Silly Solly Management Pty Ltd v Commissioner of Taxation

1 I have before me motions in three separate matters, which are, however, to be heard together at a trial commencing on 10 September 2001 before Dowsett J. In each action, the applicant wishes to amend its application to raise what are said to be two new grounds of objection to the Commissioner of Taxation's appealable objection decision the subject of the application. 2 The first ground raises an issue whether the taxpayer can exclude from assessable income for the relevant year certain fees it received from certain third parties which it has, until now, been happy to include in that income. 3 The Commissioner of Taxation has now disallowed as deductions from those third parties' income the payment of these fees to the applicant. The third parties have objected to that disallowance. The Commissioner has not yet made a decision on those objections. If litigation between the Commissioner and those third parties does arise, there is the risk that such litigation may become complicated because of a National Crime Authority ("NCA") investigation into persons associated with those third parties, including a person associated with the present applicant, which may possibly lead to criminal proceedings. However, no criminal proceedings are on foot, and none has yet been foreshadowed; none may ever eventuate. 4 If this particular amendment is allowed, it is said that the trial of the present action set to start in early September - a trial date fixed as long ago as December 2000 - should be adjourned to await the conclusion of the NCA investigation, and, if a prosecution should ensue, completion of that prosecution. The potential for delay to the present proceedings is thus a very long one. It may extend to years. 5 If the Commissioner of Taxation is ultimately successful in maintaining his view as between himself and the third parties that he is entitled to refuse to allow deductions from their own income of the fees they paid to the applicant, and which are now included in the applicant's assessable income, that does not necessarily mean that those sums should be excluded from the applicant's income. On behalf of the Commissioner, it has been submitted that the approach by the applicant in seeking the amendment in question (and then the adjournment of the trial) erroneously assumes that a decision to disallow a payment as a deduction in respect of one taxpayer must necessarily reduce the assessable income of the taxpayer receiving that payment. The Commissioner submits that the characterisation of payments is to be undertaken for each individual taxpayer. The Commissioner further submits that the application to amend, at least to raise the first issue, should therefore be refused, as an attempt to introduce irrelevant factual matters into the present proceedings and to link impermissibly those proceedings with the decision of the respondent to disallow the deductions claimed by the third parties and to delay the hearing of the present proceedings. 6 I accept those submissions and refuse the application to amend to raise the issue in par 2(a) of the notice of motion in each case for that reason. Cf Gilder v Federal Commissioner of Taxation (1991) 91 ATC 5,062 at 5,072 RHC. 7 There is, I think, a further reason for refusing the amendment. In my opinion, it would be futile. There can only be an appeal to this Court if there is a Commissioner's objection decision with respect to the taxpayer's own assessable income with which the taxpayer is dissatisfied. For the Court to have jurisdiction, there must, firstly, be an objection by the taxpayer against a taxation decision of the Commissioner; that objection must be in writing, and must state fully and in detail the grounds that the person relies on: see s 14ZU. Secondly, there must be a decision by the Commissioner to disallow the objection: see s 14ZY. Finally, for the Court to have jurisdiction, the taxpayer must be dissatisfied with the Commission's objection decision and must appeal to the Court against that decision: see s 14ZZ. 8 I respectfully agree with what Goldberg J said in Carter v Commissioner of Taxation [2001] FCA 575 at [33], that "the provisions in s 14ZZN cannot be characterised as procedural, but are more appropriately described as substantive or jurisdictional". Section 14ZZ is similarly a provision that defines the jurisdiction of the Court. 9 It was said, in reliance upon Lighthouse Philatelics Pty Ltd v Commissioner of Taxation (1991) 32 FCR 148 at 156, that once there is an appeal against a particular appealable objection decision, the matter is at large in the sense that the Court has power under s 14ZZO to allow the taxpayer to raise additional grounds to the decision the subject of the appeal, additional, that is, to those stated in the taxation objection to which the decision relates. 10 The Lighthouse case was given on what, in my opinion, is a materially different statutory regime. Then, the Court's jurisdiction under s 189(3) was necessarily defined by reference to the assessment to which the taxpayer had objected under s 185. Now, the Court's jurisdiction is confined to dealing with an appeal against the Commissioner's appealable objection decision. I do not accept that the careful scheme of Div 3 the Tax Administration Act 1953 (Cth) operates as the applicant suggests it does. It is clear that s 14ZZO would permit a taxpayer to challenge the particular appealable objection decision the subject of its appeal on grounds additional to those relied on in its objection. But I do not accept that because a particular appealable objection decision can be said to have resulted in the taxpayer's assessment being excessive for a particular reason, that always gives the Court jurisdiction to deal at large with any issues that the taxpayer may wish to raise in relation to the particular assessment, whether those issues are the subject of decisions by the Commissioner, or whether they have not yet crystallised, so long only as they might be suitable issues for declaratory relief. I would refuse the application to the subject of par 2(a) of the motion in each case for that reason also. 11 Paragraph 2(b) of the notice of motion raises different considerations. On its face, it appears to seek to raise an issue which could properly be made the subject of leave under s 14ZZO. In its outline of submissions, the applicant in each case, in support of the amendment application the subject of par 2(b) of the notice of motion, says that this new ground seeks to raise: