Deputy Commissioner of Taxation v Zerafa

Judgment 1The plaintiff, by way of amended statement of claim filed 19 April 2012, seeks payment of $331,141.79 arising from the defendant's failure to pay notice of assessment and amended notices of assessment in relation to income tax for the years ending 2000 and 2001, the notices of assessment of shortfall penalty for the years ending 2001 to 2003 and subsequent general interest charges. 2A defence has been filed to the statement of claim. This document has been marked exhibit E, for reasons I will shortly explain. This defence is one by way of non-admission. Ms Foda submits, and I accept, that this amounts to no defence to the amended statement of claim. 3The reason I have had the defence marked exhibit E is as follows. Although the defendant was represented by a solicitor, that solicitor filed a notice of ceasing to act on 31 August 2012. That means that the defendant is self-represented. The obligation of the Courts in relation to litigants who represent themselves are so well known that they do not need re-stating. However, there was a particular and additional concern in this matter this morning which is that this hearing was listed before the Judicial Registrar at 9.30 and there was no appearance by the defendant. The defendant had previously not appeared before the Judicial Registrar on 17 September but had otherwise been represented. 4When the matter was called before the Judicial Registrar, Ms Foda, for the plaintiff, asked for the matter to be called outside the Court three times. This did not occur, due to changes with the court officer system; the Judicial Registrar did not have a court officer available to have the matter called. 5Ms Foda very properly brought this to my attention and I have taken the precaution of not only having the defendant called outside this Court, but of having my court officer go to the Judicial Registrar's Court for the purpose of making further enquiry and, in particular, having the defendant called three times outside that Court in the event that he was sitting outside waiting for his case to come on. 6I have carefully perused the defence, and I have taken into account such matters as I am apprised of in relation to the defence to these proceedings, but I can see nothing in the defence that causes me to consider that there is anything in terms of an overlooked issue or a matter which ought to have been put before me, or would otherwise warrant my making any further enquiry as to the whereabouts of the defendant. In particular, I note that the defendant admits service of the relevant notices and this of course is of great significance. 7The plaintiff moves upon the notice of motion filed on 5 October 2012. This notice of motion seeks the following orders: (a)That the plaintiff be granted summary judgment against the defendant pursuant to r 13.1 Uniform Civil Procedure Rules 2005 (NSW) ("the Rules"). (b)The defendant pay the plaintiff's costs of, and incidental to, the motion. (c)The defendant pay the plaintiff's costs of the proceedings generally. (d)Such further order as the Court thinks fit. 8In support of the application, the plaintiff reads the following evidence: the affidavit of Anastasias Dinos sworn 3 October 2012 and the affidavit of Peter Spring sworn 12 October 2012. 9I briefly note in relation to each of these affidavits that the affidavit of Peter Spring of 12 October is essentially updating in nature and that the statement of account in relation to the defendant reveals that the amount of $331,441.79 remains outstanding in respect of the claim. The reason for the reduction is explained at paras 15 to 18 of the affidavit of Anastasias Dinos of 3 October 2012. I set these paragraphs out as follows: "15. On or about 27 October 2010 and 11 May 2011, the defendant lodged objections to the notices for income tax for the years ended 30 June 2000 and 2001 (annexures A and C) and the notices for administrative penalties for the years ended 30 June 2000, 2001, 2002 and 2003 (annexures B, D, E and F) pursuant to Pt IVC of the TAA 1953 ("the objection"). 16. On or about 30 April 2012 the plaintiff made a decision ("the Objection Decision") to allow the defendant's objection in part. 17. As a result of the Objection Decision, on May 2012 the plaintiff issued a credit assessment in respect of income tax for the year ended 30 June 2000. Annexed hereto and marked "H" is a copy of the credit assessment for income tax for the year ended 30 June 2000 issued on 4 May 2012 (line 23 of the defendant's statement of account at annexure G). 18. The plaintiff also issued credits for administrative penalties for the years ended 30 June 2000, 2002 and 2003 (lines 30 and 31, line 17, and line 20 of the defendant's statement of account at annexure G)". 10I shall now set out a review of the relevant legislation, drawn substantially from the very helpful written submissions of Ms Foda. I note the matters which are not in dispute are as follows. First of all, the notices of assessment and the amended notices of assessment for income tax for the years ended June 1999 and 2001 are not in dispute. The defendant has conceded that he was served with these notices on or about the issue dates of each of the notices in accordance with the Income Tax Assessment Act 1936 (Cth) ("the ITAA 1936") and the Income Tax Regulations. 