David Securities Pty Ltd v Commonwealth Bank of Australia

IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION No QG 126 of 1993 BETWEEN: CENTURY YUASA BATTERIES PTY LTD Applicant AND: COMMISSIONER OF TAXATION Respondent CORAM: Cooper J PLACE: Brisbane DATE: 27 March 1997

REASONS FOR JUDGMENT Introduction This is an application brought pursuant to s 5 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) ("the ADJR Act") for review of a decision of a delegate of the Commissioner of Taxation ("the Commissioner") that the applicant was obliged to pay to the Commissioner $123,532.08 on account of interest withholding tax and late payment penalties in respect of interest payments made to Bank Negara Indonesia 1946 (subsequently known as P T Bank Negara Indonesia (Persero)) ("BNI"). The application raises issues as to the proper interpretation and application of the provisions of the Income Tax Assessment Act 1936 (Cth) ("the ITAA") relating to the collection and recovery of interest withholding tax. The relevant facts appeared in a statement of facts and issues and a bundle of documents which were agreed by the parties. Agreed Facts The applicant was, at the relevant times, a company incorporated in Queensland carrying on the business of manufacturing batteries and associated goods for sale. The precise status of BNI is less clear. However it is sufficient to say, for present purposes, that BNI was at all relevant times, a bank which was not a resident of Australia and which carried on business at, amongst other places, a branch office in London. By an agreement dated 14 February 1990 ("the facility agreement"), BNI granted to the applicant a credit facility in an amount of $US2,000,000, trade finance facilities up to $US3,000,000 and a working capital facility of $US18,000,000. BNI's address appeared on the facility agreement as 3 Finsbury Square, London, England. Interest on the advances made pursuant to the credit facility and the working capital facility was payable every three or six months (the period being selected by BNI) at a rate to be calculated in accordance with clause 5.4 of the facility agreement. By clause 13.2 of the facility agreement, all payments in respect of the credit facility and the working capital facility, including interest payments, were to be made in Australian dollars on the relevant due date to "NAB Bank Melbourne Account No Indo-006." Payments in respect of the trade finance facilities did not contain an interest component, and are therefore not relevant to this application. Clause 11 of the facility agreement is of some importance to the issues raised on this application. Clause 11 provided :- "TAXES All sums payable by the Borrower under this Agreement shall be paid in full without set-off or counterclaim and free and clear of and without any deduction or withholding for or on account of any tax. If the Borrower or any other person is required by any law or regulation to make any deduction or withholding from any payment, the Borrower shall together with such payment pay an additional amount so that the Lender receives free and clear of any tax the full amount which it would have received if no such deduction or withholding had been required. The Borrower shall pay to the relevant taxing or other authority the full amount of the deduction or withholding made by it and promptly forward to the Lender copies of official receipts or other evidence showing that the full amount of any such deduction or withholding has been paid over to the relevant taxation or other authority before the date on which penalties attach thereto."

The effect of clause 11 was that in making payments of interest, the applicant was required to "gross up" the payment so that after any deduction or withholding on account of tax, BNI received 100 percent of the interest payable under the agreement. The obligation to pay Australian interest withholding tax and the operation of clause 11 are and have been the subject of dispute between the applicant and BNI. It is sufficient for present purposes to say that the applicant, after 6 January 1993, has "grossed up" the interest payments to BNI but has done so "due to commercial pressures ... under protest and reserv[ing] our rights" and in the belief that since the decision of the High Court in David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, "gross-up" clauses such as clause 11 are void pursuant to s 261 of the ITAA. Notwithstanding clause 13.2, after execution of the facility agreement, BNI directed the applicant to make all payments of Australian dollars (ie including all interest payments) to an account held by BNI at a Melbourne branch of the ANZ Bank. All payments of Australian dollars were made by the applicant by telegraphic transfer from the applicant's account at the Mount Ommaney branch of the Commonwealth Bank of Australia to BNI's account at the ANZ Bank. Payments of interest were made by the applicant without deduction by the applicant of any amount on account of interest withholding tax. After 6 January 1993 the amounts paid to BNI on account of interest were "grossed-up" in accordance with the terms of clause 11. On 11 September 1992 an officer of the Australian Taxation Office ("the ATO") wrote to the applicant explaining the "Compliance Improvement Complex Program" being undertaken by the ATO and requesting information, including information relating to any outstanding tax matters. At about that time the applicant's accountants, Coopers & Lybrand, became aware of the circumstances of the facility agreement between BNI and the applicant and of the possibility of a withholding tax problem. On 26 November 1992 at Coopers & Lybrand's suggestion, Chris Burrell of Coopers & Lybrand met with officers of the ATO and made, on the applicant's behalf, a "voluntary disclosure" of the applicant's position with respect to withholding tax referrable to interest payments made to BNI under the facility agreement. On 22 January 1993 Mr Burrell on behalf of the applicant again met with officers of the ATO. Mr Burrell provided to the officers of the ATO cheques totalling $866,999 "being the current best estimate of the balance of the interest withholding tax in relation to interest paid by CYB for the period to 30 November 1992" and a letter dated 21 January 1993 to the Commissioner from Mr Burrell explaining the reasons for the late remittance of withholding tax and requesting the remission of any late payment penalties. Of the $866,999, $853,484 related to interest payments made to BNI. On or about 19 February 1993 the applicant paid a further $73,601.03 to the Commissioner in respect of withholding tax on interest paid to BNI in January 1993. Both of those amounts were calculated as ten percent of the interest actually paid by the applicant to BNI without reference to clause 11 of the facility agreement. There followed further contact and communication between the ATO and the applicant in relation to the non-remittance and future payment of withholding tax by the applicant. On 23 March 1993, an officer of the applicant wrote to the Commissioner as follows :- "We refer to the withholding tax remitted by the abovenamed taxpayer on 22 January 1993 together with a letter of 21 January 1993 to the Commissioner of Taxation outlining the grounds on which the withholding tax was lodged. The purpose of this letter is to avoid confusion with respect to the payment of withholding tax. As outlined in our letter, the withholding tax was paid for commercial reasons without prejudice to the taxpayer and the taxpayer does not accept liability for the withholding tax under Section 221YL(2A) or any other Section of the Income Tax Assessment Act ('the Act'). Further, the taxpayer advise [sic] that the payment was made under a letter of protest to Bank Negara Indonesia (a copy is attached) and a debtor has been raised in the taxpayer's accounts for the amounts paid. As such, the approach being taken is that the taxpayer has paid the withholding on behalf of Bank Negara Indonesia, as an intermediate measure, so as to meet any liability that Bank Negara Indonesia may have under Section 221YL(2B) of the Act. Accordingly, to the extent that it is possible to object against a taxation decision made by the Commissioner of Taxation that the taxpayer is liable for the withholding tax under Section 221YL(2A), or any other Section of the Act, please treat this letter as an objection lodged under Part IVC of the Taxation Administration Act."

