Casarotto v Australian Postal Commission

[1989] FCA 116

Re: BETTINA HOUSE OF FASHION PTY LTD (in Liquidation) and PETER JOHN DAVIDSON
And: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
No. VG432 of 1988
FED No. 116
Income Tax

COURT

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Jenkinson J.(1)

CATCHWORDS

Income Tax - Collection and recovery of tax - In bankruptcy and liquidation - Tax provision understated by Commissioner - Notice by Commissioner of correction - Effect.

Administrative Decisions (Judicial Review) Act 1977 - s.3(1)

Income Tax Assessment Act 1936 - ss. 8, 215, Part V

In re Armstrong Whitworth Securities Co. Ltd. (1947) Ch 673

James Smith & Sons (Norwood Ltd. v. Goodman (1936) 1 Ch 216

HEARING

MELBOURNE

#DATE 5:4:1989

Counsel for the Applicant : Mr. J.I. Fajgenbaum Q.C. and

Mr. H. Reicher

Counsel for the Respondent : Mr. C.M. Maxwell

Solicitors for the Applicant : Sly & Weigall

Solicitor for the Respondent : Australian Government Solicitor

JUDGE1

Application for an order of review.

1. The decision which is the subject of the application concerned the operation of s.215 of the Income Tax Assessment Act 1936 in relation to the applicants. The first applicant was at relevant times and is now in the course of being wound up and the second applicant was at material times and is now the liquidator of the first applicant.

2. Section 215 provides:
   

"(1) Every person (in this section called 'the trustee') -

(a) who is liquidator of any company which is being wound up; or

(b) who is receiver for any debenture holders, and has taken possession of any assets of a company; or

(c) who is agent for a non-resident and has been required by his principal to wind up the business or realise the assets of his principal, shall within 14 days after he has become liquidator, or after he has so taken possession of assets, or after he has been so required by his principal, give notice thereof to the Commissioner.

(2) The Commissioner shall as soon as practicable thereafter, notify to the trustee the amount which appears to the Commissioner to be sufficient to provide for any tax which then is or will thereafter become payable by the company or principal, as the case may be.

(3) Subject to sub-section (3B), if the trustee is a person of the kind referred to in paragraph (1)(a) or (b), the trustee -

(a) shall not, without the leave of the Commissioner, part with any of the assets of the company until the trustee has been so notified;

(b) shall set aside, out of the assets available for payment of ordinary debts of the company, assets to the value of an amount that bears to the value of the assets available for payment of ordinary debts of the company the same proportion as the amount notified by the Commissioner under sub-section (2) bears to the sum of -

(i) the amount notified by the Commissioner under sub-section (2);

(ii) any amount of prescribed tax that the Commissioner is required to notify to the trustee under an Act other than this Act and has so notified; and

(iii) the aggregate of the ordinary debts of the company (excluding any debt in respect of tax or prescribed tax); and

(c) is, to the extent of the value of the assets that the trustee is so required to set aside, liable as trustee to pay the tax.

(3A) If the trustee is a person of the kind referred to in paragraph (1)(c), the trustee -

(a) shall not, without the leave of the Commissioner, part with any of the assets of the principal until the trustee has been notified by the Commissioner under sub-section (2);

(b) shall set aside, out of the assets available for the payment of the tax, assets to the value of the amount so notified, or the whole of the assets so available if they are of less than that value; and

(c) is, to the extent of the value of the assets that the trustee is so required to set aside, liable as trustee to pay the tax.

(3B) Nothing in paragraph (3)(a) prevents the trustee parting with assets of the company for the purpose of paying debts of the company that are not ordinary debts of the company.

(3C) For the purposes of sub-sections (3) and

(3B), a debt of the company is an ordinary debt if -

(a) the debt is an unsecured debt; and

(b) the debt is not required, under a law of the Commonwealth or of a State or Territory, to be paid in priority to some or all of the other debts of the company.

(3D) In sub-section (3), 'prescribed tax' means -

(aa)tax within the meaning of sub-section 96(2) of the Fringe Benefits Tax Assessment Act 1986;

(a) tax within the meaning of sub-section 30(2) of the Pay-roll Tax (Territories) Assessment Act 1971;

(b) tax within the meaning of sub-section 32(2) of the Sales Tax Assessment Act (No. 1) 1930 or of that sub-section as applied by any other Act providing for the assessment of sales tax;

(c) charge within the meaning of sub-section 27(2) of the Tobacco Charges Assessment Act 1955; or

(d) tax within the meaning of sub-section 47(2) of the Wool Tax

(Administration) Act 1964.

