Golden City Car & Truck Centre Pty Ltd ACN 010 319 427 v Deputy Commissioner of Taxation

REASONS FOR JUDGMENT 1 The applicants are taxpayers. In 1996 and 1997 the Australian Taxation Office ("the ATO") conducted an audit into the financial and taxation affairs of the applicants and also into the operations of "The Golden City Trust". Subsequent to the audit the respondent, on 9 October 1997, issued an amended income tax assessment to Leslie James Wall ("Wall") for the financial year ended 30 June 1990. The respondent, on 22 October 1997, issued amended income tax assessments to Golden City Car and Truck Centre Pty Ltd ("the company") for the financial years ended 30 June 1990 to 30 June 1995 inclusive. The applicants lodged objections to the amended assessments on 22 December 1997. 2 On 30 April 1998 the respondent filed writ of summons number 3970 of 1998 in the Supreme Court of Queensland against the company. In those proceedings the respondent seeks to recover from the company $725,237.76 as a debt due to the Commonwealth for unpaid income tax and additional tax for late payment together with penalty interest in respect of the financial years ended 30 June 1991, 1992 and 1994. 3 On 30 April 1998 the respondent also filed writ of summons number 3971 of 1998 in the Supreme Court of Queensland against Wall. In those proceedings the respondent seeks to recover from Wall $1,881,914.50 as a debt due to the Commonwealth for unpaid income tax and additional tax for late payment. Save for a sum of $5,913.72 which related to the financial year ended 30 June 1997, the balance related to the financial year ended 30 June 1990. 4 On 20 May 1998 the applicants filed an application in this Court for an order of review. The decisions of the respondent of which the applicants seek review are contained in paragraphs 1A, 1B, 1C and 1D of the application. The applicants also sought, at the time of filing the application, review of the respondent's failure to decide whether to allow or disallow the applicants' objections to the notices of amended assessments or alternatively they sought that a writ of mandamus issue, directing that the respondent dispose of the said objections. 5 The "decisions" the subject of the application are :- 1. (Paragraph 1A) That proceedings be commenced in the Supreme Court by writs numbered 3970 and 3971 of 1998. 2. (Paragraph 1B) In the alternative to paragraph 1A, that an extension of time for payment of the amount of tax alleged to be outstanding in respect of the said purported assessments be refused. 3. (Paragraph 1C) In the alternative to paragraphs 1A and 1B, that an extension of time for the payment of the tax alleged to be owing, having been granted, be revoked or terminated. 4. (Paragraph 1D) That the sum of $86,662 paid by the company as its first instalment of income tax for the 1998 income tax year be credited towards the disputed amount of tax alleged to be outstanding. 6 On 22 May 1998 Wall and the company each delivered a notice of defence to their respective writ of summons in the Supreme Court of Queensland. Wall pleaded that four years having expired and the original assessment of income tax for the year ended 30 June 1990 not being due to fraud or evasion, the issue of the amended assessment was not authorised by s 170 of the Income Tax Assessment Act 1936 (Cth) ("the Act"). He also pleaded that on or about 5 February 1998, the respondent to the present proceedings had agreed to grant an extension of time to pay the tax alleged to be outstanding until sixty days after the objections to the assessments lodged by Wall on 22 December 1997 had been determined. A defence to similar effect was delivered by the company which also counterclaimed for repayment of the sum of $86,662 paid by the company as its first instalment of income tax for the year ended 30 June 1998. 7 On 10 June 1998 the respondent filed a notice of motion seeking to strike out paragraphs 1A, 1C, 1D, II and III of the application for an order for review and the grounds relating to those paragraphs. On the same date the respondent also filed a notice of objection to competency objecting to the jurisdiction of the Court to hear and determine the application for an order for review under the Administrative Decisions (Judicial Review) Act 1977 (Cth) ("the ADJR Act"). The grounds of the objection were that :- 1. The decision specified in paragraph 1A of the application is not a decision of an administrative character made under an enactment. 2. The decision specified in paragraph 1C of the application has never been made. 3. The decision specified in paragraph 1D of the application is not a decision of an administrative character made under an enactment. 4. The time within which the respondent was required to consider the objections to the amended assessments had not expired and the application in terms of paragraphs II and III was premature. 8 On 24 July 1998 the applicants filed a notice of motion seeking orders staying further proceedings in the Supreme Court of Queensland in actions 3970 and 3971 of 1998 pending the outcome of these proceedings or restraining the respondent from enforcing any judgment pending the outcome of proceedings in this Court. 9 In July 1998 the respondent disallowed the objections made by the applicants to the amended notices of assessment and appeals from that disallowance have been lodged with the Administrative Appeals Tribunal. 