11Secondly, there is no dispute that the notices of assessment of shortfall penalty for the years ending 2001 to 2003 were served upon the defendant in accordance with s 298-10 of Sch 1 of the Taxation Administration Act 1953 (Cth) ("the TAA 1953") on or about the issue date of the notice. 12Thirdly, as already noted, the defence, which is by way of nonadmission, is not a defence to the conclusive nature of s 177(1) of the ITAA 1936. Section 177(1) has most recently been explained by Gummow, Hayne, Heydon and Crennan JJ in Commissioner of Taxation v Futuris Corp Ltd (2008) 237 CLR 146 at [17] to [25] as follows: "[17] The Commissioner has the general administration of the Act (s 8). The staff necessary to assist the Commissioner are engaged under the Public Service Act 1999 (Cth) ("the Public Service Act"), and, with the Commissioner they constitute a Statutory Agency for the purposes of that law. Section 166 of the Act states: From the returns, and from any other information in his possession, or from any one or more of these sources, the Commissioner shall make an assessment of the amount of the taxable income of any taxpayer, and of the tax payable thereon. Section 169 provides: Where under this Act any person is liable to pay tax, the Commissioner may make an assessment of the amount of such tax. [18] Pursuant to s 166A(1), the Commissioner is deemed to have made an assessment of taxable income and of the tax payable on that taxable income where a tax return is furnished in the circumstances there described. [19] Section 170 makes detailed provision for the amendment by the Commissioner of assessments. There is a general provision for a four year period within which assessments may be amended where there has been an avoidance of tax (s 170(2)(b)), and s 173 states that: Except as otherwise provided every amended assessment shall be an assessment for all the purposes of this Act. [20] As soon as conveniently may be after any assessment is made, the Commissioner is obliged by s 174 to serve notice thereof in writing by post or otherwise upon the person liable to pay the tax. Any income tax assessed shall be due and payable by the person liable to pay it on the date specified in the notice as the date upon which the tax is due and payable, not being less than 30 days after service of the notice (s 204). In the event of a deemed assessment pursuant to s 166A(1), service of a notice of assessment is deemed to have occurred on the day specified by s 166A(1)(c). When it becomes due and payable, income tax shall be a debt due to the Commonwealth and payable to the Commissioner in the manner and at the place prescribed (s 208). Any tax unpaid may be sued for and recovered in any court of competent jurisdiction by the Commissioner or a Deputy Commissioner (s 209). [21] As already indicated, provision is made in Pt IVC of the Administration Act (ss 14ZL-14ZZS) for objections to assessments, and for reviews by the AAT and appeals to the Federal Court. Both in the AAT (s 14ZZK) and the Federal Court (s 14ZZO) the taxpayer bears the burden of proving that the assessment is excessive. The tax (and any additional tax or other amount) may be recovered notwithstanding the pendency of a review or appeal (ss 14ZZM, 14ZZR). [22] The operation of the Pt IVC system is triggered by s 175A of the Act which states: A taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the manner set out in Part IVC of [the Administration Act]. Section 175 is a short but important provision. It provides: The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with. Section 177(1) states: The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of [the Administration Act] on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct. [23] The significance of s 175 for the operation of the Act and for the scope of judicial review outside Pt IVC is to be assessed in the manner indicated in Project Blue Sky Inc v Australian Broadcasting Authority. That case decided that the description of provisions as either mandatory or directory provides no test by which the consequences of non-compliance with a statutory criterion can be determined. Rather, consistently with the reasons in Project Blue Sky of McHugh, Gummow, Kirby and Hayne JJ, the question for the present case is whether it is a purpose of the Act that a failure by the Commissioner in the process of assessment to comply with provisions of the Act renders the assessment invalid; in determining that question of legislative purpose regard must be had to the language of the relevant provisions and the scope and purpose of the statute. [24] Section 175 must be read with s 175A and s 177(1). If that be done, the result is that the validity of an assessment is not affected by failure to comply with any provision of the Act, but a dissatisfied taxpayer may object to the assessment in the manner set out in Pt IVC of the