Federal Commissioner of Taxation v Cripps & Jones Holdings Pty Ltd

Federal Commissioner of Taxation v Cripps & Jones Holdings Pty Ltd (1987) 19 ATR 540.

WESTERN AUSTRALIAN CAPITAL INVESTMENTS CO. LTD v THE COMMISSIONER OF TAXATION Nos. WAG 2 and 2050 of 1987

GRANT HEATON JOHNSTON V THE COMMISSIONER OF TAXATION

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION

BETWEEN: WESTERN AUSTRALIAN CAPITAL INVESTMENTS CO. LTD

JUDGE MAKING ORDER: FRENCH J. DATE OF ORDER: 18 APRIL 1988

2. The respondent is to pay the applicant's costs of the

Note: Settlement and entry of Orders is dealt with in

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION

BETWEEN: WESTERN AUSTRALIAN CAPITAL INVESTMENTS CO. LTD

REASONS FOR JUDGMENT ON MOTION FOR SUMMARY DISMISSAL

There are before the Court for decision five motions filed by the Commissioner of Taxation seeking summary disposal of five out of a group of seven cognate appeals brought by Western Australian Capital Investments Co. Ltd ("WACIC") and Grant Heaton Johnston ("Johnston") respectively. WACIC and Johnston have both received from the Commissioner, notices of assessment served under the provisions of the Taxation (Unpaid Company Tax) Assessment Act 1982 ("TUCTA Act"). WACIC is said to have been a shareholder in a

company called Clifton Towers Pty Ltd, assessed to be liable to

ordinary company tax and undistributed profits tax for the year ended 30 June 1981 for amounts of $470,924.31 and $165,847 respectively. Notices of assessment have been served on WACIC pursuant to s.18 of the TUCTA Act on the basis that it was a vendor shareholder for the purposes of that Act. Objections to the assessments have been disallowed and the disallowance has

By a similar process, Johnston has been served with an assessment and amended assessment for ordinary company tax said to have been payable by Oakengates Pty Ltd for the year ended 30 June 1979. This has given rise to appeals 2051 and 2052. He has also been served with assessments for ordinary company tax and undistributed profits tax said to be due by Benson Investments Pty Ltd for the year ended 30 June 1979. These are challenged in appeals 2053 and 2054. He has further received an assessment in respect of undistributed profits tax owing by Oakengates Pty Ltd

for the same year which is the subject of appeal 2055 of 1987.

On 29 September 1987 directions were given in each of these matters requiring that the applicant file and deliver a statement of its grounds of appeal on or before 30 October 1987. As initially filed the "Points of Claim", as they were called, relied upon and repeated all facts and matters set out in the original notice of objection to the assessments in question. By a motion dated 3 November 1987, the Commissioner sought to dismiss

the appeals summarily on the basis that the points of claim as

filed failed to comply with the directions. On 21 December 1987 I dismissed the Commissioner's motions but directed that' the applicant in each case file and deliver amended Points of Claim by 25 January 1988. These were filed on 21 January. They each

"The Applicant reserves its rights to rely upon any one or more of the grounds set out in its objection."

On 9 March, in response to a motion filed by the Commissioner on 12 February 1988, that paragraph was struck out in each of 2049, 2050, 2052, 2054 and 2055. In 2051 and 2053 I acceded to motions also dated 12 February 1988 to strike out the amended points of claim in their entirety and gave leave for further amended points of claim to be filed on or before 15 April

By five further motions each dated 17 March 1988, the Commissioner now seeks summary dismissal of 2049, 2050, 2052, 2054

In each case the applicant relies in the points of claim

upon the provisions of sub-s.18(1) of the TUCTA Act:-

(a) under the Assessment Act, the Commissioner is required or permitted to serve a notice of assessment on a company in relation to the liability of the company to pay ordinary company tax or undistributed profits tax in relation to a year of income; and

(b) vendors recoupment tax is payable, or _ the Commissioner is of the opinion that vendors recoupment tax is likely to become payable, by a person or persons in relation to ordinary company tax or undistributed profits tax, as the case may be, that 1s payable or may become payable by the company in relation to that year of income,

the notice shall, notwithstanding section 174 of the

Assessment Act, be served on the company by being served

(c) where the vendors recoupment tax 1s payable, or in the opinion of the Commissioner, is likely to

become payable, by only one person - that person; and

(d) in any other case ~ any of the persons referred to in paragraph (b),

and, where the notice is served in accordance with paragraph (d), the Commissioner shall serve a copy of the notice on each person (other than the person on whom the notice was served) who is included in the

representative class in relation to the vendors recoupment tax."

Under sub-s.18(3) the person served with a notice of assessment under sub-s.18(1) has the same rights under Division 2 of Part Vv of the Income Tax Assessment Act 1936 in relation to the company's liability for tax, as the company has and, for the purpose of the exercise of those rights, the provisions of Division 2 apply in like manner as they would apply in relation to the exercise of the rights by the company. As can be seen by reference to sub-s.18(1), the section operates to extend the way in which a notice of assessment may be effectively served for the purposes of the Income Tax Assessment Act so that good service on the company is effected by service on a person by whom vendors

recoupment tax is payable or likely to become payable.

