Kocharyan v Commissioner of Taxation

Issues 17 There are three grounds of appeal. The principal issues on appeal are whether the primary judge was in error in: (a) rejecting the appellant's contention that s 164 of the Income Tax Assessment Act 1936 (ITAA36) does not apply to the 2007 income tax return lodged on his behalf by his tax agent as it was not in the approved form within the meaning of s 161A(1) (Issue 1). (b) concluding that there was no error of law in the way the Tribunal disposed of the appellant's case that the amended assessments had not been served on him: s 174 ITAA 36 (Issue 2). (c) concluding that the Tribunal made no error of law in finding that qualification (e) to item 1 of the table in s 170(1) of the ITAA36 applied to enable the Commissioner to amend the assessments for the 2006 and 2007 income years within the relevant four-year period (Issue 3). 18 The appellant has also advanced under his third ground of appeal an issue concerning administrative penalties. 19 The Commissioner has lodged a Notice of Contention as to whether the Tribunal had the power to determine whether the amended assessment of income tax for the 2007 income year was a nullity or invalid. 20 We will deal first with the issues raised by the appellant and if necessary, thereafter, the Notice of Contention.

Issue 1: Validity of the 2007 tax return 21 Before the Tribunal, the appellant contended that his 2007 tax return was lodged by his tax agent without his authority and, as a consequence, the original assessment and the amended assessment for the 2007 income year were invalid. 22 The Tribunal applied s 164 of the ITAA36. The statutory provision in force at the time contained a minor difference in that it referred to "him" rather than "the person". The distinction is of no significance to this case. This provision provides: Every return purporting to be made or signed by or on behalf of any person shall be deemed to have been duly made by the person or with the person's authority until the contrary is proved. 23 Only an excerpt of the 2007 tax return was in the documents before the Tribunal and this did not include the page on which an electronic signature would be inserted. However, whether the completed return did contain the agent's electronic signature was not an issue before the Tribunal. As the Tribunal observed, there had been no suggestion that the 2007 tax return did not purport to be made or signed on behalf of the appellant. This is conceded by the appellant. Rather, the issue was whether the return lodged electronically with the Commissioner by the tax agent had been duly made with the appellant's authority; in other words, was the deemed fact that the return was duly made displaced by proof to the contrary. The Tribunal concluded that it was not. It held that the appellant had not discharged his burden of proving that his 2007 tax return had not been made or signed with his authority. 24 A distinction requires to be made as between the appellant's 2007 tax return lodged electronically on his behalf by his tax agent and the return provided to him by his tax agent, under cover of a letter dated 5 October 2007, for his approval and prior to the electronic lodgement. 25 The appellant advanced no evidence or argument as to the "form" of the 2007 tax return lodged electronically. Rather, he says that the provisions of s 388-70 of the TAA were not complied with. They are as follows: 388-70 Declaration by agent If an agent gives a return, notice, statement, application or other document to the Commissioner in the •approved form on behalf of another entity, the agent must, if the document so requires, make a declaration in the approved form stating that: (a) the document has been prepared in accordance with the information supplied by the other entity; and (b) the agent has received a declaration from the other entity stating that the information provided to the agent is true and correct; and (c) the agent is authorised by the other entity to give the document to the Commissioner. 26 It seems that he also contends, although it was not an issue before the Tribunal, that in relation to the 2007 tax return lodged by the tax agent, the declaration required of her under s 388-70 of the TAA, was made fraudulently because the appellant never made a declaration under s 388-65 and never authorised the agent to give the tax return to the Commissioner. However, as we will explain later, this cannot go to a question as to the form of the return or whether it purported to have been made or signed on the appellant's behalf. He also complains that his agent did not remit to him the tax refund sent to her as a consequence of the 2007 tax return which claimed deductions for partnership losses. We are not called on to consider that matter but if it be correct then it explains the appellant's prosecution of his appeal, absent which background it makes no commercial sense. 27 He also complains that the tax agent did not notify the appellant, provided their office address for service, provided their bank account details for any refund, received a notice of assessment, received a tax refund, again did not notify the appellant; and did not pass the full or any part of the refund to the appellant. 28 The appellant, before the primary judge, did not submit that the Tribunal's decision that he had not discharged the onus under s 164 of the ITAA36 involved an error of law. Rather, he submitted, as he does in this Court, that the Tribunal's error was in treating s 164 as having any application at all. Accordingly this presents an issue of construction. 