Jolly v Federal Commissioner of Taxation [1935] HCA 21

not contravene sec. 55 of the Constitution as not imposing a tax upon in which is the subject matter of the Act, or as not dealing with taxation

of tax assessable to him . . « | sum of one pound, whichever greater, or" (in another "shall be liable to pay by additional tax the amount of one or double the amount of the between the tax properly pay the tax assessed upon the b return lodged, whichever is the in addition to any additional ta may become payable by him. Provided that the Commi

in any particular case, for which he thinks sufficient, additional tax or any part tl

On an appeal by John Jolly to the Board.of Review from a decision »f the Commissioner refusing to remit additional tax in respect of income of the taxpayer assessed for the financial year 1925-1926, e majority of the Board held that it had no power to remit wholly 'partly the additional tax imposed by sec. 67 (1) of the Act. From decision the taxpayer appealed to the High Court, and Starke J. a special case, which was substantially as follows, for the ypinion of the Full Court : -

John Jolly, the taxpayer, was assessed to income tax for the

tly payable and the amount of the tax previously assessed to d by the taxpayer. The Commissioner, by an amended assess- t, assessed the taxpayer to income tax in respect of the additional

tion in writing to the assessment on the ground (amongst that he had not " failed to include any assessable income in

." The objection also contains the following words : - objector contends that in the circumstances no penalty has neurred and therefore the penal provisions of sec. 67 of the onot apply. Ifit be held that they do, he submits and requests t the Commissioner should, in the circumstances and for the stated, exercise the discretion conferred in the proviso to ion and remit the whole of the additional tax." Commissioner before he made any decision on the said n in writing made alterations in the assessment and on 27th '1 issued a further assessment in which the taxable income e taxpayer in due time and on 21st August 1931 lodged an in writing to the last-mentioned assessment. He set forth jections and repeated the objections contained in his notice May 1929.

H.C.or A. 6, The Commissioner in a letter dated 7th December 1932 informed

a the taxpayer that his objections had been disallowed.

Jouty 7. The taxpayer on 28th December 1932 requested the Commis

Fevura, sioner to refer his decision to a Board of Review. The request was

Taxation. 8, The Commissioner on 28th February 1933 referred his decision ~~ to a Board of Review. The reference was made in writing.

9. A Board of Review sat and reviewed the decision of the Co

sioner referred to it by the reference of 28th February 1933. Th

Board reviewed the decision of the Commissioner upon a considerable

10. But the majority of the members of the Board held that it

had no power to remit wholly or partly the additional tax impose

11. The taxpayer appealed to this Court from the decision

the Board, but limited his appeal to the question whether the B

of Review had, for the purpose of reviewing decisions referred to

by the Commissioner, power to remit additional tax or any

The questions reserved for the consideration of the Full Cor

(1) Was the request of the taxpayer in his objections in w of 28th May 1929 and 21st August 1931 that the Con sioner remit the additional tax, an objection in against the taxpayer's assessment within the meanil the Income Tax Acts 1922-1934 ?

(2) Was the Commissioner's disallowance of the said objec in writing of 28th May 1929 and 21st August 1931 a decisio not to remit the additional tax as so requested ?

(3) Did the reference by the Commissioner dated 28th Februs 1933 refer a decision of the Commissioner not to remit additional tax hereinbefore mentioned to a Boa Review ?

(4) Has the Commissioner any power or authority to ref a Board of Review his refusal to accede to a request | remit additional tax imposed by sec. 67 (1) ?

(6) Has a Board of Review any power or authority to review H.C. or A.

a refusal of the Commissioner to remit such additional tax ?

Pullagar K.C. (with him Herring), for the appellant.

Counsel referred to British Imperial Oil Co. v. Federal Commis-

'sioner ea Taaation (1); Richardson v. Federal Commissioner of 'axation (2); Federal Commissioner of Taxation vy. Munro (3); eg Co. of Australia v. Federal Commissioner of Taxation (A) ; y. Federal Commissioner of Taxation (5).

_ The following written judgments were delivered : -

• Ricu anp Dixon JJ. In his return for the financial year 1925- the taxpayer failed to include certain assessable income. By amended assessment, the Commissioner applied sec. 67 of the e Tax Assessment Act 1922-1934, and included additional tax in the assessment. The taxpayer objected that "no penalty had een incurred and therefore the penal provisions of sec. 67 do not ly." He added that, if it be held that they do apply, he itted and requested that the Commissioner should exercise the tion conferred in the proviso, and remit the whole of the onal tax, The Commissioner disallowed the objection, and taxpayer thereupon requested him to refer his decision to the oard of Review. The Board of Review held that the taxpayer exposed to liability to additional tax under sec. 67, and, by a , it further held that the Board of Review had no power to any part of the liability. From that decision the taxpayer ed to this Court. The appeal came before Starke J. who a case for the Full Court.

