referred to a legal opinion, previously supplied, to

the effect that any appeal would be successful. The Deputy Commissioner was asked to take into account the applicants' "very good prospects of success disputing these assessments." The letter went on to seek a determination under s.207, and in that

regard drew attention to the nature of the 1mpost exacted by that

section as a penalty, and not merely interest, citing The Federal

Commissioner of Taxation v. Trautwein (1936) 56 C.L.R. 211 at

216-7 and Re Dymond (1959) 101 C.L.R. ll at 21. (That s.207 does

provide for a penalty was shortly afterwards reasserted in Deputy

Federal Commissioner of Taxation v. D.T.R. Securities Pty. Limited (1985) 85 ATC 4251.)

The balance sheets and accounts supported the claims of lack of "the necessary liquid funds to pay the tax". In the case

of A.R.M., the profit and loss statement for the period to 15

March 1985 showed a loss of $128,825 and accumulated losses of $419,461. The loss for the previous period, to 30 June 1984, was shown as $89,149, The only gross income for the period to 15 March 1985 was rent in the sum of $223,144, and by far the largest expense was interest in the sum of $242,940. The balance sheet showed fixed assets being land and buildings at historical cost totalling $2,507,624 and total non-current liabilities being

secured loans of $2,370,000. There were also some current

The historical cost method employed left open the question what was the market value of the assets in March 1985. Various arguments were put to me as to what should be inferred. It was accepted that all the buildings were fairly new, the oldest being about seven years old. But the applications for "extension did not assert an inadequacy of assets: they asserted a

lack of liquidity. Bearing in mind that the assessments were not

based on income received in the form of cash, but on the value of

stock (being the units) under s.36, that the companies were showing substantial losses, that they were already indebted as has been indicated, and the amount of the interest already payable in relation to gross income, it 1s difficult to avoid the conclusion that payment of the tax assessments (of nearly $2

million at the date extensions were refused) could not be made

without either immediate sale, or the incurring of substantial

borrowing costs and ultimate sale, of at least a substantial part

of the assets utilised in the companies' businesses.

terms (subject to insignificant variations of detail):

"Reference is made to your correspondence of 10 and 17 April 1985 seeking a substituted

due date for payment of the abovementioned tax and remission of relevant late payment

resolution of the issues in respect of which objections were to be lodged.

Careful consideration has been given to the matters raised in your correspondence and the information provided in the supporting

documentation. Your application has, however, been refused. The tax as shown in the notices of assessment remains payable on the due date specified and continues to attract additional tax for late payment from that date.

Subject to the objections having been validly lodged there are, however, grounds for an extension of time for payment of part of the tax outstanding. Ordinarily, it would be expected that a request for such an extension would be on the basis that, within 14 days of the date of this letter the company has paid at least one-half of the tax (including additional tax under section 226 of the Income Tax Assessment Act) attributable to the matter at issue, together with any tax that would remain payable irrespective of the result of the objections.

legal action for recovery of the amount held in abeyance will be deferred pending

to be payable will attract additional tax for late payment calculated from the original due date."

The s.13 statement of 22 July 1985, after referring to

the Administrative Decisions (Judicial Review) Act 1977,

follows (subject again to variations of detail, 1uncluding of

course the names of the particular taxpayer companies):

"The findings on material questions of fact were:- -

in dispute (including additional tax under section 226 of the Income Tax

Assessment Act 1936 (the Act)), the circumstances, particularly the fact that objections had been lodged against the assessments, did warrant an extension of time to pay the balance of the tax due.

(b) The circumstances did not warrant the granting of an extended date due and payable for the purposes of sub-section 207(1) of the Act.

The evidence or other material on which these findings were based were:-

extension of time to pay tax pursuant to section 206 of the Act which was accompanied by -

(i) a Balance Sheet as at 15 March 1985; (ii) an Income and Expenditure

Statement for the period 1 July 1984 to 15 March 1985.

(d) Letter dated 18 April 1985 enclosing a statement by the company's accountant, Loftus and Associates Pty. (sic)

' (e) Notices of objection dated 8 May 1985 against the amended income tax assessments of A.R.M. Constructions Pty

Ltd for the years ended 30 June 1981, 1982 and 1983. '

(f) The Commissioner's Taxation Ruling (sic) Nos 1I.T. 2091 and I.T. 2156 setting out the guidelines in respect of the

collection and recovery of tax in cases of disputed assessment, including

The reasons for the decision not to grant an extension of time pursuant to section 206 of the Act were:- -

(g) Applying the Commissioner's guidelines to the circumstances of the case - -

(i) the company' did not pay 50 per cent of the tax in dispute;

(11) there were insufficient grounds for concluding that the company was unable to pay the tax on or

(iii) there were no exceptional circumstances which warranted granting an extended date due and

payable for the purposes of sub-section 207(1) of the Act; and

(iv) there were no other reasons which justified a departure from the above guidelines."

