Commissioner of Taxation v Dalco, J.T

[1987] FCA 368

Re: JEFFREY THOMAS DALCO
Ex parte: THE DEPUTY COMMISSIONER OF TAXATION
No. P1538 of 1986
Income Tax

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Sheppard J.(1)

CATCHWORDS

Income Tax - bankruptcy petition founded on failure to comply with bankruptcy notice requiring payment of judgment debt for income tax - petition opposed or stay or proceedings sought on ground debtor had arguable case on appeal against assessments - assessments issued pursuant to s. 167 of Income Tax Assessment Act 1936 - request for particulars of basis of assessment - whether appropriate to order such particulars.

Income Tax Assessment Act 1936, ss. 166, 167, 190

HEARING

SYDNEY

#DATE 1:4:1987

Counsel for the Debtor/Applicant: P.M. Wood

Solicitors for the Debtor/Applicant: J.C. Behm & Associates

Counsel for the Petitioning Creditor/Respondent: C. Darvall, Q.C. with D.B. McGovern

Solicitors for the Petitioning Creditor/Respondent: Australian Government Solicitor

ORDER

The motion for particulars be dismissed.

Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

This is an application in which the debtor seeks certain particulars of assessments of income tax which were made by the Deputy Commissioner of Taxation pursuant to s. 167 of the Income Tax Assessment Act 1936. The particulars sought are particulars of the basis upon which it is alleged that the amounts included in certain adjustment sheets attached to the assessments formed the taxable income of the debtor for particular years.

1. There was also a request for particulars of an arrangement said to have been made under s. 260 of the Income Tax Assessment Act, but the Deputy Commissioner has indicated that at the moment he does not propose to rely upon any such arrangement.

2. The Deputy Commissioner has declined to provide the particulars of the amounts of income for which he has assessed the debtor because of the decision of the High Court in George v. Federal Commissioner of Taxation (1952) 86 CLR 183.

3. Before proceeding I should explain the way in which this matter arises in bankruptcy proceedings. Pending in the list is a bankruptcy petition presented by the Deputy Commissioner of Taxation against the debtor. The act of bankrupty alleged is failure to comply with a bankruptcy notice which is founded upon a judgment of the Supreme Court of New South Wales which was entered on 1 April 1986. The amount of the judgment is $4,591,423.64 for income tax and additional tax and $477 for costs.

4. The assessments in question are for the years of income ending 30 June 1976 to 1980 inclusive. The assessments are unpaid and their non-payment has led the Deputy Commissioner to institute the proceedings in the Supreme Court which in turn have led to the judgment to which I have referred and the presentation of the bankruptcy petition in this matter.

5. The petition is opposed on the ground that appeals against the disallowance of notices of objection to the assessments are pending in the Supreme Court of New South Wales. I understand they are fixed to be heard later this year in the Administrative Law Division of that Court. The Deputy Commissioner seeks to proceed with his petition as he is entitled to do, he having the judgment to which I have referred. However, the debtor says that I should dismiss the petition, or at least grant a stay of it, if he demonstrates that he has an arguable case on the appeals which are pending in the Supreme Court. That is the ultimate question which I shall need to try.

6. It is in those circumstances that he seeks the particulars to which I have referred. No argument has been addressed to me that it is inappropriate, because this is a bankruptcy matter, for particulars to be sought and I would not think that any such argument could have succeeded. All things being equal, the debtor would be entitled to particulars of the kind sought in his solicitor's letter. Confronting the debtor, however, is the difficulty that it was held in George's case that the Court will not order particulars to be furnished by the Commissioner in cases involving assessments of income tax pursuant to s. 167 of the Act. It is to be observed that there is a point of distinction between that case and this one in that in George's case the particulars which were sought were particulars of the source from which the respondent Commissioner alleged that the appellant taxpayer derived the additional amount upon which the respondent had arbitrarily assessed the appellant for the year of income in question. Additionally, particulars were sought of the identity of the person or officer who formed or made a judgment under s. 167 of the Act.

