Verma, Virendra Kumar v Deputy Commissioner of Taxation [1983] FCA 388

an application dated 7 November 1983 filed on behalf of .

Virendra Kumar Verma ("the applicant"). As filed the

That the Bankruptcy Notice dated 17 October, 1983 be set aside.

That the time for compliance with the said Bankruptcy Notice be extended to 7th November.

Upon the filing of the application a Deputy Registrar in Bankruptcy, pursuant to sub-section 41(6B) of

the Bankruptcy Act 1966, extended the time for compliance

with the requirements of the notice up to and including

When tke application came on for hearing on that day the applicant did not seek an order that the bankruptcy notice be set aside but an order that the time for compliance with the notice be extended until further order. Having heard argument I reserved my decision and, in order to preserve the position, I extended the time for compliance until further order of the Court intending thereby until I

In support of the application an affidavit was sworn by William Paul O'Brien, the solicitor for the applicant, on 7 November 1983. Paragraphs 2 and 3 and so much of para- graph 4 as was admitted in evidence read as follows -

"2. On 3rd June 1983 the Respondent assessed income tax payable by the Applicant for the financial year 30th June 1982 at $321,817.88. Subsequently the Respondent obtained judgment for that amount in the Supreme Court of New South Wales. I am informed by the Applicant's Accountant J.E. Cains of Nominee Bosco Account- ing Company Pty. Limited and believe that a Notice of Objection has been lodged against that assessment and that if the objection succeeds the Applicant's liability for income tax for the financial year ended 30th June 1982 will be reduced to nil.

3. I am informed by the Applicant and believe that on ?5th Octoher 1983 he received a docu- Ment purporting to be a 14 day Bankruptcy Notice claiming the sum of $331,793.67.

4. On the lst November the Applicant applied to the Respondent for release from income tax liability on the ground that the exaction of

the full amount of tax sought will entail serious hardship tc the Applicant."

It soon transpired that paragraph 2 of the affi- davit was not an accurate statement of the facts except in so far as it referred to a judgment having been obtained in the Supreme Court of New South Wales by the Deputy Commissioner of Taxation ("the respondent") against the applicant. There was thus disclosed a iamentable lack of care and attention

to detaii which reflects no credit on the deponent.

Having read Mr. O'Brien's afFidavit counsel for the applicant stated that that was the only evidentiary material on which he relied. Upon it being pointed out to counsel that that affidavit did not provide a sufficient basis for the making of the order sought, counsel relied upon paragraphs 1 to 9 inclusive of an affidavit sworn on 9 December 1983 by Graeme Bruce Sutton, an officer of the Australian Taxation Office, and filed on behalf of the respondent in support of the notice of intention to oppose

served on the applicant was based comprised income tax

assessed to the applicant 1n respect of income derived during the years ended 30 June 1979 and 30 June 1980 and additional tax for late payment. The notice of assessment in respect of the year ended 30 June 1979 was issued on

2 July 1980. It was based on a taxable income of $132,442, the tax (including provisional tax) payable being assessed at $181,165.79. The date on which that amount of tax became due and payable was 4 August 1980. In respect of the year ended 30 June 1980 the notice of assessment was issued on

3 December 1981. It was based on a taxable income of $140,531, the tax (including provisional tax) payable being $82,790.27. That amount of tax became due and payable on

The applicant within the prescribed time lodged notices of objection against each of the above assessments. The notices are dated respectively 8 August 1980 and 19 January 1982. By the notice of objection in respect of the assecsment for the year ended 30 June 1979 the applicant

(a) that the assessable income should be reduced by an amount of $3,265.

(b) that a deduction of $140,000 should have been allowed under section 124M of the Income Tax Assessment Act 1936 "for a capital investment in the copy- right of the film 'Progress for Two

(ec) that the sum of $38,068.87 included in the assessment as additional tax should not have been included therein.