29 His starting point is s 161A(1) which requires a return to be in the approved form. The appellant's submission depends upon a "return" being a "valid" return and that a return not in the "approved form" was not a valid return. As the primary judge observed at [8] this was not an argument run by the appellant before the Tribunal. There, only two issues were advanced. First, whether the 2007 tax return purported to have been made on behalf of the appellant. Second, if so, whether the appellant had proved that the return had not been made with his authority. As we mentioned, the Tribunal observed in its reasons that there was "no suggestion" that the return did not purport to have been made or signed on the appellant's behalf. 30 Against that background the primary judge was rightly reluctant to pronounce upon the new question, whether the failure of a taxpayer to sign an authorisation provided to his or her tax agent meant that a return lodged by the agent was not in the "approved form" and consequently was not a valid return: at [11]. 31 His contention then is that, as it is not a return, s 164 of ITAA36 cannot validate it or an assessment be made in respect of it. Rather, s 164 applies only to a return which is in the "approved form". 32 He submits that the words "duly made" in s 164 mean "made in the correct way according to the expected or formal requirements" and that it would be illogical and against the statutory text and purpose of the relevant statutory provisions, if a return is deemed to have been made in the correct way according to the expected or formal requirements when it is known that the return is not in the approved form. 33 The primary judge dealt with this part of the appellant's case at [6] of his reasons. The applicant's case commenced with s 161A(1) of the 1936 Act, which required his return to be in "the approved form". The next proposition was that the Tribunal had held that the 2007 return had not been in the approved form. In the final paragraph of its reasons, the Tribunal said: On his own evidence, [the applicant] had not approved the return submitted to him by the day required for its lodgement i.e. 15 May 2007. [sic] Whether or not it contained the information he wanted in it, he had not signed it and so it was not in an approved form. As it happened, this paragraph was not part of the Tribunal's reasons for the decision which it reached on this aspect of the applicant's case. The paragraph was associated with a passage in the Tribunal's written reasons which was included merely by way of a hypothetical, in order to demonstrate that any success which the applicant might achieve in demonstrating that his failure to sign the declaration required by s 388-50(1)(b) of Sch 1 … to the Taxation Administration Act 1953 (Cth) … produced the result that his return was a "nullity" (as was his then submission) would most likely have resulted in him being liable to pay an administrative penalty under s 286-75 of the Schedule. 34 We reject the appellant's submissions. Even if it be accepted that the appellant did not sign the declaration on the return delivered to him by his tax agent this says nothing about the return lodged on his behalf with the Commissioner by his tax agent. 35 It was this which fell to be considered under s 164. He did not contend before the Tribunal that the return did not purport to have been made on his behalf. The deeming effect of the provision was thereby enlivened and was not displaced as he failed to prove to the contrary to the Tribunal's satisfaction. 36 As to this finding of fact the appellant has not advanced a "no evidence" ground. This is unsurprising. There was cogent evidence before the Tribunal and upon which it was open to it to arrive at its factual conclusion. It evaluated the evidence on this question and explained its reasons for concluding that the appellant had failed to discharge his onus in its reasons at [82]-[88]. The Tribunal's ultimate conclusion at [89] is revealing; the references to "Mr T" and "Ms Tagent" are references to the appellant and the appellant's tax agent, respectively: Bearing all of these matters in mind, the evidence is equivocal. It is consistent with various scenarios. First, it is consistent with the actions of a person who cares enough about his own affairs to ask questions but so distracted by his work that he does not ask other questions he should ask and take the actions he should take. At the same time, it is consistent with the actions of a person who has permitted and authorised Ms Tagent to manage his investment and his tax affairs and to take the steps that she considers appropriate, but who has realised too late that all is not as it should be, has not known what to do and has not set aside time to deal with the issue. Third, it is consistent with the actions of a person who is set upon creating a trail to make his past actions in authorising Ms Tagent to act on his behalf to appear something other than what they were. Left in that state, I conclude that Mr T has not discharged his burden of proof under s 164. The consequence is that his return for the 2007 income year is deemed to have been duly made by operation of s 164 of ITAA36. The validity of the Commissioner's assessments or amended assessments cannot be challenged on the basis of that the return was not duly made. 37 The appellant, before both the primary judge and this Court also, relied on a statement made by the Tribunal in an attachment to the Tribunal's reasons. The attachment was a hypothetical discussion by the Tribunal of the practical consequences of reaching a decision that the 2007 return was lodged without the appellant's authority, contrary to the decision of the Tribunal. It did not form part of the Tribunal's reasons for decision. Furthermore, the Tribunal did not say in the attachment that the return was not in an approved form. It was merely reciting the appellant's contention that it was not in an approved form. 38 This ground fails. 