10 On 7 August 1998 the applicants filed, pursuant to my order, an amended application for an order for review. By the amended application, paragraphs II and III were deleted and new paragraphs were added seeking relief under s 39B of the Judiciary Act (1903) (Cth). 11 The respondent's application to strike out and the objection to competency It is convenient to commence with the matters raised in paragraph 1C of the application. The respondent by Paula Fragoudakis, an officer of the ATO, swears that no decision to extend time for payment of the disputed tax was ever made by the respondent and that no agreement was made with the applicants to extend the time for payment. Accordingly, there was never a decision made to revoke any extension of time to make payment. 12 The applicants submit that the respondent granted an extension of time by letter to the applicants' solicitors dated 5 February 1998 (part of Exhibit PF2 to the affidavit of Fragoudakis). That letter relevantly said :- "We refer to your letter dated 14 January 1998 regarding the outstanding account for the above tax payers and agree to the following interim payment arrangement: Date Amount 31 JAN 98 $100,000 28 FEB 98 $100,000 31 MAR 98 $138,478 … Although your account is under an interim arrangement, additional tax for late payment is continuing to accrue at the government prescribed rate. The properties offered for security do not cover the full extent of the debt and as advised by this office, the offer of a Bill of Sale over the stock is not satisfactory. To prevent legal recovery action from commencing it is requested that an acceptable proposal be put forward without further delay. Please contact Paula Fragoudakis or Emilia Matula to discuss the above matter. ....." 13 A further letter dated 24 February 1998 from the respondent to the applicants' solicitors is exhibited to Ms Fragoudakis' affidavit. That letter relevantly said :- "Reference is made to the telephone conversation between Mr Sushames [the applicants' solicitor] and Ms Fragoudakis of this office on the 20 February 1998 and to my letter of 5 February 1998. ..... At present, a satisfactory arrangement has not been put in place and no extension of time has been granted for the disputed portion of the outstanding tax. Your client has had sufficient time to consider the above and accordingly it is requested that payment or a satisfactory arrangement be put forward by 3 March 1998. ....." 14 In reply, the applicants' solicitor in a letter dated 5 March 1998 said, in part :- "We have advised Mr Wall as to the contents of your letter of 23 February, 1998 and understand his willingness to have put in place a satisfactory arrangement to avoid the issuing of proceedings." 15 By letter dated 14 March 1998 to the applicants' solicitor, the respondent advised that :- "As no satisfactory proposal for [sic] arrangement, nor payment has been received by this office, as stipulated by my letter, recovery action will commence herewith." 16 In a letter, dated 19 March 1998 relied on by the applicants, their solicitor advised the respondent :- "..... It is not feasible for our client to borrow $3 million dollars to pay the current assessment, however we believe he is doing all in his power to come to some reasonable arrangement with you. Our client has already offered you a floating charge, which you say is unacceptable, and we just do not see in the circumstances what more we can do. ....." 17 Counsel for the respondent, Mr Bickford, submits that nowhere in this correspondence is there an agreement to an extension of time other than a short extension in relation to an amount that was not in dispute, which are the three amounts referred to in the letter dated 5 February 1998 to the applicants' solicitor. 18 Mr Russell QC, on behalf of the applicants, submits that it is unnecessary to determine whether or not the material supports a conclusion that there was a refusal to grant an extension (paragraph 1B to which no objection was taken by the respondent) or a decision to grant an extension which was revoked (paragraph 1C). It is, he submits, sufficient that there is a disputed question of fact on the issue and that it should not be determined in a summary way against the applicants. 19 There is no evidence, on the material before the Court, that the respondent made any decision to grant an extension of time to pay the disputed income tax and additional tax let alone one for an indefinite period. On the contrary, the agreement that the applicants allege was made is that pleaded in their defences in the Supreme Court of Queensland. That agreement was only for a period of sixty days following the disposition by the respondent of their objections lodged in December 1997 to the amended notices of assessment. 20 I am not satisfied, on the material upon which the applicants rely, that they have any colour of a case that there was ever any agreement made with respect to an extension of time to pay the disputed tax. In any event, in terms of the only specific agreement the applicants have alleged, being that pleaded in the Supreme Court proceedings, the period of the extension agreed upon has now expired and there is no demonstrable utility in reviewing any alleged decision to grant or revoke that extension. Accordingly, paragraph 1C of the application and the grounds pleaded in paragraph 6 in support of it will be struck out as embarrassing and disclosing no reasonable grounds for review. 