(4) If the trustee refuses or fails to comply with any provision of this section or refuses or fails as trustee duly to pay the tax for which the trustee is laible under sub-section (3) or (3A), the trustee -

(a) is, to the extent of the value of the assets that the trustee is required under sub-section (3) or

(3A), as the case may be, to set aside, personally liable to pay the tax; and

(b) is guilty of an offence punishable on conviction by a fine not exceeding $1,000.

(5) Where more than one person is the trustee, the obligations and liabilities attaching to the trustee under this section shall attach to those persons jointly.

(6) In this section, unless the contrary intention appears, 'tax' includes additional tax under section 207 or Part VII."

1. The members of the first applicant ("the applicant company") resolved on 31 July 1987 that it be wound up voluntarily and that the second applicant be appointed liquidator.

2. The second applicant, Mr. Davidson, notified the respondent of his appointment as liquidator by a letter dated 4 January 1988. The respondent responded by a letter to the liquidator dated 11 March, 1988, in these terms:
   

"Dear Sir

INCOME TAX

SECTION 215 NOTICE

We refer to the liquidation of the abovenamed company and the notification of any tax liability under section 215 of the Income Tax Assessment Act 1936, and advise that there is income tax of $3,544,104.34 owing in respect of income derived by the company. If you pay this amount, less any instalments previously paid, by the due date shown on the assessment, no income tax will be outstanding on the returns as lodged by, or on behalf of the company.

If you retain sufficient funds to meet income tax payable on any taxable income derived during the course of winding up, you may proceed to distribute the assets of the company and finalize the liquidation. This advice refers to income tax only and is issued without regard to any other debt which may be due to this office."

1. For each of the years of income ended 26 July 1986 and 1st August 1987 returns of the applicant company's income had been lodged. In respect of the first year the respondent notified the applicant company in June 1987 that no tax was payable. In respect of the latter year an assessment in the sum of $3,544,104.34 was made, notice whereof was served in February 1988. In respect of both years the respondent had accepted the returns as correct.

2. The respondent sent to the liquidator a letter dated 24 October 1988, in these terms:
   

"Dear Sir

INCOME TAX

On the basis of additional information now available to this office we are satisfied that a further income tax liability exists in relation to the 1986 and 1987 returns of income of Bettina House Of Fashion Pty. Limited (In Liquidation). As a consequence, a Notice of Assessment and a Notice of Amended Assessment for the 1986 and 1987 years respectively are in course of issue.

The notices give effect to the inclusion of profits arising on the sale of BHP shares. Accordingly, the advice contained in our letter dated 11 March 1988 is revoked."

1. Shortly after 24 October 1988 an assessment and an amended assessment issued in respect of the 1986 and 1987 years respectively. The aggregate of the amounts thereby assessed very greatly exceeded $3,544,104.34. When the letter dated 24 October 1988 was received by the liquidator he had paid the tax originally assessed in respect of the 1987 year and had fully distributed the assets of the company. Dissolution of the company was imminent. The company and the liquidator contend, and the respondent is not concerned in this proceeding to suggest the contrary, that no assessable income was derived by the company after the 1987 year.

2. What is the decision in respect of which the applicants seek an order of review? The applicants in the originating application and an officer of the Australian Taxation Office in a document put forward by the respondent as a statement pursuant to s.13 of the Administrative Decisions (Judicial Review) Act 1977 in relation to the decision describe the decision as one "to revoke". In the originating application it is "the decision of the respondent contained in" the letter dated 11 March 1988 which is the object of that verb. In the statement under s.13 the object of the verb is "the first notice", an expression declared elsewhere in the statement to mean "notice dated 11 March 1988". In the letter dated 24 October 1988 what is said to be revoked is "the advice contained in our letter dated 11 March 1988". The parties seemed content to treat the sending of the letter dated 11 March 1988 as performance of the duty imposed on the respondent by s.215(2) of the Income Tax Assessment Act 1936. I shall therefore assume, but without deciding, that it was, notwithstanding that the letter contains no statement in the terms, or to the effect, required by that sub-section. On that assumption the revocation the parties seemed to contemplate was an act in the law (achieved by the sending of the letter dated 24 October 1988 to the liquidator) having or purporting to have the effect of extinguishing or altering the legal operation or effect of an earlier act in the law, namely performance by the respondent of the duty imposed on him by s.215(2) by sending the letter dated 11 March 1988 to the liquidator. Mr. Maxwell of counsel for the respondent was concerned to maintain the propositions, first, that s.215 authorized, indeed required in appropriate circumstances, a revocation of that kind and the exercise anew by the respondent of the function conferred on him by s.215(2), an exercise suggested in the submission of Mr. Maxwell to have, from the time of the revocation and the fresh exercise of the function, legal consequences of the kind which sub-sections (3) and (4) of s.215 prescribe; and second, that in this particular case no fresh exercise of the function had been attempted and no legal consequence had attended the sending of the letter dated 24 October 1988 because at the time when it was received by the liquidator all the assets of the appellant company had been distributed and no failure in performance of the duties imposed on the liquidator in consequence of the sending of the letter dated 11 March 1988 had occurred. Mr. Maxwell declared the respondent's acknowledgement that at the time when the letter dated 24 October 1988 was received by the liquidator the assets had been distributed and that no such a failure had occurred.

