Reynolds, David Malcolm v The Deputy Commissioner of Taxation [1984] FCA 297

Federal Court of Australia|1984-09-26|Before: Neaves JJ, Blackburn J

The appeals by the Deputy Commissioner of Taxation

AUSTRALIAN CAPITAL TERRITORY No. ACT G15 of 1984 No. ACT G42-49 of 1984

Part VI of the Income Tax Assessment Act 1936 ("the Act") is entitled "Collection and Recovery of Tax". Division 2 of that Part is entitled "Collection by Instalments of Tax on Persons other than Companies". The scheme of this Division is that employers are required to deduct, from payments of

salary or wages to their employees, amounts representing the

income tax for which those employees may be liable, and to

pay to the Commissioner the amounts so deducted. A "group

employer" (one who has ordinarily had in his employment ten or

more employees from whose salary or wages he has been required to make deductions) is required by subs. 221F(5) to pay to the Commissioner the amount of the deductions he has so made not later than the seventh day of the month next succeeding the month in which he has made them. Failure to comply with any of the provisions of s8.221F is an offence (subs.11).

Sub-section 252(1) of the Act makes provisions relating to the public officer of a company which carries on business in Australia or derives in Australia income from property. Every such company must appoint a public officer. The liability of the public officer is prescribed in paragraph 252(1)(£), as follows

doing of all such things as are required to be done by the company under this Act or the Regulations,

and in case of default shall be liable to the same penalties.* Paragraph (j) of the same subsection, however, goes far beyond the scope of the rest of the subsection. This paragraph,

which had its origin in an amendment to s.88 of the Act of

altering or transferring the liability of the public officer of a company, every notice, process or proceeding which under this Act or the regulations thereunder may be given to, served upon or taken against the company or its public officer may, if the Commissioner thinks fit, be given to, served upon or taken against any director, secretary or other officer of the company or any attorney or agent of the company and that director, secretary, officer, attorney

or agent shall have the same liability in respect of that notice, process or proceeding

as the company or public officer would have had if it had been given to, served upon or taken against the company or public officer."

The proper construction of this paragraph is the principal matter for determination in these appeals.

The Court has before it nine appeals by Mr Reynolds, which by agreement were heard together. The appellant was convicted in the Court of Petty Sessions of the Australian Capital Territory of nine offences of failing to comply with Paragraph 221F(5)(a) of the Act, that paragraph being, as mentioned above, the provision which requires a group employer to pay to the Commissioner the amount of deductions made from employees 'wages. In each case, the information, as amended, was in this form: the one quoted being the first, and the others differing only in respect of dates and amounts.

was a director of that company within the meaning of

failed to comply with the provision of s.221F(5)(a)

of the Income Tax Assessment Act as made applicable to him by virtue of s.252(1)(j) in that Fairlin

1981 deductions of income tax from the wages of its

The appellant appealed unsuccessfully to the Supreme Court of

the Australian Capital Territory, which affirmed the conviction in each case. For the hearing of the appeals there was an agreed statement of facts which, as 'amended, read as follows:

"1. Fairlin Pty. Limited is a company duly incorporated in the A.C.T.

David Malcolm Reynolds (the Appellant) was at all material times a director of the said Fairlin Pty. Limited.

Fairlin Pty. Limited was at all material times a properly registered group employer within the meaning of s.221A(1) of the Income Tax Assessment Act and an employer of various persons during the relevant period.

Fairlin Pty. Limited paid salary and wages to its employees in each of the months of October 1981 to June 1982 inclusive and made deductions therefrom on account of income tax pursuant to $.221C(1) and (1A).

In each of the said months Fairlin Pty. Limited failed to 'pay to the Commissioner the amount of tax deductions' made from wages of its employees on or before the 7th day of the month following the month which deductions were made.

The company wages were paid weekly from the company bank account and no further cheque was @rawn each week from the company account and no separate fund created to hold tax deducted amounts, pending remission to the Commissioner.

Wages were calculated and a cheque for nett wages (gross wages less tax deducted) was drawn, cashed and only these moneys paid to employees.

Fairlin Pty. Limited has ceased trading and has not paid the deductions to the Commissioner.

The amount of tax deductions which Fairlin Pty. Limited failed to pay to the Commissioner for each month (being the monthly. total deductions made from employees' wages) is set out in the information in each instance.

The Appellant in his personal capacity was not, in relation to any matter which is material to

these proceedings, an employer who paid salary or wages to person who were his own employees.

exercise of powers or functions validly delegated to him by the Commissioner of Taxation under s.8(1) of the Administration Act 1953 saw fit to institute proceedings against the Appellant as director of Fairlin Pty. Limited pursuant to s.252(1)(4)." The appellant appeals to this Court against each order of the Supreme Court affirming his conviction. The question in the appeals is whether paragraph 252(1)(j) venders the appellant liable for the commission of the offence committed by the company, in failing to pay to the Commissioner the amounts deducted from its employees' wages.