39 Moreover, were it necessary, the appellant did not establish that the 2007 return was not in the "approved form". Section 388-50(1) of Schedule 1 to the TAA provides that a return is in the "approved form" if, and only if, paras (a) to (d) are met. The appellant contends that paras (b) to (d) were not met. 40 Subsection 388-50(1)(b) requires that the document "contains a declaration signed by a person or persons as the form requires (see section 388-75)". The 2007 return, as we have observed, was lodged electronically by the appellant's agent. The approved form for a return lodged electronically by an agent requires a declaration by the agent, not a declaration by the taxpayer, although the agent's declaration refers to a separate declaration made by the taxpayer: ss 388-70 and 388-75(3)(b). The appellant has never suggested that the 2007 return did not contain his agent's declaration. Nor could he have done as we have explained. Subsection 388-50(1)(b) does not require that the document contain another declaration in relation to the deposit of a refund. The appellant relies on s 8AAZLH(2) of the TAA. However, this has no application. As the Commissioner correctly submits, it was not a refund payable to an entity of "RBA surpluses" or an "excess non-RBA credit that relates to an RBA" in a situation where the primary tax debt arises under any of the "BAS provisions": s 8AAZLH(1) of the TAA. 41 Subsection 388-50(1)(c) requires that the document "contains the information that the form requires, and any further information, statement or document as the Commissioner requires, whether in the form or otherwise". Subsection 388-50(1A) provides that a document that satisfies (1)(a), (b) and (d) but not para (1)(c) is also in the "approved form" if it contains the information required by the Commissioner. The appellant's submission, it appears, is that if a declaration made in the document by an agent is false, for example, a declaration that the agent is authorised by the taxpayer to give the document (the 2007 return) to the Commissioner, then the document does not contain the information required by the Commissioner. We reject this submission. Whether a document is in the approved form must be apparent on its face. It cannot be a question whether the declaration in whole, or part, is true or not. 42 Section 388-50(1)(d) requires that the document "is given in the manner that the Commissioner requires (which may include electronically). A document that is lodged electronically is given in the manner that the Commissioner requires. 43 Finally, as the Commissioner submits, correctly, in our opinion, even if s 164 does not apply, the validity of the original and amended assessments for the 2007 income year would not be affected. Ultimately, it is these which the appellant seeks to strike down as excessive. Section 166 of the ITAA36 provides that the Commissioner shall make an assessment "[f]rom the returns, and from any other information in his possession, or from any one or more of these sources". The original and amended assessments would be taken to have been duly made: ss 173, 175 and 177(1).

Issue 2: Service of notices of amended assessment 44 The appellant's case contended before the primary judge and on this appeal was that the post office box to which the notices of amended assessment for the 2006 and 2007 income years were addressed was not his preferred address for service and that, consequently, the Commissioner had not complied with the service requirement under s 174(1) of the ITAA36. The notices were addressed to PO Box 2399, Mount Waverley VIC 3149. 45 Section 174(1) provides: As soon as conveniently may be after any assessment is made, the Commissioner shall serve notice thereof in writing by post or otherwise upon the person liable to pay the tax. 46 Further facultative provisions regarding service of documents on the Commissioner are found in regs 36 and 40 of Income Tax Regulations 1936 (Cth) (the Regulations). These further provisions do not derogate from the broad text in s 174. Service may be effected by post "or otherwise". The Tribunal held as much at [98] of its reasons. 47 There is no need in this case to have resort to the Regulations. The Tribunal found that service had been affected on the appellant: Briggs v Deputy Commissioner of Taxation (1986) 88 FLR 235. 48 The point of the appellant's argument seems to be that until service has been effected no amended assessment has been duly made. We have referred to his contentions before the Tribunal. However, it needs to be borne in mind that the appellant's objection to his amended assessments, properly characterised, was that they were excessive. Accordingly, he carried the burden of proving that the assessments in each case were excessive: s 14ZZK(b)(i) of the TAA. 49 This burden embraced every relevant fact which he required to establish. Accordingly, it was not to the point to submit that the Commissioner had not proved service. It was for the appellant to prove that service had not been effected upon him. He did not do so. As the primary judge noted at [15] the appellant was confronted by the finding of the Tribunal (at [103]) that he had "clearly received the notices of assessment". Nonetheless, he contended before the primary judge and this Court that this finding was made without any evidence to support it. As the primary judge correctly explained, this was to reverse the burden of proof. The Commissioner did not carry that burden. Moreover, the appellant acknowledged during the argument on appeal, that he never contended before the Tribunal nor before the primary judge that he had not received the notices of assessment. 