7. The Deputy Commissioner relies on a passage in the judgment in George's case in which five judges of the High Court said (pp. 203-4):-
   
   

"But, even were it true that the commissioner must, upon the hearing of the appeal, affirmatively prove by evidence that he formed a judgment of the amount of the income upon which the appellant ought to be taxed, it could not be part of his case to establish the facts upon which he acted in forming the judgment or the grounds on which he proceeded, the materials before him, or the reasoning actuating him. The need supposed of showing that he formed such a judgment could be no ground for requiring particulars of the sources of the taxable income ascribed by the assessment to the appellant. The assumption made, however, has no foundation. The formation of the judgment as to what is the amount of the income that ought to be taxed is no condition precedent to the power to assess. It is part of the very process of assessment itself. Section 166 and s.167 do not prescribe distinct duties or functions. They combine to show what the commissioner may or must do in performing his single duty of arriving at an assessment. Section 166 on its own terms covers cases where the commissioner depends exclusively on sources other than a return. It says that he is to make his assessment from (1) the returns,

(2) from any other information, or (3) from any one or more of these sources. Clearly enough under s. 166 the commissioner can make an assessment which does not adhere to the income returned and yet to do so must involve some want of satisfaction with the return. Section 167 is epexegetical to s. 166. It is not an independent power. What it does is to mention with particularity three situations which might arise in carrying out the duty imposed by s. 166, and to direct how in those situations the commissioner shall proceed for the purpose of s. 166. Just as under s. 166 considered alone the commissioner ascertains the amount of the taxable income and thus assesses it so does he under s. 167, used in aid of s. 166, ascertain the amount upon which, in his judgment, income tax ought to be levied and thus assesses it. By definition, 'assessment' means the ascertainment of the amount of the taxable income, and of the tax payable thereon. This is the view of ss. 166 and 167 adopted by Williams J. in McEvov v. Federal Commissioner of Taxation (1950) 9 ATD, at p 211. The fact is that unless the taxpayer discharges the burden laid upon him by s. 190(b) of proving that this ascertainment or judgment is excessive, he cannot succeed and it can be no part of the duty of the commissioner to establish affirmatively what judgment he formed, much less the grounds of it, and even less still the truth of the facts affording the grounds. Yet that is what is involved when the demand for particulars of the sources alleged of the appellant's income is justified by reference to s. 167. It is an error to treat the formation by the commissioner of a judgment as to the amount of the taxable income as if it were not the ascertainment of the taxable income which constitutes assessment or a necessary part of that process and as if it were but the fulfilment of a condition precedent to the power or authority to assess".

1. Counsel for the debtor made two answers to the reliance placed by the Deputy Commissioner on George's case. Firstly, he said that the decision had been affected by what had been decided in the subsequent case of Bailey v. The Commissioner of Taxation (1977) 136 CLR 214. That was a case in which it appeared in correspondence that the Commissioner was likely to rely upon an arrangement under s. 260 of the Act. The Court thought it appropriate to order particulars. It is to be observed that it did not limit its order for particulars to particulars of the arrangement under s. 260 but made a general order requiring the Commissioner to give appropriate particulars of the basis of his assessment. The order had two subparagraphs in it which drew the Commissioner's attention particularly to the alleged arrangement under s. 260 and one other matter to which I need not refer; but the order was, nevertheless, a general one. As in this case, the Commissioner in Bailey's case relied strongly on George's case, particularly upon the passage which I have cited from the judgment.