By letter dated 5 May 1993, a Deputy Commissioner of Taxation advised the applicant that the purported objection was invalid because decisions of the ATO "in respect of withholding tax and related late payment interest are only reviewable under the Administrative Decisions (Judicial Review) Act or the Judiciary Act." On 6 May 1993, the Commissioner wrote to Mr Burrell, on behalf of the applicant, as follows :- "I refer to your letter of 21 January 1993 and subsequent communications between yourself and ATO officers. After consideration of all the facts relating to the withholding tax liabilities with respect to the loan between CYB and Bank Negara Indonesia (BNI), it is the opinion of this Office that s 221YL(2A) of the ITAA applies to the interest payments by CYB to BNI. Accordingly it is the obligation of CYB to remit the applicable withholding tax to the ATO. Your attention is also drawn to IT2683 and TD 92/152 which apply when interest paid to the lender is grossed up by the withholding tax. In 'gross up' cases, the withholding tax is calculated according to the following formula: Interest withholding tax = 10% of 10/9 x (Interest payment) Therefore on an interest payment of $8,226,334 (grossed up) the withholding tax is: 10% of 10/9 x 8,226,334 = $914,037.11 Therefore an amount of $91404 is still outstanding in respect of interest payments to 21 January 1993. According to records held in this Office, an amount of $73351.36 withholding tax in respect of the BNI loan was paid to the ATO on 19 February 1993. In accordance with the above mentioned formula, a further amount of $8150.08 is due. Late Payment Penalty (a) BNI Loan: The full late payment penalty calculated in accordance with the ITAA and regulations (20% pa up to 1 October 1992 and 16% pa thereafter) to 21 January 1993 (the date of payment) is $199,416.71. After consideration of all submissions from Coopers & Lybrand and CYB, it has been decided to remit 90% of the late payment penalty. Accordingly, late payment penalty of $19,942 is payable by CYB in relation to the BNI loan. (b) Line of Credit: The full late payment penalty calculated to 27 March 1992 (the date CYB notified the ATO) is $4,036. After consideration of all submissions from Coopers & Lybrand and CYB, it has been decided that none of this late payment penalty is to be remitted. Accordingly, late payment penalty of $4,036 is payable in relation to the line of credit. Amounts Due and Payable The total amount payable by CYB is: $91,404 + 8150.08 + 19,942 + 4,036 = $123,532.08 The amount of $123,532.08 is due and payable within 14 days of this notification." (Original emphasis)

Under cover of a letter dated 20 May 1993 to the ATO, Mr Burrell on behalf of the applicant enclosed a cheque for $123,532.08 as payment of a sum equal to the amount of withholding tax and additional tax for late payment claimed by the Commissioner. Relevantly, Mr Burrell wrote :- "The payment of $123,532.08 is made on the basis of the advice of Mr Jeffs that the ATO will refund to CYB the amount of $99,554 (and the amount of any further payments made to the ATO in respect of interest payments subsequent to January 1993 on the same principles) if either :- (i) CYB is successful in proceedings under either the ADJRA or the Judiciary Act to the extent CYB is not liable to pay withholding tax in respect of the gross-up clause in the loan agreement. The amount will be refunded to CYB within 14 days of the decision advising CYB is not liable to pay withholding tax in respect of the gross-up clause; or (ii) CYB is successful in proceedings against BNI to recover the withholding tax paid by CYB which should have been incurred by BNI. The amount will be refunded to CYB within 14 days of the decision advising CYB is not liable to pay withholding tax in respect of the gross-up clause, or to the extent that the Court otherwise holds, that effect will be given to the judgment. It is accepted the Australian Taxation Office does not admit it has an obligation to refund $866,999 if CYB is successful in proceedings under either the ADJRA, the Judiciary Act or any other basis to the extent CYB is not liable to remit withholding tax. The payment enclosed with this letter does not prejudice our clients position in respect of claiming a refund of the same nor to challenging an obligation on CYB to make future payments of withholding tax to the ATO."

Withholding Tax: Statutory Provisions Liability to taxation is dealt with under that general heading in Part III of the ITAA. Division 11A of that Part deals with "Dividends Interest and Royalties paid to Non Residents and to Certain Other Persons". Income tax is imposed by s 128B(5) of the ITAA upon a non-resident who derives income in the form of interest paid to the non-resident by a person to whom s 128B(5) applies. That income tax is called "withholding tax" (s 6(1) of the ITAA). The Income Tax (Dividends, Interest and Royalties Withholding Tax) Act 1974 (Cth), fixes at ten percent the rate of tax payable on interest income to which s 128B(5) of the ITAA applies (see s 7(b)). "Interest" is defined in s 128A(1) of the ITAA to include an amount in the nature of interest. For the purposes of, inter alia, s 261 of the ITAA, "tax" and "income tax" include withholding tax (s 128A(4)). It is important to note that the obligation to pay withholding tax rests on the non-resident receiving income in the form of interest and Part VI Div 4 of the ITAA does not have the effect of transferring the statutory liability for payment of the tax to the Australian resident (David Securities at 366). Withholding tax is imposed not on a transaction or an agreement, but on a non-resident who derives the relevant income (Naiama Pastoral Co Pty Ltd v Elders Finance and Investment Co Ltd (1994) 94 ATC 4738 at 4740). The withholding tax becomes due and payable by the non-resident taxpayer twenty-one days after the end of the month in which the income to which the tax relates was derived by the non-resident taxpayer (s 128C(1) of the ITAA). Withholding tax is a debt due to the Queen on behalf of the Commonwealth and is payable to the Commissioner (s 128C(2)). If withholding tax is unpaid at the expiration of sixty days after it became due and payable, additional tax by way of penalty is due and payable at the rate of twenty percent per annum to 1 October 1992 and sixteen percent thereafter on the amount unpaid computed from the expiration of the sixty day period (s 128C(3)). The Commissioner has the discretionary power to remit the additional tax payable under s 128C(3) in the circumstances provided for in s 128C(4). Any unpaid withholding tax and any unpaid additional tax payable under s 128C is recoverable by the Commissioner by suit instituted in the name of the Commissioner against the non-resident taxpayer in a court of competent jurisdiction (s 128C(5)). The liability to withholding tax in respect of interest paid to a non-resident arises by operation of s 128B and becomes due and payable when the conditions contained in s 128C(1) are satisfied. Similarly in respect of additional tax by way of penalty under s 128C(3). The ascertainment of the amount of withholding tax is not deemed to be an assessment within the meaning of the ITAA (s 128C(6)). The Commissioner is empowered under s 128C(7) to serve a notice of the amount of withholding tax payable by the non-resident taxpayer served with the notice and specify in it the date on which that amount is payable. If such a notice is served a certified copy of that notice is evidence that the withholding tax specified in the notice became due and payable by the person on whom the notice was served on the date specified in it (s 128C(8)). Part VI of the ITAA is headed "Collection and Recovery of Tax". Division 4 of the Part is headed "Collection of Withholding Tax." The object of Division 4 is "to facilitate the collection of withholding tax" (s 221YJ). Division 4 is not concerned with the imposition of or liability to pay withholding tax as opposed to its collection. By s 221YK(1), "interest" means any amount that is, or is deemed to consist of, interest for the purposes of Division 11A of Part III (see the definition in s 128A(1) referred to above). For the purposes of Division 4, interest is deemed to be payable by a person to another person although it is not actually to be paid over to the other person but is to be reinvested, accumulated, capitalised, carried to any reserve, sinking fund or insurance fund howsoever designated, or otherwise dealt with on behalf of the other person or as the other person directs (s 221YK(3)). It should be noted that the words used in s 221YK(3) follow those used in s 19 of the ITAA. The obligation to withhold ten percent of the interest paid to a non-resident is imposed by s 221YL(2A) and s 221YL(2B), which provide :- "221YL(2A) Where interest is payable by a person, including the Commonwealth, a State or an authority of the Commonwealth or of a State (in this section referred to as 'the borrower') to another person, or to other persons jointly, and - (a) that other person, or one or more of those other persons, is or are shown, in relation to the transaction to which the interest relates, in or on any book, document or record in the possession of or kept or maintained on behalf of the borrower, as having an address outside Australia; or (b) the borrower is authorized to pay the interest, either to the person or persons to whom it is payable or to another person or persons, at a place outside Australia, the borrower shall, subject to this section and to section 221YM, before or at the time when the interest is paid by the borrower, make a deduction from the interest of an amount determined in accordance with the regulations. 221YL(2B) Subject to this section and to section 221YM, where - (a) interest is paid by a person to the Commonwealth, a State, an authority of the Commonwealth or of a State or a person in Australia (in this subsection referred to as 'the payee'); and (b) another person who is a non-resident is entitled - (i) to receive the interest or a part of the interest, or the amount of the interest or of a part of the interest, from the payee; or (ii) to have the interest or a part of the interest, or the amount of the interest or of a part of the interest, credited to him, or otherwise dealt with on his behalf, or as he directs, by the payee, the payee shall, except as provided by the regulations, forthwith make a deduction from the interest, or the part of the interest, of an amount determined in accordance with the regulations."

