Cripps & Jones Holdings Pty Ltd v Deputy Commissioner of Taxation

, .

!	U 5\55
I

LIMITED DISTRIBUTION

CATCHWORDS

r .I

TAXATION - Income tax

Appeal from AdminiStKatiVe Appeals

8 -

: .

Tribunal arising out	of	operation o f Taxation	(Unpaid	Company	!
,-

Tax) Assessment Act 1982

- Application for adjournment of

directions hearing

- Claim of oppression arising

out of

uncertain interrelation

of Income Tax Assessment Act 1936 and

Taxation (Unpaid Company Tax) Assessment Act 1982

- Threat of

Commissioner to issue assessment under s.260, regardless

o f

outcome of instant appeal

- Whether hearing

o f appeal should

be stayed pending determination

o f question whether assessment

will be issued in reliance on

s.260 - Application refused.

Income Tax

Assessmerit-Act 1936 s.260

Taxation (Unpaid Company Tax) Assessment Act 1982 s.15

NSW G.407 Of 1986

CRIPPS & JONES HOLDINGS PTY LIMITED

V COMMISS

Sydney

29 October 1986

LIMITED DISTRIBUTION

IN THE FEDERAL COURT

OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY )

NO. G.407 Of 1986

DIVISION

GENERAL

BETWEEN: CRIPPS

& JONES HOLDINGS

PTY LIMITED

Applicant

AND: COMMISSIONER OF

TAXATION

Respondent

CORAM :	WILCOX	J
PLACE :	SYDNEY

DATE :

29 OCTOBER

1986

MINUTES OF ORDER

S - .

THE COURT ORDERS	THAT:	'	:	t
I

The Notice

of Hotion

dismissed.

The applicant pay the respondent's costs

of the

motion.

Note: Settlement and entry

of orders is dealt with in Order

36 of the Federal Court Rules.

LIMITED DISTRIBUTION

IN THE FEDERAL COURT

OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY	)	.NO. G.407 Of 1986
1

DIVISION

GENERAL

- BETW~EN:

CRIPPS & JONES HOLDINGS

- -	PTY LIMITED

Applicant

-	AND: COMMISSIONER OF

TAXATION

i	Respondent

CORAM :	WILCOX J
PLACE :	SYDNEY
DATE :	29 OCTOBER 1986

MTEMPORE REASONS FOR JUDGMENT

On 19 September 1986, the applicant, Cripps

& Jones

Holdings Pty Limited filed in this Court a Notice

Appeal

against a decision given by the Administrative Appeals Tribunal in relation to certain objections to taxation

assessments.

The relevant assessments were issued against two

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companies, Mainbar Pty Limited

andAhiprock Pty Limited, which

were at one time substantially owned by Cripps

& Jones. The

assessments relatep to the taxation year ended

30 June 1974,

and included assessments both	to company tax and to Division	7
tax.

It appears to be common ground, at least for the

purposes of this application, that, in

or about May 1974, the

present applicant and the other shareholders in Mainbar and in

Shiprock sold all

of the issued shares to a third party. At

some later stage the two companies ceased	to exist. They	.-
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were, eventually, struck off the register

of companies.

Apparently no tax assessments in relation to the year ended

June 1974 were issued at about the time	of the liability	!
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arising; this, presumably, was because of the change in

control of the companies and their ceasing to be operated.

The present proceedings arise only because

of the

enactment of the Taxation (Unpaid Company Tax) Assessment Act

1982.

But for the enactment

of that legislation, there would

be no point in the Commissioner pursuing the question

of the

liability of Mainbar and Shiprock in respect

of the year ended

June 1974, and there would

be no way in which any relevant

assessments could be served.

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However, the Commissioner	has taken advantage of the	i :
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1982 Act to serve upon Cripps

& Jones the relevant notices

assessment. Pursuant to the rights given

to it by that

legislation, Cripps & Jones objected to the assessments but

the objections failed before the Tribunal: hence the appeal

to this Court.