50 Were it otherwise relevant, and it is not, there was, in any event, evidentiary support for the fact that he did receive the notices of assessment. 51 The appellant's objection against the amended assessment for the 2006 income year contained a reference to the address PO Box 2399, Mount Waverley VIC 3149 as being the address of Windsor Financial Strategies, which, according to the appellant's letter to the ATO dated 7 September 2010 concerning his objection, was the firm that acquired the business of his tax agent. 52 The appellant wrote to the ATO on 4 June 2010 objecting to the amended assessment for the 2006-2007 income year. The ATO responded to the appellant by letter dated 16 June 2010, informing notified him that his objection was invalid as an amended assessment for the 2006-2007 income year had "not yet been issued to you". It continued by stating "(w)hen you receive the amended assessment, you may lodge another objection". 53 Shortly thereafter the appellant did lodge a further objection dated 21 June 2010 against the amended assessment for that income year dated 9 June 2010. His written objection form, under Section C, concerning the decision objected to contained, amongst other information provided to him, the following: "Amended assessment dated 9 June 2010 Ref: 710 017 853 6374". This was the date and reference number contained on the notice of amended assessment for the 2006-2007 income year issued by the Commissioner and addressed to the appellant. 54 The inference that he in fact received the notices of amended assessment for that income year is self-evidently compelling in light of the foregoing. 55 There was no suggestion in either of the appellant's objections, or the appellant's letter dated 7 September 2010, that the appellant had not received the notices of amended assessment. 56 The conclusion of the primary judge that there was no error of law in the way the Tribunal disposed of the issue concerning service is unassailable. This ground fails.

Issue 3. Validity of amended assessments and administrative penalties 57 Questions 3.1 and 3.2 in the notice of appeal are addressed to challenging the primary judge's conclusion that the Tribunal made no error in finding that qualification (e) to item 1 of the table in s 170(1) of the ITAA36 applied to enable the Commissioner to amend the 2006 and 2007 assessments within four years after he had given the respective notices of assessment to the appellant. 58 Item 1 of the table in s 170(1) of the ITAA36 provided that the Commissioner may amend an assessment of an individual within two years after the day on which he or she gives notice of the assessment to the individual. Item 1 did not apply if any of the qualifications in the second column of the table applied. Qualification (e) provided that item 1 does not apply: if it is reasonable to conclude that any person entered into or carried out a scheme (either alone or with others) for the sole or dominant purpose of the individual obtaining a scheme benefit in relation to income tax from the scheme for that year. 59 If item 1 did not apply, the Commissioner could amend an assessment within four years after the day on which he gave notice of the assessment to the taxpayer: item 4 of the table in s 170(1) of the ITAA36. Each of the amended assessments was made within four years after the day on which the Commissioner gave notice of the assessment to the appellant. 60 A question was raised by the Court with counsel for the Commissioner during argument as to whether, for the purposes of s 170(1) of ITAA36, the power conferred on the Commissioner to "amend an assessment" required service of the notice of an amended assessment to be made upon the person liable to pay the tax in order to constitute an amended assessment. 61 Liberty was given to both parties to file written submissions limited to that point. The appellant's submissions ranged considerably wider than the liberty granted and to that extent we have not taken them into account. However, both parties submitted, correctly we conclude, that the authorities concerning the making of an assessment apply to the same effect in relation to the making of an amended assessment such that to amend an assessment the Commissioner must serve notice of the amendment on the taxpayer. Those authorities include Batagol v Commissioner of Taxation (1963) 109 CLR 243 and Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1. 62 This does not affect the conclusion otherwise reached that the amended assessments were each made within four years from when notice of them was given to the appellant by the Commissioner. 63 The appellant's claimed deductions were allowed in the original assessment. The Commissioner issued amended assessments and disallowed the deductions under a general provision, s 8-1 of ITAA97 in the 2006 and 2007 years. It is common ground that the amendments to the assessments were made outside the two year time limit under item 1. 