The amount to be deducted by the person obliged to make the deduction is not to exceed the withholding tax payable by the non-resident taxpayer in respect of the relevant interest ( s 221YL(3A)). Section 221YL(4A) makes it an offence not to deduct the relevant withholding tax from the interest. Where a person has made a deduction from interest pursuant (or purportedly pursuant) to s 221YL, that person must forward the amount deducted to the Commissioner (s 221YN(1)) within twenty-one days after the end of the month in which the deduction was made or face a penalty by way of fine or imprisonment under s 221YN(2). The tax withheld and accounted for to the Commissioner forms a credit available to the non-resident against the tax payable by that non-resident under s 128B(5). Section 221YN(4) and s 221YN(5) provide respectively for the payment of and remission of additional amounts where payment of the amount deducted is not paid to the commissioner within the time specified in s 221YN(1)(a). The sub-sections provide :- "221YN(4) Where an amount payable to the Commissioner by a person under subsection (1) (in this subsection referred to as the 'principal amount') remains unpaid after the expiration of the period within which, by this section, it is required to be paid - (a) the principal amount continues to be payable by that person to the Commissioner; and (b) an additional amount is, in addition to any other penalty to which that person may be liable, payable by that person to the Commissioner, by way of penalty, at the rate of 16% per annum on so much of the principal amount as remains unpaid, computed from the expiration of that period. 221YN(5) Where an additional amount is payable by a person under subsection (4) in relation to an amount (in this subsection referred to as the 'principal amount') payable to the Commissioner under subsection (1) and - (a) the Commissioner is satisfied that - (i) the circumstances that contributed to the delay in payment of the principal amount were not due to, or caused directly or indirectly by, an act or omission of the person; and (ii) the person has taken reasonable action to mitigate, or mitigate the effects of, those circumstances; (b) the Commissioner is satisfied that - (i) the circumstances that contributed to the delay in payment of the principal amount were due to, or caused directly or indirectly by, an act or omission of the person; (ii) the person has taken reasonable action to mitigate, or mitigate the effects of, those circumstances; and (iii) having regard to the nature of those circumstances, it would be fair and reasonable to remit the additional amount or part of the additional amount; or (c) the Commissioner is satisfied that there are special circumstances by reason of which it would be fair and reasonable to remit the additional amount or part of the additional amount, the Commissioner may remit the additional amount or part of the additional amount."

The rate of sixteen percent specified in s 221YN(4)(b) applies to a penalty payable for periods, or so much of a period, occurring on or after 16 October 1992. (See Taxation Laws Amendment Act (No 4), Act No 191 of 1992, s 33(1). For periods or so much of a period occurring before 1 October 1992, the applicable rate for the purposes of s 221YN(4)(b) is twenty percent. Section 221YQ applies where the person obliged to make the deduction fails or refuses to do so. The section provides insofar as is relevant :- "221YQ(1) Where a person has refused or failed to make a deduction ... from interest ... in accordance with section 221YL or has contravened subsection 221YP(1), (2) or (3A) in relation to ... interest, that person is liable, in addition to any other penalty to which he may be liable, to pay to the Commissioner - (a) an amount equal to any unpaid withholding tax payable in respect of that ... interest ...; and (b) an amount equal to any unpaid additional tax payable under subsection 128C(3) in respect of that withholding tax. 221YQ(2) Where a person has paid to the Commissioner an amount payable by virtue of paragraph (1)(a), that person may recover an amount equal to that amount from the person liable to pay the withholding tax to which that first-mentioned amount relates. 221YQ(3) Where an amount payable under subsection (1) has been paid to the Commissioner, the person liable to pay the withholding tax to which the amount relates is entitled to a credit equal to that amount. 221YQ(4) Where a person has paid to the Commissioner an amount payable by virtue of paragraph (1)(b) of this section and the additional tax or any part of the additional tax to which the amount relates is remitted by the Commissioner under subsection 128C(4) - (a) any credit under subsection (3) that relates to the amount shall be reduced by an amount equal to the additional tax that is remitted; and (b) the Commissioner shall pay to the person who paid the amount to the Commissioner an amount equal to the additional tax that is remitted."

