Mutton v Mutton vMatnr? PER }

[23]

the tax upon the taxable income. Then he ascertained the differ- ence between the tax computed by him - the tax properly payable

and the tax which had theretofore been assessed upon the tax- payer upon the basis of the returns lodged by him. He doubled this amount and charged the resulting sum as additional tax. It is, I think, the method prescribed by sec. 67. There is nothing in Penrose's Case (1) to the contrary. But as to the year 1929, Penrose's Case is against the Commissioner. As I understand the facts, the Commissioner in this year made only one assessment, He ascertained in the first instance the amount of tax properly payable by the taxpayer. The provisions of sec. 67 predicate, as I said in Penrose's Case, a difference between a tax properly payable and a tax assessed upon the kasis of a return lodged by the taxpayer. The procedure adopted for the additional tax for the year 1929 is not warranted by sec. 67, and the additional tax - £36 11s. 6d. - must be disallowed. This brings me to the payments made by Collins. The taxpayer contended that these sums should be credited against the increase in the amount of the tax payable by him by reason of the inclusion of the profits of the Exchange Hotel in his taxable income, and that the additional tax under sec, 67 should be assessed on the balance. Thus, to take the year 1924 : - Increased amount of tax, £3,775; paid by Collins, £2,054; balance, £1,721. Here, the additional tax, according to the tax- payer's contention, should be assessed on this sum of £1,721. Jus- tice would thus be done to the taxpayer, though his punishment would still be heavy, for additional taxation by way of penalty would in the aggregate amount to £9,078, instead of £22,689, as now imposed. The provisions of sec. 67 are, I think, too strong. They explicitly enact that the additional tax shall be the difference in amount between the tax properly payable and the tax assessed upon the basis of the returns lodged. Another view is, however, possible. As I have said, the Commissioner, in arriving at his balance of the amount due by the taxpayer in each of the years under appeal has credited the taxpayer only with amounts paid by - him, and gives no credit for any amounts paid by Collins. But if the Commissioner treats Collins as a mere nominee or dummy of

[35]

that the Income Tax Acts do not permit taxation of the sa income twice in the hands of different people. Collins's assessment should have been amended by taking out Richardson's income from Collins's income. The consequence is that the whole of Richard- sons's assessment is wrong and should be struck out (Commissioner of Taxes v. British Australian Wool Realization Association Ltd. (1)). Sec. 67 provides for payment of double the amount of the difference between the tax properly payable and the tax assessed upon the - basis of the return lodged. Sec. 67 should be read with secs. 54 and 56, and the way the Commissioner is entitled to get the double tax is by amendment under sec. 37. If he calls in aid sec. 67 the Commissioner gets double the rate, but he has assessed under sec. 37 as if it stood apart and then doubled the difference in tax, and thereby gets triple tax. Had the Commissioner alleged fraud, he would only recover treble the amount of the avoided income tax, in addition to the penalties provided by secs. 68 and 69, Sec. 67 only enables the Commissioner to recover double the amount of the difference between the tax properly payable and the tax assessed. The Commissioner cannot recover money under sec. 67 alone (Penrose v. Federal Commissioner of Taxation (2)). The additional tax pay- - able under sec. 67 is recoverable only under sees. 54 and 57, which apply to the recovery of money under the amended or original assessment. If sec. 67 is not called in aid, the amount is simply the difference between the original and the amended assessments, but if sec. 67 is called in aid the amount payable is double the difference. Under sec. 67 the Commissioner can recover only double the difier- ence. Sec. 71 shows that if the Commissioner recovers money under secs. 68 and 69, he recovers it as a penalty, but the additional tax under sec. 67 is not a penalty. If the Commissioner's view is correct, if there is fraud you cannot recover as much as you could under sec. 67 when no fraud is alleged, as the Commissioner cannot charge double tax under sec. 67 if he proceeds under secs. 68 and 69.