Paragraph 252(1)(j) is certainly a remarkable provision; so far as I have been able to discover, it appears only in Australian taxation statutes. Counsel referred the Court to the passage in Hansard which records the debate in the House of Representatives when the legislative predecessor of this paragraph was introduced. It was inserted into s.88 of the Income Tax Assessment Act 1922 by Act No. 50 of 1930. The authority for thus referring the Court to Hansard was s.15AB of the Acts Interpretation Act 1901. The essential words of this section are in subs.(1)-

".e2.e- if any material not forming part of the Act is capable of assisting in the ascertainment of the meaning of the provision, consideration may be given to that material ... to determine the meaning of the provision when ... the provision is ambiguous or obscure ..."

Subs.(2) provides a list of material which may be considered

record of debates in the Parliament or either House

In the case before us, I found the reference to Hansard totally unhelpful. In my opinion, the passage in question is not "capable of assisting in the ascertainment of the meaning of the provision". The only thing that clearly appears from it is that the Minister responsible for the Bill did not himself understand the provision in question. Apparently the second reading speech does not assist in the construction of this particular paragraph, which was introduced in Committee.

It seems to me that an attempt to construe paragraph (j) must begin with an examination of paragraph (f). This paragraph appears to me to impose on the public officer of a company the same criminal liability as falls upon the company itself, in case of any default in the doing of anything which is required to be done by the company under the Act. I do not see how it could possibly be argued that paragraph (f) does

not impose criminal liability on the public officer; the words

"and in case of default shall be liable to the same penalties"

are impossible to construe otherwise than as imposing criminal liability. If, then, a company would be liable under subs.221F(11) for failing to comply with paragraph 221F(5)(a), the public officer of the company would be subject to the same criminal liability.

In Lean v. Brady (1937) 58 C.L.R. 328, the appellant was the public officer of a company, having been duly

appointed in accordance with a provision of the Income Tax

(Management) Act 1928 (NSW). By the Special Income and Wages Tax (Management) Act 1933-1934, every employer was obliged to collect from his employees by deduction the amount of a tax called the wages tax, and to pay the tax so collected in the manner prescribed. Subsection 16(8) of the latter Act was as follows "Any employer who fails to carry out or observe any provision of this section shall be liable to account for and pay to the Commissioner any tax which by or because of his failure remains unpaid ... such employer shall upon summary conviction be liable to a penalty ...". Subsection 15(1) of the latter Act provided that certain sections of the Income Tax (Management) Act 1928 "shall be applicable to the tax (i.e. the wages tax) as if such taxes were the income tax under the principal Act" (i.e. the Income Tax (Management) Act 1928). Those sections of the principal Act included one which provided that the public officer should be liable for the doing of all such things as were required to be done by or on behalf the company under the Act and in case of default in doing any such things should be liable for all penalties

imposed for any breach of the provisions of the Act.

having failed to pay to the Commissioner the wages tax which the company had collected from its employees, but had failed to pay to the Commissioner. The High Court quashed the conviction. The essence of the Court's decision was in the effect given to the words of subs.15(1) quoted above, which

made the liability of the public officer in respect of wages

tax depend upon the notional assimilation of wages tax to income tax. Under the Income Tax (Management) Act there was provision for certain criminal liability of a company (and consequently of its public officer) but there was no provision for criminal liability for non-payment of income tax. The liability of the public officer was not expressly provided for in the Special Income and Wages Tax (Management) Act, but only by reference to the principal Act, as if the wages tax were income tax. Once one assumed, therefore, that wages tax collected under the Special Income and Wages Tax (Management) Act was "income tax under the principal Act", it followed that the public officer could not be criminally liable for not paying it; and this was notwithstanding the fact that the company itself could be criminally liable for not paying it, under the Special Income and Wages Tax (Management) Act.

But in the case before this Court there is nothing comparable to this notional treatment of one kind of tax as another kind of tax, as a determinant of the liability of the public officer. Section 221F requires the employer to collect money from his employees, and makes it an offence not to pay to the Commissioner money so collected. Paragraph 252(1)(f) makes the public officer of a company liable, in case of default by the company, to the same penalties as those to which the company is liable. In my opinion it is clear that

Lean v. Brady is no answer to the proposition that the public

officer of a company which commits the offence of not paying money to the Commissioner in accordance with paragraph

221F(5)(a) is liable to the same penalties as the company.