21 The applicants, in paragraph 1A, seek review of the decision of the respondent to commence the proceedings in the Supreme Court of Queensland. To be entitled to review the decision in issue it must be one of an administrative character made under an enactment: s 3, s 5 of the ADJR Act. 22 The answer to what decisions satisfy this requirement was provided in Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321. There, Mason CJ, with whom the other members of the Court agreed, 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 falling for consideration. A conclusion reached as a step along the way in a course of reasoning leading to an ultimate decision would not ordinarily amount to a reviewable decision, unless the statute provided for the making of a finding or ruling on that point so that the decision, though an intermediate decision, might accurately be described as a decision under an enactment. Another essential quality of a reviewable decision is that it be a substantive determination. …" 23 His Honour explained further (at 338) :- "To say that a reviewable decision is an ultimate or operative determination does not mean that antecedent conclusions or findings which contribute to the ultimate or operative decision are beyond reach. Review of an ultimate or operative decision on permissible grounds will expose for consideration the reasons which are given for the making of the decision and the processes by which it is made." 24 The applicants submit that the decision to commence proceedings for recovery is final and determinative because it must lead to a judgment against the applicants in the amount claimed because of the operation of s 175 and s 177 of theAct and the tendering of the amended assessments in the recovery proceedings The operation of s 175 and s 177 of the Act will be discussed later in these reasons. 25 The tax payable by the applicants under the amended income tax assessments, by the operation of s 208 of the Act, constituted debts due to the Commonwealth. By s 8 and s 209 of the Act the respondent was, as part of the administration of the Act, obliged to seek to recover the debts and, if necessary, authorised to sue in a court of competent jurisdiction for the debts in its official name. Once the debt became due and owing, absent payment, the applicants were always exposed to the probability of judgment being entered against them as a step in the recovery process. 26 The decision to sue is itself but one step in the recovery process. There is nothing in the decision which is final or determinative or which removes a benefit or exposes the applicants to a detriment which they are not already subject to: Strictly Stainless Pty Limited v Deputy Commissioner of Taxation (Davies J, unreported, 5 November 1993 at p4); Hutchins v Commissioner of Taxation (1996) 65 FCR 269 at 274, 276 - 277; Ruddy v Deputy Commissioner of Taxation (1998) 98 ATC 4369 at 4373 - 4374. 27 In my view, the decisions of the respondent to commence recovery proceedings against the applicants in the Supreme Court of Queensland are not reviewable decisions under s 3 and s 5 of the ADJR Act. Accordingly, paragraph 1A will be struck out as embarrassing and incompetent. 28 The matters raised in paragraph 1D of the application concern the operation of Subdivision B of Division 1C of Part IV of the Act. The company, at all material times, was an instalment taxpayer for the purposes of s 221AZK(1)(a) of the Act. It was classified as a large taxpayer for the purposes of s 221AZK(2). The company paid $86,662 as the first instalment of tax for the 1998 financial year. 29 The classification of a company as a large, medium or small taxpayer for the purposes of s 221AZK(2) affects the timing of instalment payments. The first instalment of tax for a large taxpayer is due three months before that of a medium taxpayer. The first instalment of each category of taxpayer is an amount of twenty-five percent of the likely tax for the applicable year. 30 As appears from the affidavit of Ms Fragoudakis filed on behalf of the respondent, when the company filed its return the material showed that the company was properly classified as a medium taxpayer rather than a large taxpayer. As a consequence, the respondent cancelled the instalment notice and applied the $86,662 to the reduction of the outstanding income tax liabilities of the company. In so acting the respondent purported to rely upon s 221AZM(1)(c) of the Act as requiring such a course. 31 Section 221AZM provides :- "(1) The Commissioner must credit an instalment in payment of the following, in order: (a) tax payable for the current year; (b) tax payable under section 160AQJ; (c) any other liability of the taxpayer to the Commonwealth that arises under an Act of which the Commissioner has the general administration. (2) The Commissioner must refund any excess to the taxpayer. (3) An amount credited under this section is taken to be credited on the day on which section 166A deems an assessment to have been made for the taxpayer for the current year." 32 The company submits that because it was a medium taxpayer and not a large taxpayer, the instalment was not payable at the time that it was paid. As the respondent has cancelled the instalment notice and applied the instalment to reduce outstanding tax liability, the company submits that the respondent has in fact made a determination under s 221AZL(1) with the consequence that the sum of $86,662 paid was refundable under s 221AZL(2). Accordingly, the company seeks a refund of the instalment payment. 