Foster v Commissioner of Taxation

High Court of Australia|1951-07-01|Before: Fullagar JJ, Dixon J

This matter comes before us by way of a case stated under s. 198 (1) of the Income Tax Assessment Act 1936-1949 in an appeal by a taxpayer from an amendment of an assessment for the financial year ended 30th June 1945 based upon income derived during the year ended 31st December 1944. The notice of the original assessment which has been amended was issued from the office of the Deputy Commissioner of Taxation at Hobart on 13th August 1946.

On 6th October 1944 (that is, during the year of income) the taxpayer received from the North Australian Pastoral Company Limited a dividend upon certain shares in that company of which he was the holder. The payment amounted to £2,933 18s. 0d. The dividend had been distributed by the company out of profits in respect of which the company had been assessed for additional tax under Division 7 of Part III. of the Income Tax Assessment Act. The profits were earned during the year ended 30th June 1940 and additional tax was levied upon them by notice of assessment dated 19th April 1941. The additional tax was paid by the company. The appellant, in his return of income for the year ending 31st December 1944, a document dated 27th September 1945, included among the dividends received by him that of £2,933 18s. 0d. from the North Australian Pastoral Company, but he added the statement that "notional tax" had been paid upon the dividend by the company and he did not extend the figures £2,933 18s. 0d. into the column of items of income. The return was furnished to the deputy commissioner in Hobart. The assessment issued on 13th August 1946 was prepared in the deputy commissioner's office. It treated the taxpayer as entitled under s. 107 of the Income Tax Assessment Act 1936-1944 to a rebate of the amount by which his income tax had been increased by the inclusion in his assessment of the dividend because it was paid wholly and exclusively out of an amount in respect of which, under Division 7, the company paying the dividend had paid tax. Having regard to the allowances and deductions to which the taxpayer was entitled from his other assessable income, this meant that an assessment to no tax for the current year should be made upon the taxpayer, and the notice of assessment was expressed accordingly as "nil assessment".

Some time after he had thus assessed the taxpayer, apparently a considerable time afterwards, the deputy commissioner in Hobart became aware that though the company had in truth paid the additional tax upon its profits for the year ended 30th June 1940 it had nevertheless appealed against the assessment under Division 7 as well as against its ordinary assessment. The chief ground of the appeal was that the profits formed income exempt under s. 23 (m) as income derived directly and in the first place from primary production in the Northern Territory of Australia by a resident of that Territory. The appeal was allowed: North Australian Pastoral Co. Ltd. v. Federal Commissioner of Taxation [1] . The order allowing the appeal was made on 19th July 1946, that is nearly eight weeks before the assessment upon the taxpayer was notified. The tax and additional tax which the company had paid in respect of the income year ended 30th June 1940 was refunded on 30th October 1946 - that is to say, some considerable time after the notice of assessment had been issued to the taxpayer with whom we are now concerned. Eighteen months later the deputy commissioner proceeded to amend the assessment by excluding the rebate and assessing the taxpayer upon the dividends. It is from this amendment that the taxpayer appeals.

The authority of the commissioner to make an amendment under s. 170 (1) is, in the circumstances of this case, restricted by s. 170 (3). If the taxpayer is considered to have made a full disclosure of all the material facts necessary for his assessment prior to the making of the original assessment, then the amendment could not be made unless it was to correct an error in calculation or a mistake of fact. Obviously it is not a case of error in calculation. If at the time the assessment was made it was the only assessment that could lawfully be made, I do not see how it could be said that the amendment was "to correct a mistake of fact" even if it be true, as probably it is, that the deputy commissioner would never have issued the notice of assessment at that juncture had he been aware that an appeal had been instituted by the company and allowed.

I do not agree with the contention which I understand to be made for the commissioner that, if at the date when the amendment is made the facts are such that the original assessment no longer represents what would be the liability of the taxpayer were he to be thus assessed for the first time, that is enough to enable the commissioner to "correct" it, provided it appears that some misapprehension existed. I think that there must be something incorrect in the original assessment as at the time it was made, something then needing correction.