One now has to turn to paragraph 252(1)(j). Its words may, for the purposes of this case, be reduced to the following

may be .... taken against the company or its public

officer may, if the Commissioner thinks fit, be ... taken against any director ... of the company ...

and that director ... shall have the same liability in respect of that ... proceeding as the company or

public officer would have had if it had been ... taken against the company or public officer."

This provision seems to me quite explicit. I see no escape from the conclusion that the effect of this section, for the purposes of these appeals, is exactly the same as if paragraph {f) had read "The public officer, and, if the Commissioner thinks fit, any director, shall be answerable for the doing of all such things ... etc." Paragraph (j) imposes criminal liability on a director, in the

circumstances set out, no less certainly than paragraph (f)

imposes criminal liability on the public officer. In the case of a director, the elements of the crime are the following (a) default by the company in the doing of something which is required to be done by the company under the Act; (b) the fact that the defendant was a director of the company; and (c) a decision by the Commissioner that proceedings in respect of such default be taken against the defendant. (Incidentally, this last element should, I consider, have been

alleged in the information in the Court of Petty Sessions; it

was however proved, and included in the statement of agreed facts). There is no necessary element of fault, either by way of act or of omission, on the part of the defendant, any more than there is in the case of criminal liability of a public officer under paragraph (f). Indeed, the liability under paragraph (j) is one step further removed from the normal constitution of a criminal offence, in that a decision to prosecute the director is expressed as an element of the offence; it is not merely (as it is normally) an unexpressed but necessary step in the subjection of the accused to the criminal process. It is not for the Court to speculate why the legisiature chose this drastic method of applying a criminal sanction for the protection of the revenue. One would have been much less surprised to see a provision which enabled the Commissioner, in the event of default on the part of the company, to serve an appropriately worded notice on a public offiger or director, and created the offence of failing to comply with the notice. Such a provision would be much less potentially harsh. But the fact that the Parliament has not seen fit to adopt such a procedure, but has preferred one which appears to be paralleled only in other Australian tax legislation, does not enable this Court to reject the Parliament's plainly expressed intention.

I can see no way of construing either paragraph (f) or paragraph (j) as excluding criminal liability altogether. There might well be room for such an argument if paragraph (f) were not there; it would then be possible to argue that

paragraph (j) does not expressly refer to criminal liability

at all. That, in my opinion, is the answer to an alternative argument put to the Court on behalf of the respondent in this case, that the respondent's case could be established without reliance on paragraph (f). As I have already said, paragraph (f), using as it does the words "default" and "penalties", must impose criminal liablity. The words of paragraph (j), in turn, do not permit the conclusion that the liability imposed is limited to civil liability, since paragraph (f) is clearly not so limited.

Counsel for the appellant tried to convince us that if paragraph (j) does import criminal liability, there can be a distinction between liability for some kinds of default, and liability for other kinds. His argument was that paragraph (3) imposes criminal liability only for non-compliance with machinery provisions, such as the timely submission of returns, or the truthfulness of the facts stated in returns, and not for the non-payment of tax. Counsel drew some comfort in this respect from some of the words of Dixon J. in

"The discharge of the various' responsibilities placed upon the taxpayers in relation to _ the administration of the income tax law of which, perhaps, the best example, because the most common place, is making annual returns of income ... The 'things required to be done' do not refer to payment

of tax but to the active responsibility falling on taxpayers in connection with returns, assessments and ancillary matters." These are two answers to this valiant attempt to cut down the scope of paragraph (j). One is that Dixon J. was referring to a New South Wales Act in which non-payment of tax was not an

offence, whereas in the Act, non-payment of deductions from

wages is an offence. The other is that the default alleged against the company is, precisely, default in a matter of machinery - an "ancillary matter" - the payment over to the Commissioner of money collected as tax from those who may be liable to pay the tax. It is to be remembered that s.221F forms part of Part VI of the Act, entitled "Collection and Recovery of Tax". To my mind, the impossibility of making a rational distinction between an ancillary matter such as the submission of a truthful return, and an ancillary matter such as the payment over of deductions from wages, 1s ample manifestation of the unsoundness of attempting to distinguish between kinds of "default*® in construing paragraph 252(1)(j).-

Stress was placed by counsel for the appellant on the fact that paragraph (j) does not stop at imposing criminal liability on directors, but extends to secretaries, other officers of the company, or any attorney or agent of the company. As an argument against the desirability of the legislation, this seems to me very weighty, but I find it impossible to accept it as an argument against' the construction of the paragraph as imposing criminal liability on this appellant. The Court's task is to apply the legislation in accordance with its clear purpose, however much it may regret the result.

