Harry One Pty Ltd & Anor v Commissioner of State Revenue [2007] VSCA 73

1 This is an application for leave to appeal from a decision of Hollingworth J delivered 14 February 2007. The application for leave was prompted by an application made by the Commissioner to dismiss as incompetent a purported appeal filed by the applicants, on the basis that leave to appeal was required.

2 For reasons which follow, I consider that her Honour's order was an order in an interlocutory application, within the meaning of paragraph (b) of s 17A(4) of the Supreme Court Act 1986, and that leave to appeal was required. Before dealing with whether leave should be granted, I will briefly set out the background to the application.

3 On 14 October 2002 the Commissioner issued an assessment to the applicant taxpayers in respect of a transfer of land. The instrument was assessed to duty of some $283,000. As is apparent from the Commissioner's subsequent decision on the taxpayers' objection, that assessment was based on a valuation provided by the taxpayers which valued the land at $5.15 million. By notice of objection dated 11 December 2002, the taxpayers objected to the assessment. For reasons set out in the objection, it was contended that the dutiable value of the land was either nil or less than $5.15 million. In May 2003 the Commissioner disallowed the taxpayers' objection. The grounds of disallowance were set out in a notice of determination.

4 The taxpayers requested that the matter be referred to the Supreme Court pursuant to sub-s 106(1) of the Taxation Administration Act 1997. Under that provision, a taxpayer may request the Commissioner to treat the objection as an appeal and cause it to be set down for hearing at the next sittings of the Supreme Court. By letter dated 6 October 2004, the State Revenue Office advised the taxpayers that the matter had been referred to the Court. That letter also advised that the Commissioner might wish to adduce fresh valuation evidence in relation to the land and "as necessary in this context, seek leave to amend the objection's grounds of disallowance".

5 On 17 November 2005, the State Revenue Office gave written notice to the taxpayers' solicitor that on the hearing of the appeal the Commissioner would seek to rely on a further ground in addition to those set out in the notice of determination, to the effect that the value of the land was $8.68 million. The letter pointed out that a dutiable value of that amount would attract duty of some $477,000, which would require additional payment of $194,150 in duty. On the same day, the Commissioner filed in the proceeding an affidavit exhibiting a valuation report verifying that valuation.

6 I note in passing that, under s 100A of the Taxation Administration Act, if an objection concerns the value of property the Commissioner has an obligation to refer the matter to the Valuer-General or another competent valuer for valuation of the property. The section further provides that the objector must pay the cost of the valuation if the valuation of the land, as determined on the objection or on the appeal, exceeds the value provided by the objector by 15% or more.

7 It would appear from the scheme of the Act, and from the location of s 100A (in Part 10 and before s 101, which provides for the determination of the objection), that Parliament had in mind that the reference to the Valuer-General would occur in aid of the decision-making on the objection. That did not occur in this case. That legislative scheme has obvious advantages. It is plainly desirable that, if the Commissioner is going to take issue with the taxpayer's valuation of property relevant to the assessment, the taxpayers be given notice of that issue at the earliest opportunity. It seems quite undesirable that an issue of valuation should be raised - as it has been here - years after the Commissioner's disallowance of the objection, particularly when the notice of determination confirmed that the Commissioner was relying on the taxpayers' valuation and did not of itself foreshadow any further investigation of dutiable value.

8 On 25 November 2005, by oral application the Commissioner sought leave pursuant to s 109 of the Act to rely on a further ground, namely, that the value of the land was not $5.15 million but $8.68 million. It was that leave which her Honour granted in the judgment delivered on 14 February 2007. Section 109 of the Act provides:

(a) the taxpayer's case is limited to the grounds of the objection; and

(b) the Commissioner's case is limited to the grounds on which the objection was disallowed--

unless the Tribunal or Court otherwise orders."

9 I have no doubt that the decision to grant leave was interlocutory in nature. The decision simply concerned the ambit of the appeal, that is, the scope of matters in issue. It did not on any view finally determine the rights of the parties to the proceeding: Dodoro v Knighting.[1] The relevant analogy, it seems to me, is with an amendment of pleadings to add a new cause of action, which is a quintessential interlocutory order.

10 It was contended for the taxpayers that the decision under appeal -

"determines the paramount issue between the parties of whether the Court is empowered by s 112 of the [Act] to make a re-assessment of duty in this proceeding".

That is not the paramount issue in the proceeding. The paramount issue is whether the taxpayers' objection to the assessment should be disallowed or allowed, wholly or in part or, put another way, what the correct dutiable value is. The scope of the Court's powers under s 112 of the Act will be one of the issues to be determined in the proceeding. The grant of leave under s 109 simply enables the Court to have before it the evidence on which the Commissioner will seek to rely. The Commissioner will have to persuade the Court that that evidence can be taken into account and the assessment increased, notwithstanding that the Commissioner himself could not have exercised the power under s 9 to reassess in order to take account of that information, for the reason that the time limit under that section had expired.