Pursuant to the provisions of s.204 of the Income Tax Assessment Act, tax is due and payable by the company on the date specified in the notice, being not less than 30 days after service or, if no date is specified, on the thirtieth day after service. Where the Commissioner relies upon service on a shareholder as service on the company under sub-s.18(1), the primary liability which is that of the company, will depend upon that service being effected in circumstances which attract the operation of the sub-section. The applicant in each case contends that the conditions upon which service on the shareholder would be good

service on the company have not been fulfilled. The contention is

assessment was vendors recoupment tax payable by the applicant.

(2) At no time prior to the issue of the TUCTA assessment did the respondent address his mind to the matters, set out in sub-paragraph (b) of section 18(1) of TUCTA ("the Section 18(1)(b) matters") and the respondent was therefore not in a position to and did not in fact form the opinion that vendors recoupment tax was likely to be payable by any person or persons."

For these reasons it is contended that "the issue and

service of the TUCTA assessment is ultra vires and of no force and

The Commissioner, in effect, says that these grounds of objection cannot be taken at this stage as they go to the issue of

liability of the vendor shareholder for vendors recoupment tax.

That liability, it is said, may be contested in proceedings under the TUCTA legislation but not as part of an objection to the assessment of the company's liability. It is on this basis that he seeks summary dismissal of each of the appeals or at least in

Prima facie the points taken by the applicant go to the question whether there has been effective service on the company and thus to the question whether any tax is due and payable by the

Inconvenient as it may be, I do not consider that it has been demonstrated by the Commissioner that the points so taken may not properly be raised on an objection to the assessment and on an

appeal to this Court against the disallowance of that objection.

Further, his proposition seems directly opposed to what was said by the Full Court in Federal Commissioner of Taxation v Cripps & Jones Holdings Pty Ltd (1987) 19 ATR 540. The case concerned an appeal to the Federal Court in respect of an assessment issued under the TUCTA Act for a company which had been dissolved. Provision for such notional assessments is made subject to certain conditions under sub-s.15(4) of the Act. There is also provision for service of notices of notional assessments

on promoters and vendor shareholders in the defunct company.

The vendor shareholder who was the applicant in the case, argued, inter alia, that the Commissioner had not formed the opinions required in sub-s.15(4)(b) of the Act, namely, that ordinary company tax or undistributed profits tax would have been payable if the company had not ceased to exist and that if unpaid, recoupment tax would have been payable by the shareholder. The

applicant succeeded before Beaumont J. at first instance and on appeal by the Commissioner to the Full Court. In its judgment

dismissing the Commissioner's appeal the Full Court said at 548:-

"The next argument put on behalf of the Commissioner took as its starting point the proposition that the rights of the respondent to contest the assessments were, by s.15(9), "the same rights under Div.2 of Pt.V of the Assessment Act in respect of the notional assessment as the company would have had if it had continued to exist and the notional assessment were an assessment of ordinary company tax...". It was pointed out that the Income Tax Assessment Act, which is not concerned with notional assessments under s.15, provides no right to contest an assessment on the ground that a pre-condition imposed by s.15 was not fulfilled. There may be put to one side the question whether the appeal rights being asserted are not, having regard to the form of the assessments and the matters already discussed, rights arising under s.18(3) rather than s.15(9), since s.18(3) employs a similar form of language. The true answer to the contention is that legislation of this kind, by reference to rights created in another Act for other purposes, cannot be construed in a blindly literal spirit. In cases arising under Div. 2 of Pt.V of the Income Tax Assessment Act, a taxpayer has the right "to challenge the existence of the conditions giving rise to the exercise of a power which imposes on him a new substantive liability to tax". F.J. Bloemen Pty Ltd v F.C.T. (1981) 147 CLR 360 at 374; 11 ATR 914 at 922, per Mason and Wilson JJ. Sections 15 and 18 of the Act should both be construed as conferring a corresponding vight to challenge the existence of the conditions giving rise to the exercise of the power, under which an assessment issued, that is served pursuant to the provisions of s.15 or s.18 of the Act. The rights asserted are "the same rights", but the issues which arise, when they are asserted in respect of assessments

under s.15, are necessarily different from the issues which arise when they are asserted in respect of assessments issued under the Income Tax Assessment Act. In any case, if there is any ambiguity in the provisions of ss.15(9) and 18(3), a construction which would remove an ingredient of liability from the possibility of challenge should be rejected, both upon" general principles of statutory construction, and also in accordance with the approach to the constitutional

invalidity of an uncontestable tax taken 1n MacCormick v F.C.T., supra."

This, I think, is sufficient to dispose of the Commissioner's motion in each case, and the motions will be

I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment of his Honour

Counsel for the Applicants: Mr D.H. Bloom Q.C. with Mr S.R. Paterniti

Solicitors for the Respondent: Australian Government Solicitor