The Court also has before it nine appeals by the Deputy Commissioner. In the proceedings in the Court of Petty Sessions, the learned magistrate ordered, on each information,

that the defendant pay the amount which had not been paid to

the Commissioner by the company. In the Supreme Court the appellant also appealed against these orders, and in this respect the appeals were upheld by the learned judge. It was contended that the order of the learned magistrate was valid as an exercise of power under s.21B of the Crimes Act 1914,

(a) a person is convicted of an offence against a law of the Commonwealth; or

(b) an order is made under section 19B in relation to an offence against a law of the Commonwealth committed by a person,

the Court may, in addition to the penalty, if any, imposed upon the person, order the offender ~

(c) to make reparation to the Commonwealth or to a public authority under the Commonwealth, by way of money payment or otherwise, in respect of any loss suffered, or any expense incurred, by the Commonwealth or the authority, as the case may be, by reason of the offence; or

(d) to make reparation to any person, by way of money payment or otherwise, in respect of any loss suffered by the person as a direct result of the offence."

The learned judge rejected this argument, holding that the non-payment of the moneys deducted from the émployees' wages was not a "loss suffered", or an "expense incurred" by the Commonwealth. He therefore set aside this part of the magistrate's order in each case. The nine appeals by the

Deputy Commissioner are against these orders of the learned

judge. In my opinion the learned judge was correct in setting aside these orders of the Court of Petty Sessions, but

I would prefer to express the reason for doing so somewhat

differently. I have already said that in my opinion the criminal liability resting on the appellant (as I continue, for the sake of clarity, to call him) had no element in it of fault on his part, and that the elements of the offence were first, the non-payment by the company to the Commissioner of the amounts deducted from the wages of the employees; secondly, the directorship of the defendant in the company; and thirdly, the decision of the Commissioner to prosecute the defendant. Obviously, the third of these elements did not exist when the Commonwealth "suffered the loss" by the non-payment of the moneys, nor was tht "loss" affected by the coming into existence of that third element. It cannot, therefore, be said that the loss was suffered "by reason of

preceding pages are & true copy of the Reasons for Judgment herein of his Honour ¢

» IN THE FEDERAL COURT OF AUSTRALIA No. ACT G. 15 of 1984 AUSTRALIAN CAPITAL TERRITORY Nos. ACT G. 42 - 49 of 1984 DISTRICT REGISTRY

ON APPEAL FROM THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

BETWEEN : DAVID MALCOLM REYNOLDS a "Appellant - ~ - ™te AND: DEPUTY COMMISSIONER OF TAXATION Respondent BETWEEN: DEPUTY COMMISSIONER OF TAXATION Applicant AND: DAVID MELCOLM REYNOLDS Respondent Coram: Blackburn, Lockhart and Neaves JJ.

LOCKHART J. These appeals from the Supreme Court of the Australian

Capital Territory (Gallop J.) raise two important questions.

The first question is whether para. 252(1)(j) of the Income Tax Assessment Act 1936 ("the Act") authorises the taking of criminal proceedings against a director or officer of a company in respect of acts of defaults of the company or its public officer which would have

rendered them or either of them liable to criminal prosecution.

The second question is whether. upon conviction tor an offence aaqainst sub-s. 221F(11). the director or officer mav be personally liable to pay the amount of tax instalment deductions which

the company had deducted from the wages of its emplovees but failed to

The facts are aqreed and mav be brieflv stated. Fairlin Ptv. Limited ("Fairlin") was registered as a aqroup emplover within the meaning of sub-s. 221A(1) of the Act. It paid wages to its emplovees from October 1981 to June 1982 and made tax instalment deductions therefrom pursuant to sub-ss. 221C(1) and (1A). Fairlin failed to remit to the Commissioner the amount of those deductions. It ceased trading. The appellant, David Melcolm Revnolds ("the appellant"). was a director of Fairlin. Proceedings were instituted against the appellant pursuant to para. 252(1)(1) (to which I shall for

On 23 March 1983 the appellant was convicted in the Court of Pettv Sessions. Canberra of nine offences aaqainst sub-s. 221F(11) of the Act. He was fined a total of $675 ($75 for each of the nine offences): ordered to pay the Commissioner the full amount of outstanding tax instalment deductions namelv, $14,113.25: and ordered

to pav costs totalling $225 (325 for each offence).