} (1925) 35 C.L.R. 422, at pp. 432, (3) (1926) 38 C.L.R. 153, at pp. 157, a 445, 446, 182, 183, 212.

• (2) (1982) 48 C.L.R. 192, at pp. 202, (4) (1931) A.C. 275, at pp. 206, 298 : ss 008, (5) (1981) 45 C.L.R. 263.

Ww Jour v. Feperat Comatis- SIONER OF TAxaTION.

eed Jouy v. FEDERAL Commas SIONER OF Taxation.

The substantial question for decision is whether the Board ¢ Review obtains under sec. 44 authority to exercise the power t remit additional tax conferred upon the Commissioner by proviso to sec. 67.

Sec. 66 of the Assessment Act makes it an offence (a) to fail to furnish a return or information or to give security or to com

regulations ; (b) without just cause shown, to refuse or neglect attend and give evidence when required ; (c) to make or deliver return which is false in any particular or to make a false answi Sec. 67 imposes upon taxpayers a liability to additional tax if they

tax assessable, calculated during the period of default but not bey: the date of actual assessment, or the sum of one pound, whiche is the greater. The second default which exposes a taxpayer t

of one pound or double the amount of the difference between tax properly payable and the tax assessed upon the basis of th return lodged. By a proviso, which covers all three cases, it j enacted that the Commissioner may in any particular case, reasons which he thinks sufficient, remit the additional tax or an} part thereof. Although the provisions of sec. 67 have called fo consideration on more than one previous occasion, not until # argument of the present case do doubts appear to have arisen as t0 its validity. So far the section has been treated, we think, providing in certain contingencies for an increase in the rate | taxation. Upon this basis it has been tacitly regarded as a provi . describing how and upon what basis a defaulting taxpayer's t upon his net income was to be calculated by means of the imposed by the annual taxing Act. In this view of it, the pro

because of its essential strength or of its accidental good , has escaped challenge on the ground that, in effect, it

penalized an offence, and that to do this otherwise than by means

: 'of the judicial power was not incidental to the legislative power in Y

of taxation. But from setting this course away from Scylla a difficulty now appears to arise. A Charybdis exists in sec. 55 of the Constitution, although that provision so far has never pulled down any enactment. The difficulty has been found in the nature of the additional tax. Is it really a tax upon the same subject itter, income? Is there not something to be said for the view that the minimum sum of one pound has no reference to income all; that it is imposed although there is no income? If so, it ay be difficult to treat the so-called additional tax, or, at any , the minimum sum of one pound, as really a tax, or if it is really as a tax imposed upon anything but the default or omission 'the taxpayer. But upon the argument these questions were not ised by counsel, and they were not intended to be raised by the case. We mention them because we think they are worthy consideration, and if hereafter the validity of the provision is

Id not be prejudiced by a failure to advert to them on the ent occasion.

@ questions raised by the special case turn, in our opinion, upon application of sec. 44 to the proviso to sec. 67. In Richardson eral Commissioner of Taxation (1), we decided that the proce- of assessment, objection, review and appeal does apply to additional tax under sec. 67 (see per Starke J. (2), Dizon J. (3) nd Evatt J. (4)). This decision means that the additional tax er sec. 67 as well as the ordinary income tax imposed upon taxpayer must be dealt with by the machinery of assessment alteration of assessment under Part IV. It also means that 'taxpayer may under sec, 50 object to the amount of tax and tax which the assessment is expressed to levy. From disallowance of that objection he may appeal to the Court the Board of Review. But the grounds open to him depend 48 CLR 192. (3) (1932) 48 CLLR,, at pp. 201.205. (1932) 48 C.L.R., at p. 195. (4) (1932) 48 C.L.R., at p. 215.

H.C.orA. In Richardson's Case (1) Dixon J. said : - '' It does not follow that Se upon an appeal to this Court under sec. 51 (6) or sec. 51a the dis- Jouy - cretion of the Commissioner to remit additional tax can be controlled.