It is to be noted that s 221YQ(4) does not of itself empower the Commissioner to remit an amount payable by virtue of paragraph (1)(b) of the section. The subsection only provides for the consequences which follow an exercise by the Commissioner of the power under subsection 128C(4) to remit additional tax payable as a penalty by the non-resident taxpayer. Section 221YR provides for recovery of amounts by the Commissioner. For present purposes, it is sufficient to set out s 221YR(1) :- "221YR(1) An amount payable to the Commissioner under this Division by a person is a debt due to the Commonwealth and payable to the Commissioner and - (a) that amount may be sued for and recovered in a court of competent jurisdiction by the Commissioner or a Deputy Commissioner suing in his official name; or (b) a court before which proceedings are taken against that person for an offence against a provision of this Division may order that person to pay that amount to the Commissioner." Section 261(1) of the ITAA is also relevant. This section provides :- "261(1) A covenant or stipulation in a mortgage, which has or purports to have the purpose or effect of imposing on the mortgagor the obligation of paying income tax on the interest to be paid under the mortgage: (a) if the mortgage was entered into on or before 13 September 1915 - shall not be valid to impose on the mortgagor the obligation of paying income tax to any greater amount than the amount (if any) which would have been payable by the mortgagor if his taxable income consisted solely of a sum equivalent to the amount of interest to be paid under the mortgage without taking into account any income tax payable on that interest; and (b) if the mortgage was entered into after that date - shall be absolutely void."

The Decisions of which Review is Sought The relevant decision in respect of which the applicant seeks review is specified in the application as :- " ... the decision of the respondent, by his delegate contained in a letter dated 6 May 1993 from the respondent to the applicant (the 'notice') that : (a) subsection 221YL(2A) of the Income Tax Assessment Act 1936 (Cth) ('the Act'), not subsection 221YL(2B) of the Act, applied to the interest payments made by the applicant to 'Bank Negara Indonesia 1946' (which has changed its name to 'P.T. Bank Negara Indonesia (Persero)' and hereinafter both referred to as 'BNI') pursuant to the provisions of a facility agreement dated 14 February 1990 made between the applicant and BNI ('facility agreement'); (b) it was the obligation of the applicant to pay the amount of the applicable withholding tax or alternatively unpaid deductions from interest to the respondent; (c) the amount payable by the applicant was calculated in accordance with the following formulae: 'Interest withholding tax = 10% x 10/9 x (interest payment)' (d) in respect of interest payments totalling $8,226,334 in the period up to 21 January 1993, the amount payable for withholding tax calculated in accordance with the above mentioned formulae was $914,037.11 and, therefore, an amount of $91,404 was still due and payable by the applicant to the respondent; (e) further, in respect of an amount of $73,351.36 withholding tax paid by the applicant to the respondent on 19 February 1993, in accordance with the above mentioned formulae a further amount of $8,150.08 was due and payable to the respondent; (f) in relation to 'loan facility' provided by BNI: (i) a late payment penalty of $199,416.71 was payable under the Act and Income Tax Regulations ('regulations') in respect of withholding tax which had not been paid until 21 January 1993; (ii) the respondent exercised its discretion to remit only 90 per cent of the late payment penalty and not the whole of the late penalty; (iii) and therefore a late payment penalty of $19,942 was payable by the applicant to the respondent; (g) in relation to the 'credit facility' provided by BNI: (i) a late payment penalty of $4,036 was payable under the Act and regulations in respect of withholding tax which had not been paid in the period up to 27 March 1992; (ii) the respondent exercised its discretion to remit none of the late payment penalty; (iii) and therefore a late payment penalty of $4,036 was payable by the applicant to the respondent; (h) that a total amount of $123,532.08 was due and payable by the applicant to the respondent within 14 days of notification."

In its statement of reasons provided by the Commissioner pursuant to s 13 of the ADJR Act the decisionmaker stated :- "In a letter dated 25 May 1993, Kinneally Teys Solicitors, on behalf of CYB, requested a statement of reasons pursuant to Section 13 of the AD(JR) Act in relation to decisions conveyed by the ATO in a letter to Coopers & Lybrand (CYB's agents) dated 6 May 1993. The decisions referred to are : (a) The decision that sub-section 221YL(2A) rather than sub-section 221YL(2B) of the Income Tax Assessment Act (1936) as amended (ITAA) applies to interest payments by Century Yuasa Batteries (CYB) to Bank Negara Indonesia (BNI). (b) The decision that CYB is required to pay withholding tax on the 'grossed up' amount being the total interest paid and withholding tax payable. The decision (a) above was made in conjunction with a request by CYB for a remission of late payment penalty in respect of the late remittance of withholding tax by CYB to the ATO. In making a decision on remittance of penalty it was necessary to determine who was responsible for remitting the withholding tax on behalf of BNI. After discovering that the loan agreement between CYB and BNI contained a 'gross up' clause, the decision referred to in (b) above was made."

On the hearing of the application for review, the Commissioner contended that the only reviewable decision contained in the letter of 6 May 1993 was the decision not to remit the whole of the late payment penalty payable in respect of the loan facility (see paragraph (f) above) and the whole of the late payment penalty payable in respect of the credit facility (see paragraph (g) above). Otherwise, counsel for the Commissioner submitted there was no decision of an administrative character made under an enactment so as to satisfy the definition of a decision to which the ADJR Act applies for the purposes of s 5(1) of that Act. On the hearing of the application for review counsel for the applicant abandoned paragraph 8 of the applicant's written submissions filed in support of the application. Paragraph 8 sought review of the Commissioner's "decision not to remit the whole or a larger amount than it has remitted of the amount of additional tax payable by the applicant to the respondent pursuant to section 221YQ(4)(b) of the Act." The paragraph identifies paragraphs (f) and (g) above as the relevant decisions in issue. Having abandoned review of the remission decisions, the applicant identified the reviewable decision as being the demand contained in the Commissioner's letter of 6 May 1993 to Coopers & Lybrand for payment of $123,532.08 as money due and payable within fourteen days. Such a demand, it was submitted, fell within s 3(2)(e) of the ADJR Act which provides :- "(2) In this Act, a reference to the making of a decision includes a reference to :- ... (e) making a declaration, demand or requirement;"