Administration Act; in review or appeal proceedings under Pt IVC the amount and all the particulars of the assessment may be challenged by the taxpayer but with the burden of proof provided in s 14ZZK and s 14ZZO of the Administration Act. Where s 175 applies, errors in the process of assessment do not go to jurisdiction and so do not attract the remedy of a constitutional writ under s 75(v) of the Constitution or under s 39B of the Judiciary Act. [25] But what are the limits beyond which s 175 does not reach? The section operates only where there has been what answers the statutory description of an "assessment". Reference is made later in these reasons to so-called tentative or provisional assessments which for that reason do not answer the statutory description in s 175 and which may attract a remedy for jurisdictional error. Further, conscious maladministration of the assessment process may be said also not to produce an "assessment" to which s 175 applies. Whether this be so is an important issue for the present appeal." 13This confirms the position that assessments made by the Commissioner may be recovered notwithstanding dependency of any review or appeal. The assessments relied upon by the plaintiff in these proceedings therefore satisfy the statutory description. 14The plaintiff, in relying upon s 177(1) of the ITAA 1936, draws my attention to F J Bloemen Pty Limited v Federal Commissioner of Taxation (1981) 147 CLR 360 where Mason and Wilson JJ (Stephen J concurring) at 378 noted that the question may arise whether a notice produced by the Commissioner is a notice of assessment and held at 375: "... once the Commissioner takes advantage of s177(1) by producing an appropriate document, the taxpayer is precluded from contesting that the Commissioner has made an assessment or that in making the assessment he has complied with the statutory formalities. The taxpayer is entitled to dispute his substantive liability to tax in proceedings under Pt V". 15I note that the relevant legislation is now Part IVC not Part V, but this in no way affects what their Honours said in F J Bloemen Pty Limited v Federal Commissioner of Taxation. 16Ms Foda next takes me to Deputy Commissioner of Taxation v Cameron (1991) ATC 4056 where Kaye J said at 1091: "I have concluded that the Master's exercise of discretion adjourning the hearing of the Plaintiff's summons miscarried because it was based upon an error of law- The error was a failure by the Master to give proper effect to the operation of the provisions of s.177(1) [of the ITAA] which provides as follows: ... It is settled law that, by those provisions, a court is compelled to treat a notice of assessment as conclusive evidence that the Commissioner has made an assessment of the amount of tax due to be paid by the taxpayer, and that in making the assessment the Commissioner has complied with the formalities of the Income Tax Assessment Act. In F J Bloemen Pty Ltd v FCT (1981) 147 CLR 360 at 375; 11 ATR 914, Mason and Wilson JJ described as an explicit correct statement of the effect of s.177(1) made by Taylor J in McAndrew v FCT (1956) 98 CLR 263 at 281-2; 6 AITR 359 that the section "was intended to make it impossible for a taxpayer, in proceedings other than appeal against it, to challenge an assessment on any grounds"." 17Most recently Gummow ACJ, Heydon, Crennan and Kiefel JJ in Deputy Commissioner of Taxation v Broadbeach Properties Pty Limited [2008] HCA 41 at [43] to [45] stated: "[43] At a time when the provision for objections and appeals was found in Pt V of the Assessment Act, Mason ACJ said in Clyne v Deputy Commissioner of Taxation (1982) 56 ALJR 857 at 858 - 859; 43ALR 342 at 344: I was informed that it is a somewhat unusual course for the Deputy Commissioner to commence proceedings for recovery in a court relying on a notice of assessment which is under challenge in proceedings under [the Assessment Act]. It is to be hoped that this is so. The institution of proceedings for recovery on a notice of assessment which is challenged in proceedings under [the Assessment Act] may operate oppressively and unfairly to a taxpayer ... In the ultimate analysis the Deputy Commissioner's charter to commence recovery proceedings, notwithstanding a challenge ... to the correctness of the assessment, is to be found in s 201 of [the Assessment Act]. It provides: 'The fact that an appeal or reference is pending shall not in the meantime interfere with or affect the assessment the subject of the appeal or reference; and income tax may be recovered on the assessment as if no appeal or reference were pending.' It is a provision which has been stringently criticized. However, it appears to be impervious to criticism for Parliament has not seen fit to amend it. [44] But harsh though the operation of these provisions may be, they implement a long-standing legislative policy to protect the interests of the revenue. In DeputyCommissioner of Taxation v Niblett (1965) 83 WN (Pt 1) (NSW) 40 at 411, Asprey J struck out pleas of non-liability to a recovery action instituted by the Deputy Commissioner in the Supreme Court of