Fepura, Whether the Board of Review is, or is not, entrusted with the counts' revision of this discretion depends upon the language of sec. 44, Taxatrox. which does not apply to the Court." It depends upon sec. Ric J, because it is that section which invests the Board of Review with it powers. When the proviso to sec. 67 was first enacted, it undoubtedl intended to give the Commissioner a discretion which would be final, No Board of Review then existed, and it was evident that the appeal, which then lay to the Court exercising in its original jurisdiction part of the judicial power, did not extend to a review of the Commissioner's discretion. No doubt the judicial power exercised by the Court included authority to control the Commissioner if he failed in his legal duty under the proviso. The Court could, instance, remit an assessment to him for the proper exercise of hi discretion under the proviso if it appeared that so far he had no exercised it according to law. Such a course might be open to the Court if it appeared that the Commissioner had allowed legally irrelevant grounds to affect his judgment. But the discretion is given to him and, subject to secs. 7 to 9, was meant to be exercised by him alone. In this respect it did not differ from other discre tionary powers given by the Act. But the Board of Review brought into existence after these provisions were enacted. One of

the purposes it was intended to serve was the independent re of cases falling within the Commissioner's discretionary powe "The Board of Review are not exercising judicial powers, but merely in the same position as the Commissioner himself - namely, they are another administrative tribunal which is reviewing determination of the Commissioner who admittedly is not judici but executive" (per Lord Sankey L.C., Shell Co. of Australia Federal Commissioner of Taxation (2) ). '

But by Richardson's Case (3) it is established that the taxpayer may object under sec. 50 (1) to the assessment upon him of addition tax under sec. 67, and that under sec. 50 (4) he may carry the objection

(1) (1932) 48 C.LR., at p. 205. (2) (1931) A.C,, at p, 298, (3) (1932) 48 C.L.R, 192.

_ a decision and either confirm the assessment or reduce, increase, or vary it. Richardson's Case (1) shows that, if there is a legal reason why the amount of the additional tax assessed is excessive, the Board

must give effect to it. It appears to us to follow at least that if

there is a legal ground which vitiates the Commissioner's exercise of discretion under the proviso to sec. 67 (1) such as would make it no

'egal exercise of the function committed to him, the Board in its

review of the amount of the additional tax must treat his discretion

as not lawfully exercised. These considerations show that, in the discharge of its functions, the Board must, upon a proper objection, teview in some degree at least the fixation of the amount of the itional tax, including the exercise of the power to remit. But

44 (1) provides that a Board of Review shall have power to

review such decisions of the Commissioner as are referred to it under

the Act (e.g., under secs. 50 and 51), and for the purpose of reviewing

'stich decisions shall have all the powers and functions of the Commis-

'sioner in making assessments, determinations and decisions under

"the Act. It goes on to provide that the assessments, determinations

decisions of the Board upon review shall for all purposes, except

e of appeal, be deemed to be assessments, determinations or

cisions of the Commissioner. In our opinion one of the functions

Commissioner exercisable in the course of assessing to additional

is the consideration of the question whether any and what part 'the amount prima facie imposed by sec. 67 (1) should be remitted.

the amount imposed should appear in the assessment. If after ment part is remitted under the proviso, an alteration of the ment should be made under sec. 37 to show the amount mately to be levied. We think so much almost. necessarily

ows from Richardson's Case (1). The proviso to sec. 67 (1)

€ - nnot be treated as a separate authority to forgo a debt due to

the Crown exercisable by the Commissioner independently of the on whether the taxpayer is within the conditions which expose to the prima facie liability to full additional tax. As a mere

5 hatter of strict construction, the liability is imposed by sec. 67 (1),

ot absolutely, but subject to the proviso. It is a liability to ten

Ww JOLLY v. FEDERAL Commns- SIONER OF TAXATION.

per cent or double the difference in tax unless there is a remissi In form the provision does not impose an absolute liability and then. confer an independent power of remission. But in substance it is reasonably clear that it was intended that the Commissioner should have in his hands a summary power of imposing upon taxpayers guilty of the kinds of act or omission specified a liability to further exaction commensurate with their fault.