Further, it was submitted by counsel for the applicant that the decision of the Commissioner that the applicant was obliged to remit to the Commissioner an amount equivalent to the withholding tax and penalty was a decision which had practical consequences to the applicant. The practical consequence it was submitted was its exposure to additional penalty payments if the decision of the Commissioner was ultimately proved correct and the applicant had refused to pay in the interim. In Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321, Mason CJ, with whom Brennan J and Deane J agreed in this respect, said (at 337) :- " ... a reviewable 'decision' is one for which provision is made by or under a statute. That will generally, but not always, entail a decision which is final or operative and determinative, at least in a practical sense, of the issue of fact calling for consideration." The ITAA does not make either express or implied provision for the Commissioner to make a determination of the applicant's liability to make payment of an amount equal to the withholding tax and penalty for late payment payable by BNI. The applicant's liability, if any, to pay that amount to the Commissioner flows from the statutory operation of s 221YL(2A), s 221YN(1) and s 221YN(4) of the ITAA. Whether or not the Commissioner concludes that an amount is payable by the applicant is irrelevant to its liability in fact and at law to pay the sum to the Commissioner. Nor does the demand by the Commissioner that payment be made within fourteen days of notification contained in the letter of 6 May 1993 alter the situation. The ITAA does not provide either expressly or impliedly that the making of the demand is a condition precedent to the liability to pay, nor that such a demand is a necessary pre-condition to the Commissioner's entitlement to sue the applicant in a court of competent jurisdiction for the money as a debt due to the Commonwealth (s 221YR(1) of the ITAA). Section 221YR(1) (the Commissioner's power to sue for the money as a debt due to the Commonwealth) and s 8 (the Commissioner's power of general administration of the ITAA) do not of themselves give force or effect to the decision to demand payment of a sum of money which the Commissioner claims is payable under the ITAA and as such it is not a decision made under an enactment (Hutchins v Commissioner of Taxation (1996) 65 FCR 269 (FC) at 273 per Black CJ and at 278 - 279 per Spender J). Even if the view of Lockhart J in Hutchins v Commissioner of Taxation is adopted, namely that the power of the Commissioner to sue for the recovery of the amount due as a debt to the Commonwealth authorises the Commissioner to do all things reasonably necessary to recover the amount and thereby characterises the demand as a decision of an administrative character made under an enactment (65 FCR at 276 - 277), that does not of itself make the demand a reviewable decision. The decision to seek to recover an amount equal to the withholding tax and penalty for late payment from the applicant, and the demand for payment of the same within fourteen days, is not a substantive determination. It determines nothing. As such the decision lacks a necessary characteristic of a reviewable decision (Bond at 337; Hutchins at 274, 277). Nor does the demand have any practical effect on the applicant. If the demand is not met by the applicant because of an erroneous view that it is not liable to make the payment, any liability for additional tax for late payment arises from the operation of the ITAA and not in consequence of any reviewable decision of the Commissioner. It follows in my view that the decision pleaded in paragraph (h) of the application set out above is not a reviewable decision. The abandonment of the application to review the decision to remit, left no reviewable decision in terms of the matters pleaded as the relevant decisions in paragraph (a) to (e) of the application for review set out above. Each alleged decision was merely a statement of opinion as to the operation of the ITAA to the circumstances of the applicant as part of a series of steps leading to the conclusion that the applicant was liable to pay the monies demanded by the Commissioner. None was in itself a reviewable decision (Pegasus Leasing Ltd v Commissioner of Taxation (1991) 32 FCR 158 at 161 - 162). Although the applicant sought on the hearing to amend the application to include a prayer for relief for the "recovery of moneys paid by the applicant to the respondent on account of interest withholding tax and additional tax, together with interest, under section 16(1)(a) of the ADJR Act, or in the alternative, under section 51A of the Federal Court of Australia Act 1976", which application was opposed by the Commissioner and was ultimately dismissed, no application to amend to raise an entitlement to relief or a cause of action other than arising under s 5 of the ADJR Act was made. For example, no relief was sought under the Judiciary Act 1903 (Cth), at common law, or by way of declaration of right with a consequent entitlement to repayment of $99,554 under the agreement made between the Commissioner and the applicant contained in, or, evidenced by the letter of 20 May 1993 to the Commissioner accompanying the payment of $123,532.08 (as to the binding nature of such an agreement see Precision Pools Pty Ltd v Commissioner of Taxation (1992) 37 FCR 554 at 562 ff). The substantial issues which the parties by their agreement clearly wished to have determined have been fully argued. I propose to give my decision in relation to those issues, lest the matter go on appeal in relation to the decision question and I be found in error in my view that there is no remaining reviewable decision. Further, the parties may take the view that the interests of both are best served by agreeing to an amendment which enables the determination of the substantial issues to be given binding effect so as to enable the matters to be appealed in these proceedings, if any party is so minded, without the need for additional proceedings being instituted at additional cost to the parties.