On appeal to the Supreme Court of the Australian Capital Territorv the appeals were dismissed and the convictions and penalties confirmed. His Honour held. however, that there was no provision in the Act conferring power on a court of competent jurisdiction to order a person convicted of an offence under sub-s. 221F(11) to pav to the Commissioner the amount of unpaid tax instalment deductions which agave rise to the offence. His Honour also held that s. 21B of the Crimes

The aprellant aprealed from the Supreme Court's tudament

except that part which upheld his appeal aaqainst the order requirina him to pay the outstanding tax deductions. The Commissioner appealed from that last mentioned part of the 1ludament. Although it 1s the Deputy Commissioner of Taxation who is technicallv an appellant. I

shall for convenience refer to him as "the Commissioner",

It is necessary to refer to the relevant provisions of the Act to understand the questions which arise in the appeals. An "emplover" means "a person who pavs or is liable to pay anv salarv or wages" (sub-s. 221A(1)). A ""aqroup emplover" means "a _ person who is reaistered as a group emplover under s. 221F" (sub-s. 221A(1)). Where an emplover pavs salarv or wages to an emplovee, the emplover is required, at the time of paving. to make a deduction from the salarv or wadaes at such a rate. if anv. as is prescribed (sub-s. 221C(1). A

aroup emplover, not tater than the 7th day of the month next

succeeding a month in which he made deductions. shall pav' to the

Commissioner the amount of the deductions so made (para. 221F(5)¢(a)).

It is an offence for an emplover to fail to comply with anv provision ot s. 221F (sub-s. 221F(11)). Penalties are provided bv

sub-s, 221F(12) for failure to comply with para. 221F(5)(a?.

If the emplover has made the deduction and failed to deal with 1t in the manner required bv the Act, the emplover is made liable

to pav that amount to the Commissioner (sub-s. 221P(1)).

Sub-s. 252(1) of the Act should be set out in full but the most relevant paraqraphs are paraaqraph (f) and paraqraph (1). The

"252(1) Every company carrvindg on business in Australia, or deriving in Australia income from property, shall at all times. unless exempted bv the Commissioner. be revresented for the purposes of this Act bv a public officer beina a person residing in Australia and dulv appointed bv the company or bv its dulv authorized aaqent or attorney. With respect to everv such company and Public officer the following provisions shall apply:

(a) The company, if it has not appointed a public officer before the commencement of this Act. shall appoint a public officer within three months after the commencement of this Act or after the company commences to carrv on business or derive income in Australia.

(b) The companv shall keep the office of the public officer constantlv filled.

No appointment of a public officer shall be deemed to be dulv made until after notice thereof in writing, specifving the name of the officer and an address for service upon him has been aiven to the Commissioner.

Tf the companv fails to dulv appoint a public officer when and as often as such appointment

becomes necessarv, 1t shall be quiltv of an offence.

Penaltv: $4 for every dav during which the failure continues.

Service of anv document at the address for service, or on the public officer of the companv,. shall be sufficient service upon the company for all the purposes of this Act or the requlations. and if at anv time there is

no public officer then service upon any person acting or appearing to act in the

The public officer shall be answerable for the doing of all such things as are required to be done by the company under this Act or the requlations, and in case of default shall be liable to the same penalties.

Everything done by the public otficer which he is required to do in his representative capacity shall be deemed to have been done by the companv. The absence or non-appointment of a public officer shall not excuse the companv from the necessitv of complving with anv of the provisions of this Act or the requlations, or from anv penaltv for failure to complv therewith, but the company shall be liable to the provisions of this Act as if

there were no requirement to appoint a public officer.

Anv notice aiven to or requisition made upon the public officer shall be deemed to be aiven to or made upon the companv.

Anv proceedings under this Act taken acaainst the public officer shall be deemed to have been taken aqainst the company. and the company shall be liable jiointlv with the public officer for anv penaltv imposed upon hin.

(41) Notwithstanding anvthina contained in this section. and without tn anv wav limitina. altering or transferrina the liabilitv of the public officer of a companv. everv notice, process or proceedina which under this Act or the reaqulations thereunder mav be aiven to, served upon or taken aqainst the companv or its public officer mav, if the Commissioner thinks fit. be aiven to. served upon or taken aqainst anv director, secretarv or other officer of the company or anv attornev or agent of the companv and that director. secretarv. officer, attornev or agent shall have the same liabilitv in respect of that notice, process or proceeding as the company or public officer would have had if it had been aiven to. served upon, or taken against the company or public officer."

Section 21B of the Crimes Act 1914 ("the Crimes Act") provides:

(a) a person is convicted of an offence against a law of the Commonwealth

(b) an order is made under section 19B in relation to an offence aqainst a law of the Commonwealth committed by a person.

the Court mav. in addition to the penalty, if anv, imposed upon the person. order the offender -

(c) to make reparation to the Commonwealth or toa public authority under the Commonwealth, bv wav of monev pavment or otherwise. in respect of anv loss suffered, or anv expense incurred, by the Commonwealth or the authority. as the case mav be. bv reason of the offence: or

money pavment or otherwise, in respect of anv loss suffered by the person as a direct result

of the offence." It is common ground that Fairlin failed to comply with the provisions of para. 221F(5)(a) of the Act and therefore committed an

offence and was liable to the penalties imposed bv sub-s. 221F(12).