The present application is brought on Notice

Motion filed by-Cripps

& Jones. The application seeks an

adjournment of the directions hearing in respect

of the appeal

until the first directions hearing in April

1987. The basis

of the application is that it is said that it would be

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oppressive to require Cripps

& Jones to proceed with the

hearing of its appeal at this stage, having regard

to the

likelihood that the Commissioner will, in any event and

regardless of the outcome

of this appeal, issue an assessment

against the company pursuant to

s.260 of the Income Tax

Assessment Act 1936.

In support of that case reference is

made to various press releases which have been issued by the

Commissioner of Taxation over the last year or	so in which the	!
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Commissioner speaks

of his intention to issue

s.260

assessments in cases such as the present one. It appears from

the press releases that the Commissioner has received legal

advice that, in circumstances such as these, the vendors

shares are or may be liable to pay tax;

s.260 operating to

render void as against the Commissioner the sales

of the

shares. The Commissioner's confidence in that decision

-_.*

appears to-have strengthened over

the last twelve months, no

doubt as a result of decisions which have been given in the

c	High Court during that period.

The current position

-- I am informed -- is that

there are pending in the courts some

27 cases in which the

Commissioner has issued notices

of assessment relying upon

s.260.

One of these appeals was recently heard by Lee

J in

the Supreme Court of New South Wales and decision has been

reserved.

Two other appeals are listed for hearing next

March.

No doubt the other appeals will be heard in due

course, unless they are disposed of

by agreement in the

meantime.

The submission put on behalf

of the present

applicant is that, if it turns out as a result

of the current

litigation in relation

to s.260 that Cripps

& Jones is liable

to pay tax pursuant to the

1936 Act by reason

of the

application to the transaction of s.260, the amount involved

in the current appeal is likely

to be quite small.

According to the calculations

of counsel for the

applicant, the amount for which his- client would be liable

pursuant to an assessment against it under the Taxation

(Unpaid Company Tax) Assessment Act as a vendor of the shares

would be $16,804. He calculates that the amount which the

company would

be liable to pay under the

1936 Act, and by the

application to the case of

s.260 of that Act, would be

$11,881. He points out that, if the company is likely to be

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fixed with liability under the

later-Act, there is a question

whether it is worth its while to spend further money in an

endeavour to rid itself

of liability under the former Act.

The situation referred

to by counsel is clouded by

the fact that no information is

yet available as to the means

by, or

the extent to, which the

government will ensure against

double liability for taxation.

This matter is referred to in

a number

of the press releases and it seems to be accepted by

the Commissioner that something would have

to be done to avoid

a situation in which

S .260 notices, if

I may call them that,

are issued which pay no regard to tax already paid by vendor

shareholders under the Taxation (Unpaid Company Tax)

Assessment Act. The suggestion which emerges from the press

releases is that some steps will be taken, presumablylby way

of legislation, to allow the Commissioner to give a credit in

the assessment made under the 1936 Act, relying on

S .260, for

any tax already paid

by the vendor under the Taxation'(Unpaid

Company Tax) Assessment Act. However, as I have said, the details have not yet been worked out.

In the present case,

if counsel's estimates are

correct -- and there seems to

be no serious challenge in

principle, although counsel for the Commissioner has not

I	assented to the actual figures	-- the amount payable under the
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Taxation (Unpaid Company Tax) Assessment Act is greater than that which would be paid if there were liability pursuant to

s.260.	The application of a principle against doubling up	I .
i

would therefore seem

to involve the result that the

Commissioner would not issue any assessment under the

1936

Act, in reliance on

s.260, or, if

he did, that

he would issue

a nil assessment.

At this stage it is quite uncertain when the pending

s.260 cases will be finally resolved. It seems likely that

there will be appeals in relation

to some or all

of them. It

may be expected that there will be considerable delay before

the situation is finally clarified. In essence, the

application put to the Court is that the present applicant

should not have to make up its mind whether

to proceed with

its appeal until it is able to resolve its possible liability

under S .260.