New South Wales while objections were pending under what was then s 185 of the Assessment Act. His Honour observed: It may be thought to be a hardship that a taxpayer should have to pay the tax assessed when an objection to the assessment has not been decided upon but there are obvious financial considerations of high policy that must be weighed in the balance against cases of individual hardship with which the Commissioner through the appropriate use of his powers under [the Assessment Act] can cope ... Where the meaning of the words of a statute is clear 'it is not open to the Court to narrow or whittle down the operation of the Act by seeming considerations of hardship or of business convenience or the like' - Attorney-General v Carlton Bank [1899] 2 QB 158 at 164 [45] Thereafter, Bowen CJ in Eq, when dealing with resistance by the taxpayer to the making of a winding up order, said in Deputy Federal Commissioner of Taxation v Roma Industries Pty Ltd (1976) 6 ATR 54 at 57: The next question which arises is whether the amount claimed by the Commissioner should be treated as a disputed claim, and an order be refused on this ground. In one sense, of course, the Commissioner's claim is disputed, because appeals to the Board of Review have been lodged. However, the provisions of s 201 of [the Assessment Act] require me to treat the debt as in effect undisputed. Such a statutory provision may in some cases lead to hardship on a taxpayer, particularly where he has paid the amount of tax assessed and later wins his appeal, whereupon the money is repaid to him without interest. This led Higgins J in Hickman v Federal Commissioner of Taxation(1922) 31 CLR 232 at 245; [1922 HCA 58] to describe it as 'unjust and even baneful', but it remains in the [Assessment Act]. It must be appreciated that from the point of view of the revenue it is a protection against that class of taxpayer who might withhold payment and use the money as the sinews of war to conduct appeals against the Commissioner and who, being finally unsuccessful, was found to be unable to meet his tax liability, having spent his money on the litigation. (emphasis added)" 18In addition, the plaintiff relies upon ss 255-45 and 255-50 of Sch 1 to the TAA 1953. 19The certificates annexed to the affidavit of Anastasias Dinos sworn 3 October 2012 (annexure 1) and the affidavit of Peter Spring sworn 12 October 2012 (annexure V), are therefore prima facie evidence of the elements of the cause of action in accordance with the stated cause of action in the amended statement of claim. The certificates specifically refer to the notices of assessment, the amended notices of assessment and the notices of assessment of administrative penalty and, in addition, at paras 15 to 18 of the affidavit of Anastasias Dinos, the circumstances in which those amendments were made. 20I therefore accept the submission of the plaintiff that the defendant cannot dispute in these proceedings the correctness of the taxable income and the tax on the taxable income stated in the notices of assessment and the amended notices of assessment issued in respect to the years of income ended 30 June 1999 and 2001 which are annexed to the affidavit of Anastasias Dinos (annexures A to C). In addition, pursuant to s 298-30 of Sch 1 of the TAA 1953, the production of a notice of assessment of an administrative penalty is conclusive evidence of the making of assessment and the particulars in it. The defendant cannot therefore dispute in these proceedings the correctness of the administrative penalties and shortfall interest stated in the notices of assessment of shortfall penalty in respect of the additional amounts of income tax. 21This brings me to the issue of service. Ms Foda states, in her written submissions (at paragraph 18), that the notices of assessment and amended notices of assessment were served upon the defendant; once they were served, they became due and payable. The defendant has failed to pay the income tax due for the years 30 June 1999 and 2001 on or before the relevant due dates. Accordingly, the defendant is liable to pay the general interest charge pursuant to s 204 of the ITAA 1936, Part IIA of the TAA 1953, s 5-10 of the Income Tax (Transitional Provisions) Act 1997 (Cth) ("IT(TP)A" 1997) and s 5-15 of the ITAA 1997. The defendant has failed to pay the administrative penalties on or before the due date in the notices of assessment of shortfall penalty, and accordingly is liable to pay the general interest charge pursuant to s 298(25) and div 1 of the TAA 1953. 22The plaintiff on or about 4 May 2012 issued a Credit Assessment in respect of income tax for the year ending 30 June 2000 and also issued credits for administrative penalties for the years ended 2000 and 2002 and 2003 as has been noted above. As a result, as at 3 October 2012, the defendant's income tax liabilities amounted to $330,278.31, inclusive of the general interest charge. The interest as at 12 October 2012 on the defendant's income tax liabilities increases this sum to $331,141.79. I note the Commissioner waives any claim for tax between 12 October and today.