It was submitted by the Commissioner that proceedings pursuant to sub-s. 221F(11) are proceedings "under the Act" within the meaning of paragraph (1) and. bv virtue of that paragraph. mav be taken against anv director of Fairlin selected by the Commissioner. The Commissioner disavowed anv suaqestion that paraqraph (1) operated to impose a personal liability upon a director or officer of a companv to pav tax pavable bv the companv or to pay the amount of tax deductions from the salaries or waqes of emplovees which the companv (being an emplover) failed to deduct or, if deducted. failed to remit to the Commissioner. The concession was made in view of the ludament of the Hidah Court in Lean v. Brady (1937) 58 C.L.R. 328 to which I shall refer later. The Commissioner arqucd. however, that the learned Maqistrate correctiv ordered the appellant to pav the amount which Fairlin deducted bv wav of tax instalment deductions but failed to remit and that the source of such order was s. 21B of the Crimes Act.

The appellant submitted that. if the Commissioner's submissions were correct. paragraph (i) would bea vehicle for enabling the Commissioner to prosecute anv director or officer he chose to prosecute for anv offence committed bv the companv or its public officer under the Act. The consequences of this construction of paragraph (1) were said to be so extreme and oppressive that it must be presumed that the Leqislature intended paraqraph (1) to have a much narrower operation. Considerable reliance was placed bv counsel for the appellant upon Lean v. Bradv (supra) and upon the historv of

paragraph (4). Counsel said that paragraph (1) and its predecessor

(paraqraph (h) of s. 88 of the Income Tax Assessment Act 1922 which

was inserted bv Act No. 50 of 1930) had been a part of the income tax leaislation of this country for over 50 vears and that. until this case. had never been invoked for the purpose for which the

Counsel for the appellant referred us to the debate in the House of Representatives in 1930. as recorded in Hansard. when the predecessor of paragraph (1) was itntroduced. The source of this Court's power to refer to Hansard was said to be s. 15AB of the Acts Interpretation Act 1901. Whatever benefit or enliahtenment may be qained by the reader of the Hansard report of this debate, it certainly docs not include anv quide to the meaning of the relevant statutorv provision. Indeed. as one peruses the report, perplexitv turns to astonishment and finallv to utter confusion and despair. I sympathise with the views. expressed towards the end of the debate, bv

Mr. West, the member for East Svdnev. which Hansard records as

"I feel somewhat embarrassed. Two former Attornev-Generals (sic) of the Commonwealth, a former Attornev-General for New South Wales. and the honourable member for Corangamite (Mr. Crouch). who also is a lawver, disagree a3 to the meanina of the provision now before the Committee. When lawvers differ, how is a lavman to decide? Apparentlv,. I have no alternative but to vote with the Government. and let it bear the responsibilitv."

If the construction for which the Commissioner contends is correct. paraaraph (1) is indeed far-reaching. It would mean that the

Commissioner is empowered to decide whether anv and, if so. which.

directors or officers (also attornevs or aaents) of the company should be prosecuted for anact or default of the companv or its public officer. The director or officer selected mav in fact have little. if anvthina, to do with the conduct of the companv impuaned bv the Commissioner. Manv offences under the Act which mav be committed bv a company or its public officer are either absolute or have available onlv verv limited defences. For example, the failure of an emplover to make deductions in the prescribed manner (sub-s. 221C(1()a)); failure to remit to the Commissioner instalment deductions deducted bv the emplover from the salaries or wages of employees (para. 221F(5)(a)) - the relevant offence for present purposes; the unauthorized sale or disposition of tax stamps (sub-ss. 221T(2) and (3)): and forading stamps or dves for makina tax stamps (sub-s. 221¥(1)). Yet a director or officer, if selected by the Commissioner as the person to be prosecuted. will be liable for the conduct of the company or its public officer over which he mav have

It is true. as the Commissioner conceded in araqument. that the person selected for prosecution would have available the same defences as mav be raised bv the company or its public officer, as the case mav be. But where the offence is absolute this would be of little comfort to him. He would be in a worse position than a director or officer who aided and abetted the commission of an offence or was knowinaglv concerned in its commission. For a person to be convicted as an aider and abettor or as. being knowinalv concerned in

the commission of the offence by another under s. S of the Crimes Act

the requisite clements must be established bv the prosecution against him. including knowledae of the material facts supporting the offence.

But a director or officer charged with an offence under the Act

pursuant to the powers vested in the Commissioner under paragraph (1)

The Commissioner sought to ameliorate the obvious harshness of the construction of paraqraph (1) for which he contended bv asserting that the Commissioner's power under the paraaqraph to select directors or officers of the companv must be exercised reasonably and in accordance with the well established rules concernina the excrcise of administrative powers. This 1s true so far as i1t qoes. But paraqraph (i) contains no criteria governing the circumstances in which the power may be exercised. The Commissioner would obviouslv have considerable latitude in deciding whether to call the paragraph

in aid aqainst the particular directors or officers concerned.