11 We were invited by Mr Fox to take the view that it was not only appropriate but necessary for this Court, at this stage of the proceeding, to consider the question of the Court's power under s 112. As I have said, the question is whether that power is constrained by the time limit under s 9, such that it would be ultra vires for the Court to increase the assessment if that increase were based on a matter which the Commissioner himself could not have utilised for re-assessment under s 9 because of the expiry of the time limit. Mr Fox's argument is that s 112 is so constrained, and hence does not permit the Court to increase an assessment in those circumstances. That being so, he argues, it was either wholly redundant or beyond power for her Honour to grant leave to allow the Commissioner to rely on that additional ground.

12 In my opinion, it is neither necessary nor appropriate for this Court to embark on a consideration of the scope of s 112 at this stage of the proceeding. Mr Solomon submits - correctly, in my view - that the occasion for the consideration of that question has not arisen. The applicant taxpayers argue that the s 112 question is necessarily involved in construing s 109, but it seems to me to be clear that for this Court to embark on a consideration of how the power under s 112 might be exercised if certain facts were to be established would be to fall into the error identified by this Court in Ansett,[2] of deciding a hypothetical question, a question which has not yet arisen for decision.

13 I note the concession made by Mr Solomon on behalf of the Commissioner, that nothing said by her Honour in her reasons for granting leave was, or is to be taken to be, a decision as to the scope of s 112. With respect, it seems to me that the concession was properly made. I certainly did not read her Honour's reasons as having determined that question. On the contrary, her Honour was flagging the breadth of the language in s 112 as a factor relevant to the grant of leave, but was in no way prejudging the question of the Court's power under s 112, less still whether the Court would exercise that power in this case to increase the assessment on the basis of the new valuation evidence.

14 It would be surprising indeed if such an important issue had been determined in the abstract, in advance of it actually arising for decision in the proceeding. As I say, I do not read her Honour's reasons as deciding any such thing. It is perfectly clear that the Commissioner will not be saying that there is any issue estoppel between the parties on that question. The only issue decided by her Honour's ruling was the one I have mentioned: whether the Commissioner should be at liberty to put on evidence and make argument about the new valuation. What effect that will have on the Court's determination of the rights of the parties will only be determined at the trial of the proceeding.

15 I turn then to the question whether leave should be granted. The decision to grant leave was made in the exercise of a discretion. It is a broad discretion and the nature of the power - that is, to enable parties to add grounds that they have not previously relied on - is self-evidently beneficial. No doubt the policy behind the provision is that the power should be exercised to ensure that, subject to proper notice being given, the issues which the parties to the appeal wish to agitate can be investigated and determined.

16 The tenor of the authorities dealing with cognate provisions in other tax appeal regimes is that - once again subject to proper notice being given - neither the taxpayer nor the revenue authority will be constrained by the matters relied on in the original assessment decision or in the original objection, as the case may be. As the majority of the High Court pointed out in Federal Commissioner of Taxation v ANZ,[3] it has long been established in the income tax jurisdiction that the Commissioner may support the amount of the assessment on a ground not taken into account at the time the assessment was made: see Federal Commissioner of Taxation v Wade.[4] Their Honours in ANZ said:

"The Commissioner will be required to give proper notice to the taxpayer and, where appropriate, will be directed to furnish particulars. But, as Kitto J observed in Federal Commissioner of Taxation v Wade: No conduct on the part of the commissioner could operate

as an estoppel against the operation of the Act.'" [5]

17 There is nothing unusual, in my view, about the Commissioner in the course of a tax appeal such as this wishing to rely on an independent valuation. As I have already pointed out, the Commissioner has a statutory obligation, where the value of property is in issue, to seek an independent valuation. Nothing that I have said, of course, addresses the ultimate question whether the Commissioner will be able successfully to rely on this independent valuation evidence, obtained at this relatively late stage of the objection-determination-appeal process. That is a matter for the court hearing the tax appeal.

18 It is clear from the objection documentation that the initial focus was on what might be called the s 27 point, relating to the partition of land. Having rejected the taxpayers' submission in that regard, the Commissioner at that stage accepted the land valuation provided. Given the clear policy of the legislation about independent valuation, however, there are obvious reasons why the Commissioner would wish to defend an assessment by relying on an independent valuation of the land, even one obtained well after the objection decision has been made. As I have said, that question does not arise for decision here.

19 The only issue is whether there is anything in the reasons which her Honour gave which would be capable of being demonstrated to be an error of law. In my respectful opinion, there is nothing of that kind. I can see no basis upon which an appeal against this discretionary decision could succeed. I would therefore dismiss the taxpayers' summons.

[1] [2004] VSCA 217; (2004) 10 VR 277.

[2] Ansett Australia Ground Staff Superannuation Fund Pty Ltd v Ansett Australia Ltd [2003] VSCA 117; (2003) 176 FLR 393.

[3] [1994] HCA 58; (1994) 181 CLR 466 at 479.

[4] [1951] HCA 66; (1951) 84 CLR 105.

[5] Ibid at 479.