33 Section 221AZL provides :- "(1) The Commissioner may determine that a particular instalment is not payable, or is reduced, if the Commissioner is satisfied that it is appropriate to do so having regard to the object of this Division and the particular circumstances of the taxpayer. (2) If the amount of an instalment paid by a taxpayer turns out to be excessive because of a determination later made under subsection (1), the Commissioner must refund the excess." 34 Whether the respondent consciously intended it or not, the company submits that the respondent determined that the first instalment was not payable on 2 March 1998 as specified in the Income Tax - Instalment Payment Reminder issued by the respondent to the company on 10 February 1998 because the Commissioner was satisfied that the company was a medium and not a large taxpayer. The determination of the respondent, the company submits, was to reduce the instalment then payable to zero with the consequence that the amount already paid became "excessive" within the meaning of s 221AZL(2). If this is correct, then the respondent was obliged to refund the amount conformably with the requirements of s 221AZL(2). 35 The respondent submits, and Ms Fragoudakis deposes that no decision to make a determination under s 221AZL(1) was made by the respondent. Further, the respondent submits that the decision to apply the instalment to outstanding tax was not a decision of an administrative character made under an enactment and therefore not reviewable under the ADJR Act. The respondent submits that s 221AZM(1), as a matter of law, required that the instalment money be applied as it was and involved no decision on the part of the respondent. 36 Section 221AZM relates to payments received by the respondent as instalments paid under Division 1C. The section contains, in s 221AZM(1), the order in which the instalment is to be credited. If the respondent treated the payment of $86,662 as an instalment paid under the section, then the sum was not available to be credited against outstanding tax unless it had been first credited against income tax payable for the current financial year for which it was paid. That is, the 1998 financial year. Further, it was not available to credit against outstanding tax until satisfaction of tax payable, if any, under s 160AQJ of the Act. It follows, in my view, that s 221AZM(1) did not authorise or require the respondent setting off the sum paid against outstanding tax. As it was not returned and if it retains its character of an instalment, s 221AZM(1) requires that it be dealt with in accordance with the section. 37 The decision which the company seeks to have reviewed under the ADJR Act is not any decision made under s 221AZL(1) of the Act. Rather, it is the decision not to refund the money after the respondent had determined that it was not then payable as a first instalment and the decision to appropriate the money against the outstanding liability for tax. Neither of these decisions, in my view, was a decision of an administrative character made under the Act. The Act does not make provision, either expressly or impliedly, for these decisions and they are not authorised by any specific provision to which reference was made in argument. At best, they are decisions made in the general administration of the Act in accordance with s 8 of the Act: that is an insufficient basis for the decisions to have the requisite character for review under the ADJR Act: Hutchins v Commissioner of Taxation at 272 - 273, 278. It follows that the decisions not to refund the money and to apply it to outstanding tax liabilities are not reviewable under the ADJR Act. This leaves the company to such other remedies, if any, as it may have in relation to the retention of the money by the respondent. The company does not seek to assert any rights or remedies in this Court with respect to the money other than under the ADJR Act. Such other rights as it asserts are the subject of a counterclaim in the Supreme Court proceedings. 38 It follows, in my view, that paragraph 1D ought to be struck out as embarrassing and incompetent. 39 The relief claimed in paragraphs IV, V, VI and VII of the amended application is sought to be made under s 39B of the Judiciary Act 1903 (Cth). The applicants, by their amended application, plead that by October 1997 they were immune from increased tax liability in respect of the financial years 1990 to 1992 inclusive because four years had elapsed from the date when tax became payable in respect of each of the relevant years: s 170(2)(b)(ii). They plead that the respondent determined, as a necessary precondition to the amending of the assessments for the respective years, that tax was avoided in each year due to fraud or evasion and that such a determination was made without affording to the applicants a hearing. Finally, they plead that by the decision their immunity from increased liability to tax in respect of the 1990 to 1992 inclusive tax years was removed. 