Counsel for the applicants pointed out that the s.13

statement refers to the letters of 17 and 18 April, but not to

the original application of 10 April. Nor does it refer to the

opinion, previously forwarded, to which the Deputy Commissioner's attention was sought to be directed by the letter of 17 April. Indeed it makes no mention of the argument put by the applicants that the objections had specially good prospects of success. Although the section 13 reasons do refer to the objections as part of the material on which findings were based, the terms of the original refusal of 15 May suggest no more than the fact of

their lodgment could have been considered. For reference is made

to them obliquely, as follows: "The issues in respect of which

objections were to be lodged"; and again, "Subject to the '

The essence of the applicants' case is that material matters which the Deputy Commissioner was bound in law to take into account, were omitted from consideration, namely, that immediate payment would endanger or curtail the business of each applicant by the exaction of a huge sum, considered relatively to the size of the enterprise, in circumstances in which it was very probable the assessment would ultimately be set aside. It was argued there is a difference between a case of an assessment upon the regular income of a taxpayer, who has received the money upon which the tax is claimed and from which he can pay it, anda case, such as the present, where the assessment relates to no moneys received, and payment could require total or partial

liquidation of the enterprise. In the latter situation, it was submitted the Deputy Commissioner must consider the strength of

the contentions raised in the objection, and reference was made

to the judgment of Brennan J. in Brayson Motors Pty. Ltd. v. Federal Commissioner of Taxation (1983) 83 ATC 4124 at 4130, to

It was accepted by counsel for the Commissioner that

there is, as regards the appeals to be brought to the Supreme Court, a genuine dispute. The contrary, of course, could not

have been suggested in respect of the objections as they stood at

15 May, when the extensions sought were refused, since three

weeks later the objections were allowed to a substantial extent. I think it is plain the decisions to refuse extensions must stand or fall as at the date they were made. At that date, 1t must

have been known or readily ascertainable that the objections were about to be dealt with, since the Commissioner's Guidelines,

which are referred to in the reasons under s.13, make it clear there is a fixed rule of priority determining the order of

consideration of objections. If the Deputy Commissioner had regarded himself as bound to make some assessment of the prospects of the objections in these cases, he could either have ascertained the determination which was about to issue, or that in a mere three weeks it would be available. Given relevance,

and having regard to the departmental delays at every stage of this matter, a deliberate refusal to wait three weeks before

making a decision of the gravity of that involved here is not really to be entertained. JI think it is much more probable that

no consideration was given to the strength of the applicants'

cases against the assessments. The result was that the decisions

to refuse extensions insisted upon a requirement of immediate payment, in the circumstances of hardship previously stated, of

$622,000 which three weeks later it was acknowledged should not

But did the Deputy Commissioner take into account the

claim that payment in the circumstances, the companies not having the necessary liquidity, "would substantially restrict, if not

prohibit, (each) taxpayer from continuing to carry on business"?

There is no finding in the reasons under s.13 that he rejected the validity of this proposition as a reasonable forecast. It is

not mentioned. Although, before me, the Deputy Commissioner by his counsel emphasized that the applicants had asserted their ability to raise the money, relying, not on inability, but on the

gravity of the consequences, in his s.13 reasons he specifically finds "there were insufficient grounds for concluding that the company was unable to pay the tax on or before the due date", and says nothing at all of the claimed consequences. Inability not being asserted, this looks very like a complete misconception of the issue, or else a blind application of the guidelines, which do discuss claims of inability, in a case which their terms do not expressly cover. At all events there is no reference, as a matter taken into account, to the likely effects upon the businesses of the companies of the required almost immediate

payments, or to the claim made on their behalf in respect of that

By s.13(1) of the Administrative Decisions (Judicial

Review) Act, the "reasons" are required to consist of "a statement in writing setting out the findings on material

questions of fact, referring to the evidence or other material on

which those findings were based and giving the reasons for the

Section 13 is a crucial provision designed to ensure

that the basis upon which a decision is made 1s able to.be seen,

so that its legality can be determined. It should not be viewed by any decision-maker as a threat to be evaded by a camouflage of

obscurity. All it requires to be set out is a statement of the Matters the administrator must have considered in making the decision in the first place - what he found the facts to be, what material he considered in arriving at those findings, and the

It would be wrong for courts to construe reasons in any

overly critical spirit, forgetful that they are the reasons of an administrator, not of the draftsman of an Act. But it would be as bad to betray the aims of the Administrative Decisions (Judicial Review) Act, by ignoring what has been required by the Parliament to be disclosed in the interests of just and lawful

In the present cases, the statement of reasons has been

unnecessarily obfuscated by a restatement of the decisions

themselves under the heading which purports to refer to the findings on material questions of fact. The findings on questions of fact are only found incorporated in the reasons for the decision. There is no reference at all to the evidence or

other material on which any finding was based, but only a purported list of all the documents which were before the

decision-maker. Had applications been made under s.13 (7) for further and better particulars of the statements, they must have

been granted (cf. Re Palmer and Minister for the Capital

Territory (1978) 23 A.L.R. 196; Raikon Aqricultural Co. Pty. Ltd.