[72]

lodged. It would be a departure from the legislative policy, if, ; proceedings to recover additional tax, the questions what tax properly payable, whether receipts omitted from the retum assessable and whether deductions included are allowable, were n concluded by the existence of a standing assessment but were le for determination as issues of fact upon a trial at law. Fin might be given upon these questions quite at variance with | conclusions adopted by the Commissioner in making his asses a of tax, or by the Board of Review in deciding a reference under th assessment, or by the Court in determining an appeal from assessment. Further, some notification must be given to the ta payer of the existence and the amount of his liability under see. 67 The Commissioner must formulate a claim to additional tax an must make a preliminary determination of these matters as well consider remitting the liability. Except the process of makir amending and notifying assessments, no method is indicated b the Act in which such a determination or claim should be expres or communicated. That process and the subsequent pro upon objection provide the Commissioner with a convenient metho and an appropriate occasion for determining whether the secti applies to the case, and, if so, how he will exercise the discreti which it reposes in him, and for recording and communicating th result ina formal manner. Finally the very description " additio tax " gives rise to a presumption that it will be levied and colle in the same way as the principal tax to which it is accessory. Unle some contrary intention appears, the inclusion of additional tax the assessment is a natural consequence of the view that the asce tainment of the tax, as well as of taxable income, is part of process of assessing. Notwithstanding the suggestion to the co trary which I hazarded on a former occasion (R. v. Federal missioner of Taxation ; Ex parte King (1)),1 think that the interpretation of the statute is that the procedure of ass objection, review and appeal does apply to additional tax

[76]

'\ g, or is not, entrusted with the revision of this discretion depends ty upon the language of sec. 44, which does not apply to the Court. The decision of Starke J. in no way depends upon any exercise of discretion: It does no more than appropriate, in partial discharge of the prima facie liability of the taxpayer, a portion of payments | already received by the Commissioner in satisfaction of tax levied \ upon another person in respect of the same income. Counsel for the ® Commissioner did not support the Commissioner's appeal against

the correctness of this appropriation, but contented himself with : denying the authority of the Court or Board to deal with the matter under sec. 51, and with a further contention that what his Honor . had done fell outside the limits of the taxpayer's objection. This |: latter contention depends upon the fact that the objection, so far e as material, is confined to the excessive amount of the penalty and _ upon the suggestion that the order appealed from really reduces the ordinary tax. The order is not so expressed, but, on the contrary, _ purports to reduce the total liability of each assessment by amounts ~ equivalent to the nominee's contribution to the revenue in respect of the income included in that assessment. _ For these reasons the Commissioner's cross-appeal fails. ~ The first ground upon which the taxpayer complains that the order of Starke J. is not sufficiently favourable to him is that the Commissioner ought not to be admitted at all to set up the liability of the taxpayer to be taxed upon the income derived from the operations of his nominee, while the Commissioner maintains the assessment of the nominee in respect of the same income and retains 'the tax paid under the assessments. The assessments were not made 'upon the nominee in a representative capacity, and it is plain that two persons cannot be severally liable each in his own right to include in his individual assessment for the same year the same income. It 'is said, therefore, that, although upon the findings of the Board the 'income must be taken to be part of the assessable income of the tax- 'payer, yet so long as assessments upon the nominee which include _ the income as his are maintained in force to warrant the retention

[89]

exposed the taxpayer, so much must be considered to be alre satisfied as is represented by payments made by the nominee in excess of his true liability to the Crown. To meet the difficulty which this contention encounters in the language of the se counsel for the taxpayer offers two interpretations - either of which would suffice. First, it is said that the expression " the tax ass upon the basis of the return lodged " should be applied to all tax assessed in respect of the income whether against the taxa pean' his nominee. No doubt the word "return" "returns," so that, for instance, if the complaint was that a taxpay who had made more than one " return " for the year had included excessive deductions in his statement of taxable income, the se might be applied as if there were one return. But it is quite anoth thing to construe it as if the identity of the taxpayer were irrele to the returns so long as they related to the income. returns made under sec. 89 might be considered with returns by principal, and there may be other cases where persons are responsible for one another in respect of the same income, but the expre "tax assessed upon the basis of the return lodged " cannot, in my opinion, extend to the case of two independent persons assuming ti make returns of their individual income. The second interpretation turns upon the phrase "the tax properly payable." This is co strued on behalf of the taxpayer as referring simply to the deficie of tax levied upon items of income, to the amount of tax in of any income which the revenue should have, but has not, received as disregarding the payer and concerning itself only with the p ment, so that the amounts paid by the nominee must be allowed ascertaining what remains to be paid in respect of the income of taxpayer wrongly included in the nominee's return. Some sup, for this view of the meaning of the provision was sought in the con- sideration that the language of the provision was probably ado merely to avoid the implication of fraud contained in the wot " evade " in the provision as it stood formerly, when it was expressed _ "the tax which would have been evaded if" &c. But, whatever

