Deputy Commissioner of Taxation v Haqiqi
[2020] VSC 331
•22 April 2020 (ex tempore)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2018 01883
| DEPUTY COMMISSIONER OF TAXATION | Plaintiff |
| v | |
| MASOUD ABBAS NEJAD HAQIQI | Defendant |
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JUDGE: | RIORDAN J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 21 April 2020 |
DATE OF JUDGMENT: | 22 April 2020 (ex tempore) |
CASE MAY BE CITED AS: | Deputy Commissioner of Taxation v Haqiqi |
MEDIUM NEUTRAL CITATION: | [2020] VSC 331 |
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TAXATION LAW – Effect of conclusive and prima facie evidence provisions under the Income Tax Assessment Act 1936 (Cth) – Collateral challenge to an assessment on the ground of allegations of deliberate illegality and bad faith in debt recovery proceeding.
SUMMARY JUDGMENT – Onus on defendant to identify legal or factual material that provides an arguable response to the claim – Hausman v Abigroup Contractors Pty Ltd (2009) 29 VR 213 applied.
CONSTITUTIONAL LAW – Whether there was a connection between the objects of taxation and the subject of taxation – Taxing power of the Commonwealth under s 51(ii) of the Australian Constitution not affected by an error in the assessment of taxable income.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Meng | Australian Government Solicitor |
| For the Defendant | Mr N Rosenbaum | Charlesworth Josem Partners Pty Ltd |
HIS HONOUR:
By summons filed 28 November 2019 the plaintiff applies for summary judgment against the defendant pursuant to section 61 of the Civil Procedure Act 2010 (Vic) (‘the CPA’) and rule 22.03 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) for the amount of $1,558,029.87, with interest, on the ground that the defendant’s defence has no real prospect of success.
The plaintiff relied on the affidavits of Robert Harba sworn 26 November 2019 and 20 April 2020. The defendant relied on the affidavit of Shahriyar Baghaei sworn 9 March 2020.
By writ filed 23 October 2018 the plaintiff claims unpaid tax-related liabilities with respect to the 2014 financial year, including income tax, a shortfall interest charge, an administrative penalty and associated general interest charges.
Principles of summary judgment
The principles applicable to summary judgment applications are uncontroversial.
Section 61 of the CPA permits a plaintiff to make an application for summary judgment on the ground that the defendant’s defence or part of that defence has no real prospect of success. Section 63 of the CPA provides, subject to section 64, that a court may give summary judgment in a civil proceeding if satisfied that a claim, defence or counterclaim, or part thereof, has no real prospect of success.
Section 64 of the CPA provides that:
Despite anything to the contrary in this Part or any rules of court, a court may order that a civil proceeding proceed to trial if the court is satisfied that, despite there being no real prospect of success the civil proceeding should not be disposed of summarily because --
(a)it is not in the interests of justice to do so; or
(b)the dispute is of a such a nature that only a full hearing on the merits is appropriate.
The Court of Appeal in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd explained the proper approach to an application for summary judgment as follows:
(a)the test for summary judgment under s 63 of the Civil Procedure Act 2010 is whether the respondent to the application for summary judgment has a ‘real’ as opposed to a ‘fanciful’ chance of success;
(b)the test is to be applied by reference to its own language and without paraphrase or comparison with the ‘hopeless’ or ‘bound to fail test’ essayed in General Steel;
(c)it should be understood, however, that the test is to some degree a more liberal test than the ‘hopeless’ or ‘bound to fail’ test essayed in General Steel and, therefore, permits of the possibility that there might be cases, yet to be identified, in which it appears that, although the respondent's case is not hopeless or bound to fail, it does not have a real prospect of success;
(d)at the same time, it must be borne in mind that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried; and that is so regardless of whether the application for summary judgment is made on the basis that the pleadings fail to disclose a reasonable cause of action (and the defect cannot be cured by amendment) or on the basis that the action is frivolous or vexatious or an abuse of process or where the application is supported by evidence.[1]
[1](2013) 42 VR 27, 40 [35] discussing General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125.
Plaintiff’s evidence and submissions
The plaintiff relied on the following statutory regime:
(a)Section 175 of the Income Tax Assessment Act 1936 (Cth) provides that ‘the validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with’.
(b)Section 350-10 of Schedule 1 to the Taxation Administration Act 1953 (Cth) (‘the TAA’) relevantly provides that the production of a notice of assessment under a taxation law is conclusive evidence that the assessment was properly made and, except in proceedings under Part 4C of the TAA, the amounts and particulars of the assessment are correct.