Another consideration tellina aqainst the Commissioner's aragument is that, where Parliament has sought to render directors or officers of companics liable for offences committed by the companv or its public officer under the Act, it has said so in plain terms. For example s. 230 provides that anv person who. or anv companv on whose behalf the public officer. or a director. servant or agent of the company in anv return knowinaglv and wilfullv understates the amount of anv income or makes anv misstatement affecting the liabilitv of anv

person to tax or the amount of tax shall be quiltv of an offence.

Also s. 231 provides that any person who. or anv company on whose behalf the public officer, or a director. servant or agent of the company, bv anv wilful act. default or neaqlect, or bv anv fraud. act or contrivance whatsoever. avoids or attempts to avoid assessment or

If the Commissioner is correct. paragraph (1) is a formidable instrument of authority vested in the Revenue. The Commissioner mav in effect proceed in the courts aaqainst a wide class of persons who mav have had little or no involvement in the relevant conduct of the company or 1ts public officer. Furthermore. paraaraph (1) provides no time limit within which the Commissioner may decide to commence those proceedinas. I would not be prepared to endorse this construction of paraaqraph (1) unless compelled to do so by clear and unequivocal lanauaqge. The words of Lord Loreburn L.C. in Attorney-General v. Till

It would be oppressive and uniust if the Commissioner's araqument were to succeed, especiallv in relation toa statutory provision that has lain dormant in the income tax leqislation of this countrv for over half a century and has, curiously enough, raised its head onlv now. Yet it is an arqument that rests for its acceptance

essentially on a close and literal construction at atime when

Parliament is urqaing the courts to adopt. what is called bv some. a

If there was no work for paraqraph (1) to do except the work which the Commissioner would have it do. there would be force in the Commissioner's araqument. although it mav raise a serious question about the validitv of the paraaqraph. But in mv opinion paraaqraph (1) 1s open to a construction which is mercifullv free of the harshness of

the laws of Draco and aqives it some sensible and leaqitimate work to

Paraqragh (1) appears in Part VIII of the Act titled "Miscellaneous" and in a section (s. 252) which relates to public officers of companies. It is followed bv various provisions. including sections concerning public officers of trust cstates (s. 252A); aqents and trustees (s. 254); and persons receiving or

By s. 252 everv companv carrvina on business in Australia or derivina in Australia income from property is required to be

represented bv a public officer unless an exemption is aranted bv the

Commissioner (sub-s. 252(1)). The public officer must be a person residing in Australia (sub-s. 252(1)). Having made an appointment, the office must be constantlv filled (para. 252(1)(b)). If a companv

fails to make the appointment within the time allowed, or fails to keep the office constantly filled, it is liable to a penaltv for everv

dav during which the failure continues (para. 252(1)(d)).

The public officer is answerable for the doina of all such

thinas as are required to be done bv the company under the Act or the

reaqulations and, in case of default, 1s liable to the same penalties (para. 252(1)(f)). The public officer is thus placed in a special position under the Act. Paragraph (f) is a recoanition of Parliament's perception of the importance of protecting the Revenue bv

imposing upon natural persons the performance of duties owed bv

companies. In this wav the observance by companies of their

responsibilities under the Act is more likelv to be achieved.

An act done bv the public officer of a company in his representative capacitv is reaarded as havina been done by the company itself (para. 252(1)(q@)). A companv is not relieved from carrving out the requirements of the Act should the public officer be absent. or should there. for anv reason. be no public officer. It is still liable for penalties for non-compliance with the Act (para. 252(1)(a)). A notice aiven to or requisition made upon the public officer shall be deemed to be qiven to or made upon the companv (para. 252(1)(h)). A companv is Jointly liable with its public officer in

respect of penalties imposed upon him (para. 252(1)(i)).

A public officer is not. however, personallv liable for tax pavable by the company. Lean v. Brady (supra) concerned the public

officer of a company and his duties under the Income Tax (Management)

Act 1928 (N.S.W.) and the Special Income and _ Waqes Tax (Management)

Act 1933 (N.S.W.). The relevant sections of those Acts (s. 78 of the

former Act and sub-s. 1511) of the latter Act) assist in construing para. 252(1)(f) of the Act: but are of little. if anv, assistance in relation to paragraph (1). Notwithstanding that it does not directlv concern para. 252(1)(f) of the Act. Lean v. Brady provides strona support for the view that that paragraph cannot be relied upon to establish anv liability of the public officer for pavment of tax for which the company 1s itself liable. It was not suaqested bv the Commissioner in the present case that anv such liabilitv could be attracted under paragraph (1). In Lean v. Brady. Dixon J. said at pp.