3. Mr. Fajgenbaum Q.C., who appeared with Mr. Reicher for the applicants, desired to maintain the proposition that no power was available of "revocation" or alteration of a notification given in performance of the duty imposed by s.215(2). Lest it be held to the contrary, Mr. Fajgenbaum desired to establish that the decision to exercise the power of "revocation" by sending the letter dated 24 October 1988 was vitiated by error. He professed apprehension that the exercise of the power of revocation, if it existed, might have had an effect in law threatening the dispositions of property which the liquidator had effected in distribution of the appellant company's assets.

4. These fears are in my opinion without foundation. Whatever be the correct answers to the questions the parties raise, in the events which happened the sending of the letter dated 24 October 1988 has not in my opinion been shown by the evidence to have been, or in the future to be likely to be, productive of any prejudice to either applicant or to any other person. The legal questions which the submissions of the parties raise are in the events disclosed by the evidence hypothetical, because the obligations imposed by s.215(3) had been performed and the liabilities declared by s.215(4) had been avoided before the letter dated 24 October 1988 was received.

5. Neither in the particulars of the grounds on which the respondent relied "in revoking by notice dated 24 October 1988 ... a notice issued on 11 March 1988 ... pursuant to s.215" (which particulars were furnished pursuant to order in the proceeding) nor in the statement furnished in pursuance of s.13 of the Administrative Decisions (Judicial Review) Act 1977 was there any suggestion that the communication effected by the letter dated 24 October 1988 had had any particular legal effect. In the latter document the reasons for the decision are stated thus:
   

"11. Once the assessment decision had been made, it necessarily followed that the first notice no longer contained a correct notification of the amount necessary to provide for tax which would become payable by the company. On the contrary, the first notice made no reference to the amount necessary to provide for the further tax.

12. I decided that to allow the first notice to stand, following the assessment decision, would be misleading to the applicant and to the liquidator, and would be a breach of the duty imposed on the Commissioner by s.215(2). In my view, that duty necessarily involves ensuring that the liquidator is informed accurately of the amount which appears to be necessary to provide for the tax payable by the company. If for any lawful reason the Commissioner changes his opinion as to the amount which appears to be necessary to pay the tax, he considers that it is his duty to notify the liquidator of that change. The assessment decision constituted such a change.

13. Accordingly, I decided to revoke the first notice. I further decided that the liquidator should be notified promptly of the assessment decision, of the fact that the notification contained in the first notice was as a result incorrect, and that the first notice was therefore revoked. The second notice was issued on those grounds alone."

The expression "assessment decision" had been earlier described as the decision "in October 1988 that the taxpayer should be assessed in respect of the 1986 year and that the assessment already issued in respect of the 1987 year should be amended, so as to assess the taxpayer on the profits derived by it from the sale of the BHP shares".

1. It is to be observed, a propos paragraph 12 of the statement of reasons, that nothing in the letter dated 24 October 1988 communicates the amount which in the Commissioner's changed opinion appears to him "to be sufficient to provide for any tax which then is or will thereafter become payable by the company". If there be a duty imposed by s.215 on the Commissioner to notify each change in his opinion on that subject by specifying each amount as and when the opinion is formed, then the duty was not performed by the sending of that letter, in my opinion.