In my opinion there was nothing incorrect in the assessment as at that date. It was the only assessment which at that time could have been made. At that time the company had "paid" the tax under Division 7 in respect of the amount from which the dividend was declared within the meaning of s. 107 and the commissioner had not refunded the tax. The mistake which the deputy commissioner made was in issuing the notice of assessment at that date and in not waiting until the tax was refunded, as he probably would have done had he known of the appeal and the order allowing it. Because the additional tax had not been repaid at the time the original assessment was made, it seems to me to be impossible to say that at that date it was not still in a condition of being "paid" within s. 107. The cases of D. & W. Murray v. Federal Commissioner of Taxation [1] and W. & A. McArthur v. Federal Commissioner of Taxation [2] could have no application unless and until the tax was refunded. An argument was advanced for the commissioner that the additional tax was paid only in pursuance of s. 201, which makes tax recoverable notwithstanding that there is an appeal against an assessment, and that the payment was provisional and therefore no longer a payment within s. 107 when the appeal was allowed. This appears to me to be a fallacious argument. The payment was not made to be held in suspense. It was made to satisfy a demand which by reason of the assessment was enforceable. It satisfied an obligation. If the appeal were to be allowed, a counter obligation on the part of the commissioner to repay it would arise. Until it was repaid, it did not cease to be "paid". The mere existence of the obligation to refund does not seem to me enough to undo the fact of payment. Section 107 distinguishes between the liability to pay and the fact of payment by making these alternative conditions, either of which will confer a right to the rebate. I do not think that because the order set aside the assessment imposing the liability it can be said that the payment actually made and accepted as and for additional tax lost that character.

(1927) 40 C.L.R. 148. 2. (1930) 45 C.L.R. 1.

The limitation upon the commissioner's power of amendment arise under s. 170 (3) where a taxpayer has made to the commissioner a full and true disclosure of all the material facts necessary for the assessment and an assessment is made after the disclosure. This condition was, in my opinion, fulfilled. The taxpayer did not, it is true, tell the deputy commissioner that the company had appealed, but he knew that the commissioner was aware of this fact. The commissioner was, in fact, a party to the appeal. It may be doubted whether this was a fact "necessary for the assessment". It bore only on the wisdom of withholding an assessment till the appeal was determined, not on the contents of the assessment, if made. But a taxpayer can hardly be said to fail to disclose to the commissioner a fact which is not only within the commissioner's knowledge in connection with the exercise of his functions in the very matter, but which the taxpayer knows so to be within his knowledge.

In the view that I have taken it is unnecessary to pursue the question whether the ignorance of the deputy commissioner of the facts known to the commissioner amounted to, or gave rise to, a mistake of fact within the meaning of s. 107. But it is perhaps desirable to say that the case stated does not contain a delegation under s. 12 or raise any question concerning the operation of s. 13 (b) with respect to the position of the deputy commissioner under s. 170 (3) where there is disclosure to the commissioner but not to him.

For the foregoing reasons I think that s. 170 (3) did preclude the making of the amendment the subject of the notice of amended assessment of 12th March 1948 and that the rebate under s. 107 was allowable at the date of the assessment it was then sought to amend.

There are two questions in the case stated both of which use the present tense. To avoid misunderstanding I would use the past tense in answering both questions, in question (a) because the answer relates to the date of the amendment and in question (b) because the answer relates to the date of the assessment. I think the questions should be answered as follows: - (a) The provisions of s. 170 (3) of the Income Tax Assessment Act 1936-1947 precluded the amendment of the assessment of which notice was given by the notice of amended assessment dated 12th March 1948. (b) A rebate under s. 107 of the said Act was allowable in respect of the dividend of £2,934 received by the appellant from the North Australian Pastoral Company Limited. Costs of the case stated to be dealt with by the Justice disposing of the appeal.

I agree with the reasons for judgment of my brother Dixon and his answers to the questions.

I agree with the reasons for judgment of the Chief Justice and Dixon J. In my opinion the questions asked in the case stated should be answered as proposed by Dixon J.

I agree with the judgments of the Chief Justice and Dixon J.

In this case I agree with the judgment of my brother Dixon and I have nothing to add.

High Court of Australia Latham C.J. Dixon, McTiernan, Williams, Webb and Fullagar JJ. Foster v Commissioner of Taxation (Cth) [1951] HCA 18

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