"... The imposition upon a servant or agent of a company of a personal liability for the tax owind by the companv is a thing to be accomplished onlv bv a very clear expression of leqislative intention. The qeneral words 'doing all such things as are required to be done' ought not to receive such a construction and. in mv opinion, were never intended to bear it. Default in doind such things is visited by the same penalties as are imposed on the companv and non pavment of income tax is not an offence. This confirms the view that the things required to be done do not refer to payment of tax but to the active responsibility falling on taxpavers in connection with returns. assessments and ancillarv matters."

The last paragraph of sub-s. 252(1) is paragraph (1). It is desiaqned to ensure the observance bv companies and their public officers of duties which the Act imposes upon them. The company mav fail to appoint a public officer or a public officer may in some cases have little to do with the dav-to-dav affairs of the companv (for example, he may be a member of an independent firm of accountants).

The Commissioner is aiven the power to select in a particular case, a

director or an officer of the company as the person who is more likely

than the public officer to fulfil an obligation which the Act imposes upon the public officer or who. because of his position in or association with the companv. will probablv ensure observance bv the companv of its duties under the Act. The Commissioner mav therefore select that director or officer as the person to whom he should direct a notice to fulfil some obliaation imposed upon the company or its public officer under the Act: tor example, a notice of the kind mentioned in para. 252(1)(h). In that case the director or officer upon whom the notice has been served becomes liable in respect of the notice to the same extent as the companv or its public officer would have been if the notice had been served upon it or him as the case mav be. The fact that the director or officer has been served with the

notice does not in anv wav relieve the companv or its public officer

Paragraph (1) is not confined to the aiving of notices to directors or officers of companies. It provides also for service of process and taking proceedings aqainst such persons. This enables the Act to have real force and effect. A statutorv provision that a notice mav be served on a director or officer of a company and that he has the same liabilitv in respwect of the notice as the company or public officer would have had if the notice had been served upon it or him, mav not. bv itself, be sufficient warrant for the service of process upon the director or officer. or the takina of proccedings, especially criminal proceedinas. aaainst him if he fails to comply with its reauirements. The service of the notice upon the director or

officer aives rise to an obliaation on his part to complv with it. Bv

authorisina the service of process and the taking of proceedinds against the director or officer. the Act establishes an effective sanction to ensure compliance by that person with the notice bv rendering him liable to punishment upon non-compliance. Where the director or officer 1s visited with a personal liabilitv to complv with a notice authorised bv paraaqraph (j). the question of proceedings aqainst him for breach of that liabilitv can arise. But paragraph (1) could not have been intended to render such a person criminallv liable

for an act which it was never within his power to do, or, if within

There is no inconsistency between paragraphs (f) and (1). I said earlier that the public officer of a companv is in a special position under the Act. It is plain from the lanauade of paraqraph (f) and other paraaqraphs of sub-s. 252(1) that Parliament intended the public officer to be as liable for the companv's acts or defaults as the companv itself. The same intent cannot be discerned from paraqraph (1) except where the Act imposes a liability upon a director or officer to do something which otherwise would be the responsibility of the company or the public officer. Generally, if not always, that liability will be created bv the service upon the director or officer of a notice requiring performance of a particular duty. Paraqraph (1) may then operate to ensure compliance bv the director or officer with the obliaation thus cast upon him by rendering him itable to the

service of process and the institution of proceedings, includina

Paraqraph (1) thus construed fulfils a useful role in the Act, adding a sensible and leaitimate weapon to the Commissioner's armoury to ensure that companies and public officers observe their statutory obliaations. Those who control or superintend the companv's affairs know that an obliaation imposed upon the companv bv the Act mav be imposed upon them personallv. This mav act as a spur for them to ensure that the companv itself carries out its duties under the

Act. This is. as I discern it, the purpose of paragraph (ji).

Paragraph (1) did not authorize the taking of proceedings

against the appellant in this case. It was Fairlin's failure to remit to the Commissioner the amount of tax instalment deductions that qave rise to an offence by Fairlin (sub-s. 221F(11)). If the appellant had aided or abetted the commission of the offence by Fairlin he would have been liable to prosecution as an aider and abettor pursuant to s. 5 of the Crimes Act. But the Act did not impose anv obliaation upon the appellant to remit the tax instalment deductions to the Commissioner. Paragraph (14) is not a source of any iiabilitv of the

It follows that the appellant's appeals must succeed and the Commissioner's appeals must fail. The Commissioner relied solelv on s. 21B of the Crimes Act as the source of the liabilitv of the

appellant for pavment of the outstanding tax instalment deductions.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (218 paragraphs)

Legislation Cited (1)