If it be a function of the Commissioner to consider in asse to additional tax whether the case calls for an imposition of less than the full prima facie amount of the additional tax, why is thi: not a function which in exercising its power of review in relation to assessment of additional tax the Board obtains under sec. 44 It appears to us that sec. 44 must confer upon the Board the funeti which falls to the Commissioner under the proviso to sec. 67 (1), unless the word " decision" in sec. 44 is not wide enough for the purpose. The powers and functions of the Commissioner pass t the Board for the purpose, and for the purpose only, of reviewing his " decisions." Now the act or determination of the Commissioner which they are called upon to review is the assessment of addition: tax, and that includes the determination that one or other of conditions of liability is satisfied, the calculation of the prima faci or maximum amount of liability, its reduction by remission, perhaps, in rare cases, as Richardson's Case (1) suggests, by process amounting to legal part satisfaction, and the final state of the amount payable. Why should not all this be covered by ths word "decision" ? It is a word of the widest connotation. It hi no technical meaning. The Board is only another executive bod) in an administrative hierarchy. The purpose of erecting it was enable taxpayers to have a reconsideration or re-examination of t process by which liability had been imposed upon them, particu in relation to matters where the Commissioner had a discretion The important discretion given by sec. 67 (1) possesses no featu which make it less proper for the Board to review it. Indeed, should think that all the arguments of fairness were on the side 0 a review of the ascertainment, including the discretionary remissio of an amount which may prove a ruinous imposition.

entire process of assessing additional tax, and for that purpose may exercise the Commissioner's function under the proviso to sec. 67 (1) of remitting. 'The objection in the present case appears to us to have been 'sufficiently taken, and to include the manner in which the Commis- sioner's discretion was exercised. Accordingly, we think the Board have considered whether the whole or any and what part of the additional tax should have been remitted.

We think the questions in the special case should all be answered :

"Starke J. Case stated. The question is whether the refusal of the Commissioner of Taxation to remit additional tax, under the er conferred upon him by the proviso to sec. 67 of the Income Assessment Act 1922-1930, is reviewable by a Board of Review. the Commissioner's duty to cause assessments to be made of taxable income of taxpayers. But a taxpayer who is dissatisfied his assessment may lodge objections, and the Commissioner is ed to give to the objector written notice of his decision on the ions. Only decisions so obtained are reviewable. "A tax- er who is dissatisfied with the decision of the Commissioner » may . . . request the Commissioner to refer the on to a Board of Review for review or . . . to treat his tion as an appeal and forward it either to the High Court or Supreme Court of a State" (Act, sec. 50). "A Board of ew shall have power to review such decisions of the Commissioner as are referred to it . . . and, for the purpose of g such decisions, shall have all the powers and functions of

" (Act, sec. 44; Shell Co. of Australia v. Federal Commis- mer of Taxation (1) ; Richardson v. Federal Commissioner of Taxa- om (2)). But it is only decisions upon objections to assessments are reviewable. Is the remission or refusal to remit additional

essed under sec. 67 part of the function or process of assess- +? Clearly not, I should have thought. The tax is not such

In our opinion the Board of Review is empowered to review the H.C. or 4.

sum as the Commissioner thinks sufficient, but, in this case, double the amount of the difference between the tax properly payable, the tax assessed upon the basis of the return lodged. Remission the tax does not alter that liability : it is a discharge from or forgi ness of the liability ascertained and assessed pursuant to provisions of the Act, and is no part of the assessment of any suc liability. But if refusal to remit additional tax is a matter capal of decision for the purposes of sec. 50, it is also the subject of app to the High Court or the Supreme Court. And by what standard, other than the Commissioner's opinion, could such an appeal be determined ? (Cornell v. Deputy Federal Commissioner of Taxation (S.A.) (1); Thomson v. Federal Commissioner of Tazatio (2); and note the provisions of sec. 51s). Further, is the d cretion to remit additional tax given by the proviso to sec. 56 matter of review ? That tax only becomes payable after assess has taken place.

In my opinion, the questions stated should all be answered in negative. That would give effect to what is, I feel sure, the tru intent of the legislation. But that intent could be made even clear by placing in the hands of the Governor in Council or some Mi of State the power which the Act now vests in the Commissioner.

Evarr J. Sec. 67 (1) (b) of the Income Tax Assessment provides that any person who fails to include any assessable in in any return, shall be liable to pay " by way of additional tax " th amount of one pound, or double the amount of the difference bet the tax properly payable, and the amount of tax previously to be paid by the taxpayer (or, if no amount of tax has previo been assessed, the amount of tax that would be payable b; , he were assessed for tax upon the basis of the return furnished him, whichever is the greater).

"Provided that the Commissioner may, in any particular case, for rea which he thinks sufficient, remit the additional tax or any part thereof.