The Grounds of the Application for Review Counsel for the applicant submitted that the applicant was not obliged to remit any amount to the Commissioner on account of withholding tax. First, counsel submitted that s 221YL(2B) and not s 221YL(2A) applied in the instant case so that the ANZ Bank, to which the applicant (on the applicant's case) paid the relevant interest, was liable to deduct and remit to the Commissioner the appropriate withholding tax ("the first ground"). Second, counsel submitted that no obligation on the part of the applicant to pay any amount to the Commissioner arose by operation of s 221YQ because, in circumstances where the applicant believed that it did not have to make a deduction from the interest payments on account of withholding tax, the applicant had not "refused or failed" to make a deduction within the meaning of s 221YQ ("the second ground"). It was further submitted for the applicant that the additional amounts paid or payable by the applicant to BNI pursuant to clause 11 of the facility agreement were not interest or in the nature of interest. Therefore, it was submitted, withholding tax was only payable on the amount of interest payable under the facility agreement and not on the "grossed-up" amount of interest payable together with the additional amounts payable under clause 11 ("the third ground"). Other grounds taken in the original application were abandoned when the matter was called on for hearing. The First Ground Counsel for the applicant submitted that the circumstances provided for in s 221YL(2A) are intended to mirror the circumstances provided for in s 221YL(1) in relation to dividends. Those circumstances, counsel submitted, are directed towards the payment made to the "address outside Australia" or the "place outside Australia". Therefore, it was submitted, the reference in s 221YL(2A) to the address of the other person "in relation to the transaction to which the interest relates" shows that attention is to be directed to the address to which, under the loan documentation, the interest is to be paid (in this case, the National Australia Bank in Melbourne). Counsel further submitted that the applicant did not pay the interest directly to BNI but paid it to the ANZ Bank in Melbourne and that therefore, s 221YL(2B) operated to impose the obligation to deduct upon the ANZ Bank. I agree with counsel for the applicant that s 221YL(2A) was intended to mirror the circumstances provided for in s 221YL(1) which relates to the deduction of withholding tax from dividend income of a non-resident taxpayer. I do not however agree that s 221YL(1) focuses on payment of the dividend outside Australia. Section 221YL(1) provides :- "221YL(1) Where: (a) the holder, or (if there is more than one holder) any holder, of a share or stock in a company that is a resident is shown, in relation to the share or stock, in the register of members of the company as having an address outside Australia; or (b) the holder of a share or stock in a company that is a resident has authorized or directed the company to pay dividends in respect of the share or stock to himself, or to any other person, at a place outside Australia; the company shall, subject to this section and to section 221YM, before or at the time when a dividend of the company is paid by the company in respect of the share or stock, make a deduction from the dividend of an amount determined in accordance with the regulations." Section 221YL(1)(a) has as its focus that the address of a shareholder recorded in the share register of an Australian resident company is shown as an address outside Australia. The subsection is not concerned with payment outside Australia to that address. The subsection treats a shareholder who satisfies the requirement of being shown as having an address outside Australia as a non-resident. The subsection however does not impose withholding tax upon the shareholder. That, if it occurs, is imposed by the operation of s 128B(4) of the ITAA. Section 221YL(1)(a), if the condition as to an address outside Australia being shown in the share register is satisfied, only operates to create an obligation on the Australian resident company to deduct from the dividend payable an amount determined in accordance with the regulations. Section 221YL(1)(a) operates in the same way as s 221YL(2A)(a). For the purposes of s 221YL(1)(a), the link between the dividend and the obligation to withhold an amount is that the shareholder shown in the share register receives the dividend qua shareholder. The share register records that shareholder as having an address outside Australia. For the purposes of s 221YL(2A)(a), the circumstances in which interest may be earned are more diverse. Nevertheless, the link between the interest and the obligation to withhold an amount from the interest in s 221YL(2)(a) is that the person entitled to receive the interest must be shown "in relation to the transaction to which the interest relates" in any book, document or record in the possession of or kept or maintained on behalf of the borrower as having an address outside Australia. In each subsection the address outside Australia is linked to some document of the payer which evidences or records the underlying transaction or basis upon which the payee is entitled to receive the dividend or interest. Rather than directing attention to the address to which, under the relevant documentation, interest is to be paid, s 221YL(2A)(a) directs attention to any book, document or record in the borrower's possession or kept or maintained on behalf of the borrower which relates to the transaction in respect of which the interest is paid or payable. If any such book, document or record shows the receiver of interest as having an address outside Australia, the resident borrower must deduct from the interest paid the prescribed amount on account of withholding tax. Section 221YL(1)(a) and s 221YL(2A)(a) operate where there is an entitlement to payment irrespective of where the payment is to be made. The focus of s 221YL(1)(b) and s 221YL(2A)(b) is relevantly different from that of s 221YL(1)(a) and s 221YL(2A)(a). Section 221YL(1)(b) is concerned with payment of the dividend "at a place outside Australia". The subsection is not materially different to s 221YL(2A)(b). Section 221YL(1)(b) and s 221YL(2A)(b) operate where there is an entitlement to be paid coupled with an authority to pay at a place outside Australia. In my view, as the facility agreement, a copy of which was in the applicant's possession, showed BNI's address to be 3 Finsbury Square, London, if interest was payable by the applicant to BNI in accordance with the terms of the facility agreement, the applicant was obliged under s 221YL(2A)(a) to make the deduction. In order to avoid this result, counsel for the applicant submitted that the interest was not payable, nor was it paid, by the applicant to BNI as required by s 221YL(2A)(a). Rather, it was submitted the interest was payable and was paid to the ANZ Bank in Melbourne, with the result that the applicant came under no obligation to make the deduction even if the other requirements of the subsection were made out. This submission ignores the effect of s 221YK(3) of the ITAA. Section 221YK(3) deems interest as payable in certain circumstances where it is not actually to be paid over to the person entitled to receive it. The words used in s 221YK(3) follow those used in s 19 of the ITAA which deems income not actually paid over to a person to have been derived by that person. In Perrott v Commissioner of Taxation (1922) 23 SR (NSW) 118, the Full Court of the New South Wales Supreme Court considered a provision which was materially identical to s 19 of the ITAA. In delivering the judgment of the Court, Ferguson J said (at 124) :- "... What that clause contemplates is the case where the taxpayer, though he has not received the money itself, has had the benefit of it, or of something which is substantially equivalent to it. It [sic] he is given credit for the amount, for example, in his bank account, he is in the same position as if he had actually been paid the cash and had deposited it in the bank. So with a re-investment, or accumulation, or any of the other dealings mentioned in the section."

So much accords with common sense and the clear object of s 221YK to prevent a non-resident who derives interest income but does not directly receive it from " ... escaping though his resources have actually been increased by the accrual of income and its transformation into some form of capital wealth or its utilisation for some purpose." (Permanent Trustee Co of New South Wales Ltd v Commissioner of Taxation [1940] ALR 291 at 293 per Rich J, speaking of s 19 of the Income Tax Assessment Act 1922 - 1932 (Cth)). Section 221YK(3) operates to deem the payment of interest to the ANZ Bank as interest payable to BNI for the purposes of s 221YL(2A)(a) of the ITAA. Whether or not the ANZ Bank also became obliged to deduct from the monies transferred from the applicant's account with the Commonwealth Bank at Mt Ommaney in Queensland to the account of BNI with the ANZ in Melbourne is unnecessary to decide. It is also irrelevant to the obligation of the applicant imposed by s 221YL(2A) to make the deduction before payment whether or not the ANZ Bank became obliged to make a deduction, unless the ANZ Bank in fact made such a deduction. The scheme of s 221YL is to impose an obligation on certain identified persons in Australia through whose hands the interest passes to make a deduction from that interest of an amount determined in accordance with the regulations. That there may be duplication of the deduction of an amount equal to the withholding tax is recognised by s 221YL(3) of the ITAA, which provides :- "221YL(3) A person is not required to make a deduction from a dividend, from interest or from a royalty under this section - (a) if withholding tax is not payable in respect of the dividend, the interest or the royalty; or (b) if an amount has, or amounts have, previously been deducted from the dividend, the interest or the royalty under this section and that amount, or the sum of those amounts, is not less than the withholding tax payable in respect of the dividend, the interest or the royalty." However, until some person or persons has or have previously deducted an amount or amounts totalling the amount of withholding tax payable, each person specified in the section into whose hands the interest comes remains liable to make the deduction. The applicant was obliged to make the deduction before or at the time of making the payment of interest (s 221YL(2A)). If it had done so the ANZ Bank would have been released from any obligation it had under s 221YL(2B) to make the deduction. However, that the ANZ Bank may have become liable under s 221YL(2B) upon receipt of the transfer to make a deduction does not alter the applicant's anterior obligation to do so. In my view, therefore, the Commissioner was correct in concluding that s 221YL(2A) applied to make the applicant liable to deduct the relevant amounts on account of withholding tax from the interest payments made to BNI's account at the ANZ Bank. The Second Ground Counsel for the applicant submitted that it was not subject to the operation of s 221YQ(1) of the ITAA because it had not "refused or failed" within the meaning of that term as used in s 221YQ(1) to make the required deduction. It was submitted that as a matter of construction "refused or failed" in the context involved some notion of fault. Accordingly, it was submitted the subsection only applied where a person who was aware of his or her obligation to make the deduction did not do so. As the applicant believed that it was not obliged to make any deduction, it was submitted, it did not refuse or fail to do so within the meaning of s 221YQ(1). The meaning of "refused or failed" in s 221YQ(1) takes its colour from s 221YL(4A) and s 221YL(4B) which provide :- "221YL(4A) A person, other than the Commonwealth, a State or an authority of the Commonwealth or a State, who does not make a deduction from a dividend, from interest or from a royalty as required by this section is guilty of an offence punishable on conviction by a fine not exceeding $1,000. 221YL(4B) Where a person (in this subsection referred to as the 'convicted person') is convicted before a court of an offence against subsection (4A) in relation to the refusal or failure of the convicted person or another person to make a deduction from a dividend, from interest or from a royalty as required by this section, the court may, in addition to imposing a penalty on the convicted person, order the convicted person to pay to the Commissioner an amount not exceeding the amount of the deduction."