v. Aboriginal Development Commission (1982) 43 A.L.R. 535 at 547;

and Ansett Transport Industries (Operations) Pty. Ltd. v. Wraith (1983) 48 A.L.R. 500), but it is not surprising, having regard to

the continuing penalties under s.207, that the delays inherent in

such a course were not attractive to the applicants. In any case, the obligation under s.13 rests upon the Deputy

That obligation demands the furnishing of reasons which make intelligible the true basis of the decision. What is

required has been explained by Woodward J. in the Ansett

Transport v. Wraith Case (supra) at 507 as follows:

conveniently brought together -1n Re Palmer and Minister for the Capital Territory (1978) 23 A.L.R. 196 at 206-7; 1 ALD 183 at 193-4, serve to confirm my view that s 13(1) of the Judicial Review Act requires the decision-maker to explain his decision in a way which will enable a person aggrieved to say, in effect: 'Even though I may not agree with it, I now understand why the decision went against me. I am now in a position to decide whether that decision has involved an unwarranted finding of fact, or an error of law, which is worth challenging.'

This requires that the decision-maker should set out his understanding of the relevant

law, any findings of fact on which his conclusions depend (especially if those facts have been in dispute), and the reasoning

processes which led him to those conclusions. He should do so in clear and unambiguous language, not in vague generalities or the formal language of legislation. The

appropriate length of the statement covering such matters will depend upon considerations

decision, its complexity and the time available Lo formulale Lhe slalemenl. oflen those factors may suggest a brief statement of one or two pages only."

Act, which clearly intends. that persons aggrieved by administrative decisions which

adversely affect them should have full opportunity to show, if they can, that such decisions, have been improperly reached."

"They can only do this if they know how the decisions were in fact reached."

In Elliott v. London Borough of Southwark [1976] 2 All

E.R. 781 at 791 James L.J., speaking for the Court of Appeal,

"The duty to give reasons pursuant to statute is a responsible one and cannot be discharged by the use of vague general words which are not sufficient to bring to the mind of the recipient a clear understanding of why his

request for a rehabilitation order is being refused."

This passage and others to similar effect are collected in Re

Palmer and Minister for the Capital Territory (supra, at 205-7).

See also the Ralkon Agricultural Co. Case (supra, at 546); Collins v. Repatriation Commission (1980) 32 A.L.R. 581 at 594-5;

Clark v. Wellington Rent Appeal Board [1975] 2 N.Z.L.R. 24 at

26-7; and Dalton v. Deputy Commissioner of Taxation (NSW) (1985) 60 A.L.R. 783 at 792.

Counsel for the respondent suggested the statement, under the heading "The reasons for the decision", that "there were no exceptional circumstances which warranted granting an extended date due and payable", could be regarded as a finding that in fact no special circumstance existed. This argument not only ignored the Delphic ambiguity of the statement actually made, evading like the oracle the duty of enlightenment to which James L.J. referred, and leaving it uncertain whether it was the circumstances which were negatived or their claimed effect, but

also overlooked the limiting words "for the purposes of

sub-section 207(1) of the Act", which at least make it clear the

It has been held that the failure to include a matter in

a statement of reasons under.s.13 may justify a court in inferring as a fact that the matter was not taken into account:

Sullivan v. Department of Transport (1978) 20 A.L.R. 323 at 349, 352-3; Collins v. Repatriation Commission (1980) 32 A.L.R. 581 at

595; Bowman v. Repatriation Commission (1981) 34 A.L.R. 556 at

562; and Nestle Australia Limited v. Deputy Federal Commissioner

of Taxation (1986) 86 ATC 4130 at 4133. This proposition is

consistent with the view, recently affirmed by the High Court in

Public service Board of NSW v. Osmond (1986) 4 Leg. Rep. 1 at 2, that "if the decision-maker does not give any reason for his

decision, the court may be able to infer that he had no good

Doubtless, whether the inference will be drawn in a particular case will depend upon all the circumstances. Where,

as here, the decision-maker chooses to give no evidence, the

ordinary rule in Jones v. Dunkel (1959) 101 C.L.R. 298 will

enable the court more confidently to draw the inference. (I note that in some reported cases officers of the Taxation Department

have given evidence of the factors taken into account in

decisions under secs.206 and 207 - Ahern v. Deputy Federal Commissioner of Taxation (1985) 86 ATC 4023; Thurecht v. Deputy

Federal Commissioner of Taxation (1984) 84 ATC 4480.) In the present case, a matter also to be considered is the absence of any reference, under the heading requiring mention of "evidence or other material", to the companies' taxation returns, which I

think would probably have been referred to had there been any examination of the impact of payment upon the businesses of the companies. In all the circumstances, I do not think there was

any such examination. I should add that there is authority that

material in the Taxation Office file must be regarded as

At a glance

Court

Decision date

Before

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Judgment (272 paragraphs)

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