[90]

may have actuated the change, the terms now employed leave no doubt that the tax properly payable means " the tax which the i taxpayer ought to have paid." A comparison is required between "two amounts. The first amount is that which the taxpayer ought 0 have paid. The second is either what he would have been required to pay if his return had been adopted for his assessment, or what he has actually been required to pay by an assessment actually made upon the basis of the return lodged. It is for present purposes immaterial which of these alternatives correctly describes the second amount, although Starke J., following his decision in Penrose v. Federal Commissioner of Taxation (1), adopted the latter alternative _ for the purpose of his decision in respect of the last year of assessment : in this case upon which the Commissioner does not persist in this

appeal. What is material is the nature of the first amount. It ~ consists not of the loss suffered by the revenue at the time when sec. _ 67 is put into operation, but of the sum which ought originally to have been levied on, and paid by, the taxpayer. For these reasons "it is impossible to take the reductions ordered by Starke J. into account at an earlier stage in the calculations than his Honor did, » that is, before ascertaining or in ascertaining "the amount of the difference between the tax properly payable and the tax assessed _ upon the basis of the return lodged." The last ground urged in support of the taxpayer's appeal is that sec. 67 does not require double this amount to be paid in addition to the full ordinary tax, that is, in effect, not treble the difference, but only double the difference. It is said that the section is dealing with " additional tax" of the same character as that to which sec. 9 applies, and differs only from sec. 37 in that it requires payment of double the difference between the amount of the original assess- ment and that found to be properly payable as a result of making alterations and additions. Secs. 54 (2) and (3) and 56 speak of the amount of tax payable in consequence of an amendment as " addi- tional tax," and much of the reasoning by which this argument of the taxpayer was supported depends upon the similar description contained in sec. 67. But the use of the same expression does not justify the conclusion. "Additional tax" is a descriptive term

[92]

applied to many different kinds of further liability imposed by th income tax legislation. It is used in sec. 21 (2) of the Act of 1922 o a further amount of tax payable by reason of a distribution of pr by a company among its members, and probably in the pi substituted for that sub-section by No. 51 of 1924, sec. 7, it has th same meaning (see also sec. 21, sub-sec. 2a, and sec. 16 (6) (ii.) (8)), In sec. 56 it is used in two different senses, first to describe the payable as a result of alteration or addition to an assessment then a further liability of a penal character. In sec. 5 of the Incon Tax Act 1916 (No. 37 of 1916), and I think in all the subsequent g Acts, the phrase is used to describe a further impost consisting of percentage of the amount of tax resulting from the application of th declared rates to the taxable income. In sec. 65 (6) of the Income Tax Assessment Act 1922-1930 it is used in the definition of "tax" to include all these meanings. No doubt, in sec. 57 (2) and sec. 58 it use is ambiguous. Sec. 67 itself applies the expression " additional tax " to a percentage increase by way of penalty, and in its origin form (sec. 59 of the Income Tax Assessment Act 1915) this percentag increase was the only consequence that ensued from failure to includ assessable income in a return, and was described as a liability by of additional tax. The change made in the provision by sec. 40 of N 18 of 1918 seems to have been directed not to an alteration in the nature of the liability but to a differentiation between and to an increase in its maximum amounts. Further, the reference to the tax properly payable, to a minimum of one pound, to the additi tax for late payment, and to remission, while none of them inconsistent with the taxpayer's argument, all suggest its incorre ness. At first sight, the choice given the Commissioner of suing td recover a penalty appears to be still more against the taxpayel view, but, perhaps, if stress is laid on the words " this section " in th 7 statement "in that case the additional tax payable under section shall not be charged," the provision may be explained implying that a single additional tax remains payable under sec. It follows that sec. 67 intends to impose a liability to the "a tional tax " that it describes which is cumulative upon the ordina liability of the taxpayer for tax in respect of his true taxable income,

Mutton v Mutton vMatnr? PER } - [1932] HCA 67 - HCA 1932 case summary — Zoe

At a glance

Court

Decision date

Before

Source

Judgment (117 paragraphs)

Parties

Cited By (1)