2. It seems to me that the members of the High Court who decided Bailey's case distinguished George's case either because it was a case involving s. 167, rather than s. 166, or because it was a case in which the Commissioner was making a positive allegation of the existence of an arrangement which fell within the terms of s. 260 of the Act. Barwick C.J. said (p. 218): -
   
   

"The considerable reliance placed by the Commissioner in argument upon this Court's decision in George v. Federal Commissioner of Taxation (1952) 86 CLR 183, was in my opinion, misplaced. In that case, an unsuccessful endeavour was made to obtain details of the assessment of assessable income made by the Commissioner under s. 167 of the Act. This element of the process of assessment in the particular circumstances was not an application of the Act to a factual situation: on the contrary, it was an exercise of the Commissioner's power to determine the principal fact to which the Act should be applied. The situation dealt with in that case bears, in my opinion, no resemblance or analogy to the situation to which the Court must apply itself in this. Consequently, I find no need in this case to discuss the reasons advanced in that case for the result attained in it. As the decision stands at present a statement by the Commissioner in his adjustment sheet of the assessable income as determined by him would be a sufficient compliance with what I have earlier said was the Commissioner's obligation in informing the taxpayer of the basis of the assessment".

1. The principal judgment in Bailey's case was delivered by Aickin J. He also referred to George's case. He said (p. 229): -
   
   

"The earliest case in this Court where the question of particulars with respect to assessments arose was George v. Federal Commissioner of Taxation (1952) 86 CLR 183. That was a case of a default assessment issued under s. 167 in which an endeavour was made to obtain from the Commissioner a statement as to the source of the money which the Commissioner's assessment treated as income. In the result the application failed but the present case is very different from that and there is nothing in the case which throws any light on the question of particulars in cases where the Commissioner states that the assessment is based on s. 260".

Aickin J.'s judgment was agreed in by Gibbs J. (as he was) (p. 218), Mason J. (as he was) (p. 220) and Jacobs J. (p. 222).

1. Thus whatever the effect of Bailev's case may have been, it did not affect George's case; certainly, it did not overrule it. It left it as a decision on the particular circumstances of its own facts. As I have said, it is possible to distinguish this case from George's case because of the different form of request, but I do not see, myself, that point of distinction as being one of substance; and subject to what I am about to say concerning s. 64 of the Judiciary Act 1903, it seems to me that this case is determined by George's case.

2. Section 64 of the Judiciary Act was the basis for the second answer made by counsel for the debtor to the reliance placed by counsel for the Deputy Commissioner on George's case. I was referred particularly to the decision of the High Court in the Commonwealth of Australia v. Evans Deakin Industries Limited (1986) 60 ALJR 619. In that case the Court referred to Maguire v. Simpson (1977) 139 CLR 362 and reiterated (p 621) that s. 64 did not deal only with matters of procedure; it dealt also with substantive rights.

3. Reference was made by counsel to an earlier decision of the High Court in which discovery was ordered in an income tax case; Naismith v. McGovern (1953) 90 CLR 336; see particularly p 342. Finally, my attention was drawn to decisions of the Full Court of the Supreme Court of Queensland and the Court of Appeal in New South Wales in which the effect of s. 64 has recently been considered in relation to the Income Tax Assessment Act. I refer to The Deputy Commissioner of Taxation v. Moorebank Pty Limited (Queensland Supreme Court, 3 September 1986, as yet unreported) and D.T.R. Securities Pty Limited v. Deputy Commissioner of Taxation for the Commonwealth of Australia (Supreme Court of N.S.W., 6 March 1987, unreported). In each case, the Court was a divided court. In the earlier case, the Commissioner has already obtained leave to appeal to the High Court. In the second, which appears to raise similar issues, an application for leave is said to be pending. Neither of the cases deals with the matter now in question before me, and neither can therefore throw any direct light on what I should do.

4. There was no mention in either George's case or Bailev's case of s. 64 of the Judiciary Act. It may be that the reason for that was that the matter was not argued. On the other hand, I am of opinion, having considered particularly what the High Court said in George's case, and also what Barwick C.J. said in Bailev's case, that it is the terms of the Income Tax Assessment Act itself, particularly the provisions of para. 190(b) thereof which casts the burden of showing that the assessment is excessive upon the taxpayer, which provide the reason why particulars are inappropriate in a case of this kind. Be that as it may, and whether the view I have expressed is correct or not, I consider myself bound, as a single judge of this Court, by the decision of the High Court in George's case which has been left undisturbed by Bailev's case. In those circumstances, the application for particulars must be refused.