In construing a statute which creates a criminal offence there is a presumption that mens rea is required (He Kaw Teh v The Queen (1985) 157 CLR 523 at 528 - 529; 565 - 567; Leask v The Commonwealth (1996) 70 ALJR 995 at 1003; Chief of the General Staff v Stuart (1995) 58 FCR 299 (FC) at 303, 316 - 318, 330 - 331). The presumption may "be displaced either by the words of the statute creating the offence or by the subject matter with which it deals, and both must be considered" (per R S Wright J in Sherras v De Rutzer [1895] 1 QB 918 at 921 applied in He Kaw Teh at 528, 566, 567, 594; Leask at 999, 1003; Chief of the General Staff v Stuart at 303, 310, 316 - 318, 330). As appears from s 221YJ of the ITAA the object of Division 4 is to facilitate the collection of withholding tax and the Division is to be construed accordingly. Section 221YL(4A) has as its statutory object compliance with the statutory obligation contained within the section that withholding tax will be deducted from any dividend, interest or royalty payment to which it applies. Compliance is sought to be achieved, and the withholding tax collected, by threat of criminal sanction. The offence created by s 221YL(4A) is complete when the person "does not make a deduction" of withholding tax "as required by this section." For the purposes of s 221YL(2B) that means, if the factual circumstances of paragraphs (a) or (b) are satisfied, when the borrower does not make the deduction from the interest "before or at the time when the interest is paid by the borrower." The only mens rea required by s 221YL(4A), in my opinion, is confined to the elements of the offence. That is, so far as presently relevant, if the borrower voluntarily paid the interest without deduction of withholding tax to a person and knew the facts which gave rise to the obligation to make the deduction under s 221YL(2B) the necessary mens rea is made out. It is not necessary that the borrower knew that its conduct was unlawful before the requirements of mens rea for the purposes of s 221YL(4A) are satisfied. So understood, whether the borrower did not make the deduction as the result of a conscious refusal to do so notwithstanding knowledge of the statutory obligation to deduct, or conscientiously in the belief that the borrower was not liable to make the deduction, or, inadvertently by oversight or lack of knowledge of the statutory obligation, is irrelevant to the commission of the offence. That this is so is apparent from the language of s 221YL(4B) where the conviction under subsection (4A) is "in relation to the refusal or failure of the convicted person ... to make a deduction ..." In this context "refusal" bears its ordinary meaning of the conscious act of declining to do an act. The word "failure" in contradistinction means in this context nothing more than the non-performance of something required or expected. Conviction under s 221YL(4A) exposes the convicted person to an order that he or she pay to the Commissioner an amount not exceeding the amount of the deduction and the conviction is characterised as in relation to a refusal or failure to make the deduction (subsection 4B)). The phrase "has refused or failed to make a deduction" in s 221YQ bears the same meaning as "refusal or failure ... to make a deduction ..." in s 221YL(4B). Consequently there is no notion of fault or wrongfulness required by s 221YQ before the applicant becomes liable by the operation of s 221YQ(1) to pay to the Commissioner the amounts specified in paragraphs (1)(a) and (1)(b) of the subsection. When the applicant did not make the deduction required of it at the time required by s 221YL(2A), irrespective of the reason for it not doing so, it became liable under s 221YQ(1) because by its conduct it then refused or failed for the purposes of s 222YQ(1) to make the deduction. The Commissioner was correct in concluding that the applicant became liable by the operation of s 221YQ(1) to pay an amount equal to the unpaid withholding tax and an amount equal to any unpaid additional tax payable under s 128C(3) in respect of that withholding tax. The Third Ground The Commissioner determined that the applicant was required to pay an amount equal to the withholding tax payable of the "grossed up" amount payable under clause 11 of the facility agreement. It was submitted by counsel for the applicant that the amount payable under clause 11 was not all interest which became subject to withholding tax. Rather, he submitted the money paid was interest together with a sum equal to the amount of withholding tax BNI was liable to pay to the Commissioner. The decisionmaker in the reasons for decision posed the question: "Is the 'gross up' amount in the nature of interest?" That question was answered as follows :- "The letter from BNI to CYB dated 7 February 1990 states that 'the wording contained within Clause 11 of the proposed loan agreement must stand as it is.' A letter from BNI to CYB dated 22 December 1992 gives an example of how the amount to be remitted is to be calculated: Gross interest to be paid by CYB 111.11 Less: withholding tax on gross interest (10%) (11.11) Net remittance to BNI (90%) 100.00 In a letter from BNI to CYB dated 23 November 1992 and a fax dated 7 January 1993, BNI states that BNI is not in a position to claim a credit relief against UK tax payable. Therefore there is no possibility of any refund to CYB for withholding tax paid. On the basis of the above material I concluded that the additional 'gross up' paid by CYB is in the nature of interest (note the letter of 22 December 1992 refers to 'gross interest' of 111.11 in its example). Withholding tax is payable on the 'grossed up' amount ie the total of the interest paid and the withholding tax payable as illustrated in the following formula. interest withholding tax = 10% of 10/9 x (interest payment)."

How the parties described the operation of clause 11 of the facility agreement in correspondence passing between themselves and whether the applicant in fact will receive a refund for the withholding tax paid is irrelevant to the question of whether or not the grossed up amount paid under clause 11 is interest for the purposes of s 128C of the ITAA. That question is to be answered by the proper construction and operation of the facility agreement and the meaning of "interest" for the purposes of Division 11A of Part III of the ITAA. In that Division interest is defined in s 128A(1) as follows :- "Interest includes an amount in the nature of interest not being an amount referred to in subsection 26C(1)." Subsection 26C(1) is concerned with gains on disposals of prescribed securities and has no relevance to this case. Interest for the purposes of Division 4 of Part VI - Collection of Withholding Tax - is defined in s 221YK(1) which provides :- "'interest' means any amount that is, or is deemed to consist of, interest for the purposes of Division 11A of Part III".

In Consolidated Fertilizers Ltd v Commissioner of Taxation (1992) 36 FCR 1, I said (at 6) :- "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' (see the Oxford English Dictionary (2nd ed, 1980), Vol VII, p 1099), or 'a charge for the use of credit or borrowed money; such a charge expressed as a percentage per time unit of the sum borrowed or used' (see Collins English Dictionary (Aust ed, 1982), p 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): see 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 Farm Security Act (1944) [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.'"