(c)Section 255-45 of Schedule 1 to the TAA relevantly provides that a certificate signed by the Deputy Commissioner of Taxation stating that a person named in the certificate has a tax-related liability is prima facie evidence of the matter.
The plaintiff led the following evidence:
(a)A notice of amended assessment for the 2014 financial year, which was alleged to be:
(i)conclusive evidence that the outstanding income tax debt was $829,189.10; and
(ii)prima facie evidence that the outstanding shortfall interest charge was $35,067.30;
due and payable by the defendant as at 22 May 2017.
(b)A notice of assessment of shortfall penalty which was alleged to be conclusive evidence of an administrative penalty debt for the 2014 financial year in the sum of $414,594.55, due and payable by the defendant as at 18 May 2017.
(c) A certificate under s 255-45 of Schedule 1 to the TAA certifying that as at 20 April 2020 the sum of $1,066,665.44 was a debt due and payable by the defendant in respect of income tax and accrued general interest charge liabilities.
(d)A certificate under s 255-45 of Schedule 1 to the TAA certifying that as at 20 April 2020 the sum of $45,110.36 was a debt due and payable by the defendant in respect of shortfall interest charge and accrued general interest charge liabilities.
(e)A certificate under s 255-45 of Schedule 1 to the TAA certifying that as at 20 April 2020 the sum of $496,322.20 was a debt due and payable by the defendant in respect of administrative penalties and accrued general interest charge liabilities.
Defendant’s submissions
The defendant submitted that careful examination of the Australian Taxation Office’s audit position paper, which dealt with payments allegedly received by the defendant from two different third parties, shows that the audit position paper did not consider the same range of matters regarding the third parties as it did regarding the defendant, which raises serious questions as to:
(a) the conduct of the plaintiff’s officers who raised the various assessments;
(b) the bona fides of the assessments; and
(c)the ability of the plaintiff to rely upon the assessments so as to attract the operation of the conclusivity and prima facie evidence provisions of Schedule 1 to the TAA.
Accordingly, it was submitted that the contents, or lack and inconsistency thereof, raised questions of such a serious nature that the assessments could not be used or otherwise relied on for the purposes of the conclusivity and prima facie evidence provisions of Schedule 1 to the TAA. Reliance was placed on R v Deputy Commissioner of Taxation (WA);Ex parte Briggs[2] and Martin v Federal Commissioner of Taxation.[3]
[2](1986) 12 FCR 301.
[3](1993) 93 ATC 5200.
Conclusion
I reject the defendant’s submissions because:
(a)the defendant is unable to invalidate the effect of the assessment, which is conclusively evidenced under Section 350-10 of Schedule 1 to the TAA, by alleging inadequacies in the analysis underlying the assessment; and
(b)the defendant has led no evidence that could justify the quashing of the assessment.
As to the first basis, the TAA and in particular the conclusive evidence provisions, implement what the High Court has described as ‘a long-standing legislative policy to protect the interests of the revenue’.[4] It allows the Deputy Commissioner of Taxation to recover debts despite the fact that the amount assessed is subject to the objection process provided under the TAA. As the Court of Appeal stated in Deputy Commissioner of Taxation v Buzadzic:
[T]he … manner in which the provisions operate reflects a legislative policy to protect the revenue against the prospect of taxpayers withholding payment and spending the proceeds on speculative appeals instead.[5]
[4]Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473, 492 [44].
[5][2019] VSCA 221, [74].
For an assessment to be conclusive proof under the TAA it must meet the statutory description of an assessment. Accordingly, so-called tentative or provisional assessments do not constitute conclusive evidence.[6]
[6]Commissioner of Taxation v Futuris Corp Ltd (2008) 237 CLR 146, 157 [25] (Gummow, Hayne, Heydon and Crennan JJ) (‘Futuris’).
Further, a deliberate failure to comply with the provisions of the TAA would constitute manifest jurisdictional error and attract the Court’s jurisdiction to issue prerogative or constitutional writs under s 39B(1) of the Judiciary Act 1903 (Cth).[7]
[7]Ibid 165 [56].
However, contrary to the defendant’s submission, it is not incumbent on the plaintiff in this proceeding to disprove conscious maladministration or bad faith in order to rely on the evidentiary provisions under the TAA. In fact, the Court does not have jurisdiction to make a declaration in a debt recovery proceeding, such as the current proceeding, that the assessments are a nullity and then proceed to treat them as such.