In respect of the year ended 30 June 1980 the objection asserted that the applicant was entitled to a deduction of $140,000 for a capital investment in the

The objections were disallowed by the respondent. Notification of the disallowance was given to the applicant on 3 March 1983. By letters dated 21 March 1983 the applicant requested that each matter be referred to a Board of Review. The matters have not as yet been so

In Clyne v. Deputy Commissioner of Taxation (1983) 57 A.L.J.R. 673 Gibbs C.J. (with whom the other

members of the Court agreed), dealing with an argument that a bankruptcy notice should have been set aside because the judgment on which it was Founded was based on a tax claim which was wholly disputed, said at p. 674 -

"The rule that a court of bankruptcy may, in certain cases, go behind a judgment to determine whether it is founded on a real debt can have no application in the present case. If the Court were to go behind the judgment it would be faced with the notice of assess- ment which, under s. 177(1) of the Income Tax . Assessment Act, is conclusive and with the provisions of s. 201 of that Act which permit the recovery of tax as if no appeal were pending. Of course, the court which gives judgment has a discretion to stay execution in appropriate circumstances but a stay of execution was refused in the present case.

The argument that if an assessment to tax is disputed no bankruptcy notice can be founded upon the judgment in respect of the tax until the dispute is resolved by the ultimate court of appeal cannot possibly be accepted."

The Full Court of this Court in the same matter, reported (1987) 45 A.L.R. 323, said at p. 329 -

"Whatever the effect on the individual taxpayer 1t is clear that by s 201 of the Assessment Act the legislature authorizes the Commissioner, no doubt in the interests of the revenue, to recover income tax not- withstanding that a reference or appeal is pending in respect of the assessments.

This does not mean that where the Commissioner has become a judgment creditor and has issued a bankruptcy notice based on the judgment

the court has no discretion to set the notice aside. However, it is clear that the mere pendency of a reference or an appeal in respect of the assessment will not of itself, in the absence of special circumstances, require the exercise of discretion to set aside: Re Roma Industries Pty Ltd (1976) 76 ATC 4113; Fortuna Holdings Pty Ltd v. DFC of T (1976) 76 ATC 4312, although circumstances may be such that the exercise of the dis- cretion to set aside a bankruptcy notice,

a bankruptcy petition or a winding up petition is called for: cf Re Norper Investments Pty Ltd (1977) 15 ALR 603; 77 ATC 4212."

In a case such as this the considerations relevant to the question whether a bankruptcy notice should be set aside are similar to those relevant to the question whether time for compliance with the natice should be extended until the dispute concerning the assessments to income tax is resolved. As Lockhart J. said in Re Sterling; Ex parte Esanda Ltd. (1980) 30 A.L.R. 77 at p. 84 -

"Tt is neither necessary nor desirable for me to state exhaustively the matters which an applicant for extension of time must show to obtain an order for extension. This will depend on the facts of each case. Orders for extension of time will not be made as of course. Grounds must be established. It is as well to remember that the power to set aside the notice and the power to extend time for compliance are necessarily related. For instance, if the application to set aside is made on the basis

that no debt lies behind the judgment, the court may conduct a preliminary cnquiry as to whether it should go behind the judgment."

His Honour went on - "There are sound reasons why substantially the same considerations should apply in dealing

with applications to set aside bankruptcy notices."

Although there is "no general rule that the Court must set aside bankruptcy notices or extend time for their compliance where there is a dispute genuinely based on substantial grounds" (per Lockhart J. in Clyne

v. Deputy Commissioner of Taxation (1982) 82 A.T.C. 4484

at p. 4487), the Court has a discretion to do so if it is

satisfied that it is proper to do so in all the circumstance

The applicant in the present case has put no material before the Court to show that there is a dispute

"genuinely based on substantial grounds."' Nor has any argument been presented identifying the issues that are said to arise and upon which the Court might Form some impression of the likelihood of the applicant succeeding before the Board of Review. The applicant has relied . solely upon the assertions contained in the notices of objection and the period of delay between the notices being lodged and the applicant being notified that the objections had been disallowed. While the period of delay is sub-

stantial it provides, of itself, no sufficient basis for

concluding that there are serious questions based on

substantial grounds for resolution belween Lhe applicant

The applicant has taken no steps to seek a stay of execution of the judgment on which the bankruptcy notice is based. It is, of course, open to him to do so. Further, he may, without payment of the amount of the judgment debt, secure payment thereof to the satisfaction of this Court or

the respondent. He has taken no steps in that regard.

seek to rely on the ground of hardship and put no material

In all the circumstances I am of opinion that the application should be refused and I so order. However, to give the applicant a last opportunity to comply with the bankruptcy notice, I extend the time for compliance up to and including 13 January 1984. The applicant must

I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment herein of the Honourable Mr. Justice Neaves.