40 Those circumstances, the applicants contend, entitle them to relief of the following type :- (a) Certiorari to quash the decision that the avoidance of income tax in the relevant years was due to fraud or evasion (paragraph IV). (b) Certiorari to quash the amended assessments in relation to the 1990 to 1992 inclusive income years (paragraph V). (c) Prohibition restraining the respondent from proceeding further on the decision or upon the amended assessments (paragraph VI). (d) A declaration that prior to the respondent making any further decision that an avoidance of tax is due to fraud or evasion, the applicants be given a hearing on that issue (paragraph VII). 41 The substance of the allegation is that the applicants, because of their conditional immunity from further assessments to tax in the relevant years, were entitled to be heard in accordance with the rules of natural justice, which attached to the respondent's determination of whether or not tax had been avoided in those years due to fraud or evasion. The issues raised are whether the applicants were, in their particular circumstances, entitled to procedural fairness, and if so, whether it has been extended to them in their dealings with the respondent. 42 In my opinion, the first question to be determined is whether the amended assessments and the existence of a necessary precondition to the making of an amended assessment may be challenged by proceedings under s 39B of the Judiciary Act in this Court. If so, the next question is whether the proceedings, as formulated, must necessarily fail. 43 There is a jurisdiction in this Court to entertain the present proceedings: Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168. However, absent an allegation that the making of the amended assessments was not a bona fide attempt to exercise the power under s 170(2) of the Act to make an amended assessment, any failure to extend procedural fairness attaching to the exercise of the power under s 170(2) does not render the amended assessment invalid. This result follows from the operation of s 175 of the Act which provides :- "175. The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with." 44 Section 175 validates a bona fide attempt to exercise the power: Richard Walter Pty Ltd at 188, 199, 203, 218, 227. Further, McHugh J, in Richard Walter Pty Ltd (at 242) was of the view that as a result of s 175 of the Act and the first limb of s 177, the procedural acts of the respondent in making an assessment do not give rise to any legally enforceable duty which can attract the operation of s 39B of the Judiciary Act. 45 Section 177 of the Act provides :- "177(1) 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 Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct." 46 Production of copies of the relevant amended assessments in these proceedings operates as conclusive evidence of the due making of the amended assessments. The due making referred to in subsection (1) was intended to cover all procedural steps other than those going to substantive liability and so contributing to the excessiveness of the assessment which is the thing put in contest by the appeal against the assessment: George v Federal Commissioner of Taxation (1952) 86 CLR 183 at 207; F J Bloemen Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360 at 378; Richard Walter Pty Ltd at 187 - 188, 198, 219, 226 - 227. 47 Whether or not the preconditions contained in s 170(2) are met is a substantive issue going to the liability to pay the additional tax and that issue is justiciable by the applicants in proceedings which they have taken under Part IVC of the Taxation Administration Act 1953 on a review relating to the assessments. Otherwise the effect of s 177 is that in this Court in these proceedings, and in the proceedings in the Supreme Court, the assessment is conclusive evidence that the amount and all the particulars of the assessment are correct and that all procedural steps were duly made. Although there is jurisdiction to bring the proceedings under s 39B of the Judiciary Act (1903) Cth, and even assuming the existence of a requirement to extend procedural fairness to the applicants in the circumstances they allege, the proceedings in respect of the grounds pleaded in paragraph 15, 16, 17 and 18 of the amended application must fail because of the operation of s 175 and s 177 of the Act. 48 In consequence paragraphs IV, V, VI, VII and paragraphs 15, 16, 17 and 18 pleaded in support thereof will be struck out as embarrassing. 49 On the respondent's applications the result is that paragraphs 1A, 1C, 1D, IV, V, VI and VII of the amended application together with paragraphs 1, 2, 3, 4, 6, 7, 8, 9, 15, 16, 17 and 18 pleaded in support thereof will be struck out. So far as the prayers for relief are concerned, paragraphs 1, 2 and 10 remain relevant. Otherwise the remaining prayers for relief will be struck out. 50 Costs should follow the event. 51 The application for a stay of the Supreme Court proceedings pending determination of proceedings in this Court. The question of a stay of the proceedings in the Supreme Court of Queensland sought by the applicants in their notice of motion filed 24 July 1998 was resolved on the return of the motion by the giving of reciprocal undertakings. Accordingly no issues on the applicants' motion remain outstanding. I certify that the preceding fifty-one (51) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cooper.

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