2. I put to one side for the present the question whether, and in what sense, any duty is imposed by s.215 on the Commissioner to communicate a change in an opinion previously communicated pursuant to s.215(2), and the question whether the communication of such a changed opinion may have an effect on the operation of any of paragraphs 215(3)(b), 215(3)(c) and sub-section 215(4). The Commonwealth was on 24 October 1988 likely to become in the immediate future a creditor of the applicant company in a substantial amount by reason of the operation of ss. 204 and 208 of the Income Tax Assessment Act 1936 upon service of the notice of the contemplated assessment and amended assessment in respect of the 1986 and 1987 years of income. And the respondent knew that that was so. The respondent, having by s.8 of that Act responsibility for its general administration, and being authorized both to receive and to recover by legal proceeding in his official name debts of that kind, was in my opinion empowered to give the liquidator timely notice of the impending assessments. If s.215 be put quite out of mind, the respondent's duty to ensure recovery of such debts would require that he give such notice to a liquidator, the due performance of whose functions in winding up may defeat the claims of creditors while the liquidator remains ignorant of such claims. And, except in a case where the respondent has quite certain knowledge that a liquidator to whom a notification under s.215(2) had been given had thereafter fully completed the winding up, there may be much to be said for the view that the respondent would be under a duty deriving from other considerations to notify the liquidator of any change of the opinion which his prior notification under that sub-section had expressed. Even if, contrary to the submissions of Mr. Maxwell, no such a notification can have the effect of transmuting obligations and liabilities, deriving from sub-sections (3) and (4) of s.215, which are measured by reference to the amount first notified into obligations and liabilities which are measured by reference to an amount specified in the later notification, there remains for consideration the obligation under which a liquidator lies of ascertaining who the creditors of the company in liquidation are and what the debts are which the company owes them. (See James Smith & Sons (Norwood) Ltd. v. Goodman (1936) 1 Ch 216; In re Armstrong Whitworth Securities Co. Ltd. (1947) Ch 673; McPherson : The Law of Company Liquidation (2nd ed.) pp 343-344.) A notification given a liquidator in pursuance of s.215(2) may materially affect the manner of performance of the liquidator's obligation to identify creditors and their debts. In a case in which the liquidator has no knowledge or means of knowledge which would suggest that the amount notified by the Commissioner in pursuance of s.215(2) may be an erroneous estimate, the liquidator is entitled to regard the obligation as duly performed, quoad income tax, by his acceptance of the notified estimate. That being so, and having regard to the further circumstance that paragraph 215(3)(b) constrains a liquidator to modify the administration of the winding up in the way indicated by the paragraph, the Commissioner could hardly fail to recognise, as the reasons I have quoted show that he does recognise, that he should promptly notify a liquidator of any change of the opinion to which he had previously given expression in a notice under s.215(2). And this is so, in my opinion, whether or not the notification of the changed opinion effects any alteration in the operation of s.215.

1. I turn again to the question whether such a notification may effect any alteration in the operation of s.215. It is not a question which on the facts of this case requires an answer, in my opinion. The operation of the section was spent when the letter dated 24 October 1988 was received by the liquidator, because the tax had been paid and the assets distributed. In any event, the letter specified no amount by reference to which any of the provisions of the section could have operated if assets had then remained in the liquidator's hands. Where, as in this case, the Commissioner notifies a change of his opinion and indicates in the notice that his present opinion is that the amount sufficient to provide for income tax is greater than the amount previously notified under s.215(2), but he does not specify what amount he presently thinks sufficient, it would be inconvenient, from the point of view of one concerned to protect the revenue, if the notification of change of the Commissioner's opinion were to effect a "revocation", in the sense of annul, repeal, rescind, cancel (given in the Shorther Oxford English Dictionary as the fourth meaning of "revoke"), of the previous notification. What is revoked, in that sense, may not continue to sustain the operation of paragraphs (b) and (c) of sub-section 215(3) or the operation of sub-section 215(4) in relation to the amount previously notified, and the failure to state the amount which in the Commissioner's changed opinion appears to him sufficient will deny those provisions any further, different operation. (It would be congruous with what I think to be good reasons for notifying a change of the Commissioner's opinion if the word "revoke" in the letter dated 24 October 1988 were understood in the fifth, now obsolete, sense given in that Dictionary : retract, withdraw, recant.) On the other hand it might be thought inconvenient, from the point of view of one concerned to facilitate the winding up of companies, if power were lacking to release, by "revocation" of a notification under s.215(2), the liquidator from the constraints of the section in a case where the change of opinion was to a substantially smaller amount than that which had been notified. The due administration of the winding up of companies would be seriously impaired if there were no means of releasing a liquidator from the obligation which paragraph 215(3)(b) imposes on him upon receipt of the first notification given under s.215(2), once the Commissioner has decided, if he did decide, that no tax at all is payable by the company. If notice of an assessment is served and the tax assessed is paid, it is perhaps not difficult to read the section as thereupon ceasing to impose any obligation on the liquidator. But if no assessment is made, because the Commissioner concludes that no tax is payable, cannot the liquidator be released? I am inclined to think that a power in the Commissioner to release the liquidator from the obligations and liabilities imposed on receipt of the notification given under s.215(2) should be implied. Such a power may perhaps be described as a power to revoke the notification.