It may be a coup16 of years before that

situation is reached.

I am of the opinion that the application for an

adjournment of the matter should	be refused. I am not without	i
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some sympathy for the dilemma of the applicant in not knowing

at this stage how the matter

of s.260 will be resolved: but

it seems to me that its liability under each

of the two

taxation Acts is a separate liability which has to be

l	separately addressed.
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._	If the assessments which have been issued against

Mainbar and Shiprock are valid assessments, and that is the matter which is presently before this Court, then that is

merely a first step in recovery by the Commissioner

Taxation pursuant to the Taxation (Unpaid Company Tax)

Assessment Act from Cripps

& Jones. If the assessments were

upheld but the tax were not paid, the next-step, as

understand the scheme

of the Act, would be for the

Commissioner to issue assessments against Cripps

& Jones and

the other shareholders for what is called in the Act "vendors

recoupment tax". Cripps & Jones would have its usual right to

object against such assessments: although it could not, of

course, recontest the liability of Mainbar and Shiprock to pay

tax under the 1936 Act.

If, for any reason, the Commissioner

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failed to recover tax against the vendors, then

-- it would

seem -- he could move against the promoters. However, none

those steps can be taken until the current litigation is

disposed of and, contrary to the submissions put on behalf of

the applicant, there is prejudice caused to the Commissioner,

and beyond him the revenue, in being postponed from taking the

steps envisaged by the Taxation (Unpaid Company Tax)

Assessment Act. I bear in mind that the tax has not been

2 ,

paid.

It is true, as counsel says, that interest accrues at

the rate of 20% per annum, which is a high rate, but the

Commissioner has an interest in 'actually collecting the tax.

I think that a very extensive deferment operates to prejudice

I	his carrying out that task.

8 .

In any event, as it seems

to me, the resolution of

the s.260 question does not resolve the proceedings which are

before the Court. The merits

of the current appeal have not

been investigated, but its merits are quite independent

of the

question whether

s.260 operates in the way suggested by the

Commissioner in his recent-pres-s releases. Essentially, the case put by the applicant is that an adjournment would be beneficial to it in order to allow it to make a commercial

judgment as to whether it would be better to prosecute, or	to
abandon, the present appeal.

I can understand the applicant not wishing	to expose	I
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itself to unnecessary legal costs for what is a relatively small amount of tax liability but I think that, in this case

as in many others, the applicant as a litigant has

to make up

its own mind about the prospects

of other action being taken,

and its liability Gider some other provision, and make

judgment as

to whether or not it should pursue the current

litigation. It is not uncommon for litigants

to have to make

, judgments about the desirability

of pursuing a particular

course, which judgments involve a question as to whether or

not some other party will take a particular step, and, if	so,
with what result. I do not think there is anything

exceptional about

the present case which requires the Court,

as a matter

of fairness to the applicant,

to allow the appeal

' to remain on foot but unprosecuted for what may turn Out

to be

a significant period

of time.

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The applicant will have to consider the current

situation, including the liability which it would face under

s.260 and the likelihood that the promise to prevent double

taxation will be honoured and any other relevant matters, and

make up its mind whether it wishes to pursue the appeal.

Having regard to the time

of-the year,

it is unlikely that

the

appeal would, in any event, be heard until after the Christmas

vacation but I think that it is appropriate for directions

be made to ensure that

it can be brought on for hearing fairly

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soon after that time. Consequently,

I refuse the orders

sought in the Notice

of Motion.

I certify this and the eight

( 8 )

preceding pages

to be a true copy

the Reasons for Judgment of

his Honour Mr Justice Wilcox.	I
Associate:	i,
::.

Date:

7 November

1986

Counsel for the Applicant:

Mr J W Durack

Solicitors for the Applicant:

Momsen Eager

& CO

Counsel for the Respondent:

Mr S G i W

Solicitors for the Respondent:

Australian Government

Solicitor

Date of hearing:

29 October 1986

[1986] FCA 515

29 Oct 1986