64 He does not contend that there was no scheme. Rather, he submits that on its proper construction, qualification (e) does not apply because there were no allowable deductions and therefore no scheme benefit was actually obtained. Accordingly, he submits that the sole or dominant purpose test fails. Accordingly, he submits that the Commissioner had two years to amend his assessment and was therefore out of time. 65 These submissions are misconceived at the threshold. There is no need to consider extrinsic material to construe s 170(1) and qualification (e). 66 The appellant's submissions proceed upon the premise that, for qualification (e) to item 1 of the table in s 170(1) to apply, the appellant must have obtained a "scheme benefit". This is a false premise. This is immediately evident from the text of qualification (e) which requires, for its application, that it is reasonable to conclude that a person entered into or carried out a scheme, either alone or with others, for the sole or dominant purpose of the individual obtaining a scheme benefit. There is no requirement that a benefit was in fact obtained or was obtainable. Were it thought to be of assistance the Explanatory Memorandum for the Tax Laws Amendment (Improvements to Self Assessment Bill (No 2) 2005), which introduced s 170(1), is consistent with this construction. However, there is no need to have resort to this. The language of s 170 is clear and unambiguous. 67 Relevantly, it is concerned with the taxpayer's sole or dominant "purpose", not whether that purpose was achieved or was achievable. 68 Nor do we accept the appellant's submissions that qualification (e) to item 1 is limited to tax avoidance schemes to which an "adjustment provision" (such as Part IVA) can be applied. Qualification (e) in its terms does not admit of such a construction. 69 In any event, the imposition of a penalty under s 284-145 of Schedule 1 to the TAA and conditions applicable in relation to that are quite distinct from the application of qualification (e) to Item 1 in s 170(1) of the ITAA36. 70 Likewise the appellant's acknowledgment during the audit stage that the already allowed deductions in respect of partnership losses he had claimed in his tax returns were not allowable does not lead to a conclusion that qualification (e) could not apply. 71 The Tribunal's finding was that qualification (e) had been established on the evidence before it. Against that finding of fact the Tribunal made no error in concluding, in respect of the 2006 amended assessment and the 2007 amended assessment, that these were each made within the four-year time limit prescribed by item 4 of the table in s 170(1) and which applied to them. 72 The primary judge correctly concluded that no error was exposed in this respect on the part of the Tribunal. 73 We should also say something about the appellant's reliance on the Tribunal's statement at [130] of its reasons: Had the Commissioner relied on Part IVA and had I concluded that it applied, the relevant provision permitting the Commissioner to amend the assessments would not have been s 170 of ITAA36 but s 177G. 74 This passage involved the hypothetical application of Pt IVA of the ITAA36. The appellant's contention that the Commissioner should have had regard to the matters set out in s 177D of Pt IVA is without foundation. Part IVA has no application as both the Tribunal and the primary judge correctly found. 75 The appellant also relied on the decision in Vincent v Commissioner of Taxation (2002) 124 FCR 350 which the Tribunal distinguished correctly, on the basis that there the Commissioner had sought to rely on s 177G in Pt IVA for the power to amend the assessment. In this case the Commissioner relied on s 170, not s 177G. 76 Qualification (e) to item 1 of s 170(1) is different in its terms from s 177G and had no application.

Administrative penalties for scheme shortfall amount 77 The appellant submits that the decisions in Federal Commissioner of Taxation v Star City Pty Ltd (No 2) (2009) 180 FCR 448 at [18]-[26] and Re Brown and Federal Commissioner of Taxation (2006) 65 ATR 172 at [138] preclude the application of subdiv 284-C of the TAA where a deduction is not allowable under a general provision such as s 8-1 of the ITAA97 and that accordingly where, as here, the deductions were not allowable administrative penalties for scheme shortfall amounts were imposed incorrectly. 78 This part of ground three is incompetent. 79 The appellant did not contend before the Tribunal that the penalties assessed by the Commissioner were excessive other than as a consequence of the amended assessments being nullities. Neither did he object to the assessment of administrative penalties. It follows that there was no application for review of the penalties as such before the Tribunal. It was unnecessary for the Tribunal to make a finding that penalties were payable under Division 284 of Schedule 1 to the TAA. Nonetheless it stated that it was satisfied that the penalties were payable. The primary judge was not obliged to deal with this new point which had not formed part of the appellant's taxation objection and had not been before the Tribunal for review. His Honour was not in error in not resolving a non-issue. 80 We would for these reasons dismiss the appeal with costs. We do not consider it necessary to deal with the Notice of Contention and particularly so when it was not an issue determined by the primary judge. I certify that the preceding eighty (80) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Gilmour, Murphy & Mortimer.