In the present case the taxpayer failed to include certain income in his return for the financial year 1925-1926, and b

(1) (1920) 29 C.L.B. 39. (2) (1923) 33 CLLR. 73. -

between the tax properly payable and the amount of 'the tax previously assessed to be paid by the taxpayer. The

• Commissioner, by an amended assessment, assessed the taxpayer in respect of such additional tax. Thereupon the taxpayer lodged an to the assessment on the ground (amongst others) that he had not " failed to include any assessable income in any return,"

'The objection stated that the penal provisions of sec. 67 did not

"Gf it be held that they do, he submits and requests that the Commissioner should, in the circumstances, and for the reasons stated, exercise the discretion conferred in the proviso to the section and remit the whole of the additional

\fter a further amended assessment and a further objection repeated the matters already set out, the Commissioner the taxpayer that his objections had been disallowed. upon the taxpayer requested the Commissioner under sec. ) (4) to refer the decision to a Board of Review. The majority of Board held that it had no power to exercise the authority to emit additional tax conferred upon the Commissioner by the to sec. 67 (1), and the question raised in the present case is whether the Board's opinion is correct. Richardson's Case (1) the Court held that the procedure of ent, objection, review and appeal was applicable to the tion of the liability to pay additional tax which sec. 67 (1) upon the persons coming within its scope. Does it follow at the decision of the Commissioner as to the remission of the litional tax under the proviso is to be included in the procedure ssment ?

ioner under the main provision and under the proviso. n the case of his assessing the primary liability to additional tax, 1@ precise scope of his duty is defined by sec. 67 (1) itself. He determine, in the case of any person coming within pars. (a), (ce) of sec. 67 (1), what amount of liability is to be imposed taxpayer in accordance with the directions set out in the For instance, in the particular case under review, it

to pay by way of additional tax double the amount of the H.C. or A.

we Jouy v. FEDERAL Commas- SIONER OF TAXATION.

was his duty first to ascertain the tax properly payable as well as the amount of tax previously assessed to be paid by the taxpayer, and then to double the amount of the difference. Richardson's Ca (1) establishes that it was his duty to include these matters in the assessment because the liability to pay was " by way of additional tax." On the other hand, the proviso does not in itself afford any gui or standard for the exercise of the Commissioner's discretion power. He is authorized to act upon reasons which appear suffici to him. These reasons may include matters of hardship, questions of general policy and administration. It follows that th function of calculating the additional tax is a function which is

of the discretion involved in the exercise of the pardoning power of the Crown, and is not so readily capable of review and amendment

Nevertheless, under sec. 44 of the Act, the jurisdiction of Board is to review "the decisions" of the Commissioner. I disposed to give a liberal construction to this beneficial section o

of the statutory provisions which is subject to objection and re At the same time, it is too narrow a reading of sec. 44 to hold the decisions of the Commissioner which are the subject of objecti and subsequent appeal to the Board of Review are only decisions which the Act regards as proceeding according to s definite rule or standard impliedly specified in the Act itself. In my opinion, therefore, there is no clear overriding principle it the Act which should exclude from review the Commissionel decision to remit under the proviso to sec. 67 (1). Ifo, the dete ing factor in the present case is the precise relationship betwee! sec. 67 (1) and the proviso. Although the two functions of Commissioner are not analogous, "the liability is imposed," Rich and Dixon JJ. say, " not absolutely but subject to the pro The liability is to pay the additional tax minus a remission, if if decided to remit. The proviso being thus interwoven with main enactment of sec. 67 (1), I am compelled to agree with th

concludes the present matter. I should add that my own observa- 'tion at pp. 213, 214 of Richardson's Case (1) was obviously intended to be directed to excluding from the purview of the Court itself the 'ion of the severity in application of sec. 67 (1). It was not addressed to the question of the Board's functions, which are quite

• from those of the Court. 'The questions should be answered : Yes.

McTrernan J. Sec. 67 (1) of the Income Tax Assessment Act 'imposes a liability on every taxpayer to whom pars. (a), (b) or (¢) } to pay by way of additional taxation a sum calculated in he manner mentioned in the sub-section, and concludes with an nent in these terms: "' Provided that the Commissioner may, particular case, for reasons which he thinks sufficient, remit additional tax or any part thereof." This sub-section does not rate as a statutory assessment of the additional taxation payable taxpayer to whom it applies: its provisions render necessary

assessment by the Commissioner or other proper authority of

endently of assessment. The power is in effect to determine notwithstanding the taxpayer's breaches, he should be for any additional taxation at all, or for the maximum

follows that the taxpayer is entitled under sec. 50 to object to assessment of additional taxation in case the Commissioner

All the questions in the special case answered : Yes.

itors for the appellant, Hedderwick, Fookes & Alston. for the respondent, W. H. Sharwood, Crown Solicitor for

it of my brothers Rich and Dixon that Richardson's Case (1) H- ©. oF A.