2. It may be doubted whether the decision to send the letter dated 24 October 1988 was a "decision", within the meaning of that word in the Administrative Decisions (Judicial Review) Act 1977. A decision to send a letter the sending and receipt of which had no actual effect might not fall within that meaning. (See Aronson and Franklin : Review of Administrative Action, pp. 243-247.) If the liquidator had held assets of the applicant company when the letter was received, the decision to send the letter might have had the effect of bringing to an end the operation of s.215. If that were so, the decision to send the letter might be said to have had a potential effect. The question whether the "decision" was within the meaning of that word in the Administrative Decisions (Judicial Review) Act 1977 was not raised in argument.

3. If there was a decision, it was in my opinion "of an administrative character", and "made under" s.8 of the Income Tax Assessment Act 1936, within the meaning of those expressions in the definition of "decision to which this Act applies" in s.3(1) of the Administrative Decisions (Judicial Review) Act 1977. Whether the decision was also "made under" s.215 of the Income Tax Assessment Act 1936 may be left undecided.

4. Something should be said of the grounds advanced in support of the application. It was a ground that the decision was not authorized by the enactment in pursuance of which it was purported to be made. I do not doubt that s.8 of the Income Tax Assessment Act 1936 authorized notification by the Commissioner of a change of his opinion as to the amount sufficient to provide for income tax. Mr. Maxwell's submissions and paragraph 12 of the statement of reasons for the decision suggest that it was s.215 in pursuance of which the decision to send the letter was purported to be made. If the letter be considered as nothing more than the provision of information to the liquidator to enable him more effectively to discharge his functions, and as having no effect on the operation of s.215, then in my opinion s.215 is not the source of the Commissioner's authority to send the letter, but merely a part of the set of circumstances by reference to which that authority existed. If the letter be proposed as capable of effecting, on receipt by the liquidator, some alteration of the operation of s.215, then I decline to express a concluded opinion whether it could have had that effect if there had been assets in the liquidator's hands. If it could, then the further conclusion would presumably follow that s.215 provided the authority to send it. Particulars under this ground asserted that "the Income Tax Assessment Act 1936 does not empower the Respondent to revoke a notice or notification given pursuant to Section 215(2) of the Act or empower him to revoke such notice or notification after a liquidator has proceeded to part with or distribute the assets of a company and finalise its liquidation in reliance upon it." The evidence did not establish that the Commissioner had certain knowledge that the liquidator had distributed all the assets. It is not easy to see how the Commissioner could be certain that assets were not retained. If there be a power "to revoke", in the sense apparently intended by the draftsman of the particulars, the exercise of the power will be ineffectual if the assets have been distributed before notice of revocation is received. But the power and duty, if any there be, to notify revocation does not in my opinion cease upon distribution.

5. There is no separate question of substance involved in the second ground, that the person who purported to make the decision did not have jurisdiction to make the decision. It was a further ground that a breach of the rules of natural justice occurred in connection with the making of the decision. Since the only possible consequences of the sending of the letter were, first, the provision of information useful to the liquidator in the performance of his duties and, second, the discharge of the liquidator from any obligation or liability to which he was subject, by force of s.215, at the time he received the letter, there is no substance in this ground, in my opinion.

6. It was a ground that there was no evidence or other material to justify the making of the decision. In support of this ground particulars were furnished to demonstrate that no further income tax liability could correctly be held to exist and that before the decision was made to send the letter dated 24 October 1988 the fact of the distribution of the company's assets had been publicly disclosed. But on any view the time and place for calling into question the Commissioner's conclusion about the amount of a company's income tax liability are the time and the place for which Part V of the Income Tax Assessment Act 1936 makes provision, not in a proceeding of this kind. Before this proceeding was instituted, notices of assessment and amended assessment had been served. And public declaration of distribution of assets of a company in course of winding up is not evidence of the fact of distribution which the Commissioner is obliged either to procure or, if he has knowledge of the declaration, to accept, when he is deciding whether or not to send a letter of the kind here in question, in my opinion.

7. The other grounds raised nothing else for consideration.

8. In my opinion the application should be dismissed.