In the context of Division 11A of Part 3 and Division 4 of Part VI of the ITAA interest bears its ordinary meaning as set out above. It also, because of the statutory definition, has an extended meaning of including amounts in the nature of interest. In this context that means money paid from A to B for the use or retention of money owed to B by A however calculated when the substance of the transaction and payment is properly characterised as one of loan and interest (see, for example, Ex parte Robinson; In re Nicholson, Stove (1862) 31 LJNS(B) 12 where what was described as an "annuity", payable during the period the loan was outstanding, was in fact part of the interest paid and was a stratagem for the purpose of increasing the interest payable ((1862) 31 LJNS(B) at 14). Similarly in Re Rouse; South Australian Gas Co v Official Receiver (1966) 8 FLR 122 Paine J treated the difference between the "extended credit price" payable by instalments over time and the lesser cash price as interest, or, if not interest in its primary sense, "a pecuniary consideration in lieu of interest" within the meaning of s 84(5) of the Bankruptcy Act 1924 - 1965 (Cth)). The facility agreement makes specific provision for the payment of interest. The obligation on the part of the applicant to pay interest is contained in clause 5.1. Interest then falls to be calculated and to become payable in accordance with clauses 5.2, 5.3 and 5.4 of the agreement. Clause 11 is not concerned with any additional liability to pay interest over and above the obligation contained in clause 5. Rather, clause 11 seeks to make the applicant as between it and BNI responsible for the payment in Australia of BNI's liability for withholding tax. What the applicant has done is to covenant in clause 5 to pay interest on the principal advanced in accordance with the terms of the clause. What it has further covenanted to do under clause 11 is to pay BNI's withholding tax liability on that interest income. Clause 11 has to be seen in the context of other clauses of the facility agreement which involve the payment of money by the applicant to BNI. The clauses fall into three categories. The first is the payment of interest calculated in accordance with and payable under clause 5 and default interest under clause 17. The payment under these clauses is referrable to a principal in money and is calculated by reference to that sum and to the period during which the principal sum has been available to the applicant. The payments are properly "interest" within the ordinary meaning of the word as set out above. The second category is the payment of money representing the repayment of the principal sum advanced (clause 6.1). The third category is all other monies payable under the finance facility. These are found in clauses 6.5, 10.2, 11, 12.1, 12.2, 12.3 and 12.4. The repayment of all of these monies is to be secured as provided by clause 15.3 which relates to "security for payment of all principal, interest and other amounts which the Borrower is obliged to pay under this agreement ..." (emphasis added). It was submitted by counsel for the Commissioner that the payments under clause 11 were within the extended definition of "interest" under s 128A(1) of the ITAA because they were in the nature of interest. I do not accept this submission. In my view, for a payment to fall within the extended definition under s 128A(1) in the context of the withholding tax provisions of the ITAA it must have the character of a return or profit to the lender for the use of money advanced to the borrower howsoever calculated or ascertained. For example, the difference between the "extended credit price" and the cash price under consideration in Re Rouse; South Australian Gas Co v Official Receiver, in my opinion would fall within the extended definition in s 128A(1) of the ITAA. Upon analysis the other amounts payable under the agreement, including any amount payable under clause 11 do not have this character. They are not calculated by reference to the principal sum advanced and are not in the nature of an additional return or profit to BNI on the money advanced over and above the interest calculated and payable under clauses 5 and 17. The additional amounts relate to costs, expenses, charges and liabilities for taxes and other statutory fees and imposts for which BNI is or may become liable. The clauses dealing with the additional amounts transfer as between the applicant and BNI the liability to pay these amounts to the applicant. The purpose of the clauses was not to enable BNI to earn an additional profit or return on the loan over and above that which it was entitled to under the facility agreement; the purpose, as appears for example in clause 10.2(b), was to ensure that the effective rate of interest earned under clauses 5 and 17 was not reduced by BNI having to pay or bear these additional costs. The purpose was achieved by requiring the applicant to make the payment to the third party or to indemnify BNI for any cost, charge or similar expense incurred by it which fell within the operation of the relevant clauses. That the additional payments were a cost to the applicant of obtaining the use of the funds does not convert the payments to "interest" in the hands of the lender where they are referrable to costs and liabilities incurred by the lender as a consequence of the loan transaction itself coming into existence and being given effect to by the parties to it. Such payments are not referrable to a principal in money being the loan advance actually paid over and do not have the character of a return or profit to the lender on making the loan. They stand apart from the interest paid, although, the fact of their payment undoubtedly enabled BNI to better enjoy the interest earned. The delegate of the Commissioner was in error in treating the whole of the amount payable under clause 11 of the facility agreement as interest in respect of which BNI was liable to pay withholding tax. As BNI was not liable for withholding tax on other than the interest calculated and paid under clause 5 of the facility agreement, the applicant could not and did not become liable to pay an amount to the Commissioner in excess of the amount of withholding tax for which BNI was liable. This follows from the operation of s 221YL(3A) of the ITAA. That the liability of BNI to withholding tax was less than the Commissioner determined meant that BNI only became liable under s 128C(3) for additional tax on a lower amount of withholding tax. Consequently, the applicant did not under s 221YQ(1)(b) become liable to pay to the Commissioner an amount equal to unpaid additional tax payable under s 128C(3) calculated on the higher amount. The delegate of the Commissioner on 6 May 1993 erred in concluding that additional amounts of withholding tax of $91,404 and $8,150 were then due and outstanding and that the applicant was liable to pay those amounts to the Commissioner. The delegate of the Commissioner also erred in concluding that any additional sum as either unpaid additional tax on those two amounts or as a sum equal to that unpaid additional tax become payable by BNI or the applicant respectively. The Commissioner was not entitled to recover from the applicant an amount equal to withholding tax calculated on the grossed up amount of the interest paid under the facility agreement. The Commissioner was not entitled by any provision of Division 11A of Part III or Division 4 of Part VI of the ITAA to retain the amount demanded as an amount equal to the unpaid additional tax calculated on the sum which equals the difference between the grossed up amount paid and the interest paid. Conclusion on the Application for Review under the ADJR Act Absent any claim for relief based on other than s 5 of the ADJR Act, the applicant is not entitled to recover in this application the sum of $123,532.08 or any part thereof consequent upon the Commissioner's erroneous view that interest withholding tax was payable on the grossed up amount payable by the applicant to BNI under clause 11 of the facility agreement rather than the interest actually payable under the terms of the facility agreement. As the parties have asked to be heard on the form of any final orders and on the question of costs upon delivery of these reasons, I am presently unable to make orders finally disposing of the application. I certify that this and the preceding thirty-seven (37) pages are a true copy of the reasons for judgment of his Honour Justice Cooper. Date: 27 March 1997 Associate Counsel for the Applicant: F L Harrison QC Solicitors for the Applicant: Kinneally Mahoney Counsel for the Respondent: P E Hack Solicitors for the Respondent: Australian Government Solicitor Date of Hearing: 25 November 1996 Place of Hearing: Brisbane Date of Judgment: 27 March 1997