Once the assessment is tendered into evidence the Court is bound to conclude that it was conclusively established that the assessment was ‘properly made’ and the ‘amounts and the particulars of the assessment’ are correct.[8] Accordingly, in Anglo American Investments Pty Ltd v Deputy Commissioner of Taxation, the New South Wales Court of Appeal rejected a collateral challenge to an assessment on the ground of deliberate illegality and bad faith and said:
[U]nless ‘judicial review’ proceedings are successfully conducted, a court in ‘recovery proceedings’ must give full effect to the conclusive evidence provision in s 350-10(1).
…
In a tax recovery proceeding, this Court is bound by Futuris to conclude that the conclusive evidence provision in s 350-10(1) of the [TAA] should be given full effect.[9]
[8]Anglo American Investments Pty Ltd v Deputy Commissioner of Taxation (2017) 347 ALR 134, 145 [44] (McColl, Meagher & Payne JJA).
[9]Ibid 146 [50], [54].
The Court later said:
These proceedings [i.e. a proceeding for recovery of a debt] are not ‘judicial review’ proceedings of the kind contemplated by the High Court in Futuris. These were taxation debt recovery proceedings being conducted in a State court. The amended defence that was filed in these proceedings was bound to fail, because a claim of conscious maladministration can have no reasonable prospect of succeeding in debt recovery proceedings where no application for judicial review is made and notices of assessment have been admitted in evidence.[10]
[10]Ibid 150 [78].
The same can be said in this proceeding, although no pleading of conscious maladministration has in fact been made. Even if the defence was so amended, it could have no real prospect of succeeding in this proceeding, being a debt recovery proceeding, once the notice of assessment has been admitted into evidence.
The authorities relied on by the defendant do not stand for any contrary proposition. Martin v Commissioner of Taxation[11] was an appeal from decisions of the Commissioner of Taxation on objections lodged by a taxpayer with respect to assessments of income tax. Accordingly, the conclusive evidence provisions specifically did not apply. R v Deputy Commissioner of Taxation (WA);Ex parte Briggs[12] was an application for judicial review seeking to quash assessments and for the purposes of the proceeding, the Commissioner of Taxation conceded that he had made no attempt to ascertain the taxpayer’s assessable income. Unremarkably, the Commissioner of Taxation was unable to rely on the assessment as conclusive evidence for the purposes of defending the application to quash the assessment itself.
[11](1993) 93 ATC 5200.
[12](1986) 12 FCR 301.
As to the second basis why the defendant’s submissions must fail, the defendant raised no facts that could possibly justify quashing the assessment. The defendant did not plead or lead any evidence to establish that the assessment was the product of conscious maladministration or was otherwise made in bad faith.
As was explained by Justice Pagone in the Deputy Commissioner of Taxation v Leaver:
The essence of bad faith in this context is that the person purporting to exercise a statutory power does so knowing that the power is being exercised improperly; that is, that the person has conscious of the unlawfulness. It is the knowledge and awareness of the illegality which is central to establish bad faith to defeat the protection of the provisions.[13]
[13][2015] FCA 1454, [6].
Conscious maladministration or bad faith was not pleaded. However, orally it was submitted by counsel for the defendant that the audit position paper exhibited to the affidavit of Mr Baghaei demonstrated inconsistent and unacceptable conduct of the Australian Taxation Office’s officers and that the Deputy Commissioner of Taxation’s analysis was defective.
Apart from general reference to the audit notes, no particular submission was made about how an inference of conscious maladministration or bad faith should be drawn. I read the exhibit and was unable to discern the matters put by counsel for the defendant. General reference to such a document is insufficient to raise a real prospect of a defence. As the Court of Appeal stated in Hausman v Abigroup Contractors Pty Ltd:
A judge faced with an application for summary judgment should not be required to trawl through the defendant’s material in an effort to see whether there can be constructed from that material an answer to the plaintiff’s claim. It must be for the defendant to point to some material, whether legal or factual, that provides an arguable response to that claim. That is so even if it is the plaintiff who must ultimately discharge the burden of persuading the judge that there is no issue that warrants trial, and that summary judgment should therefore be granted.[14]
[14](2009) 29 VR 213, 224 [55].
Constitutional argument
The defendant further relied on s 51(ii) of the Australian Constitution. It was submitted that this section requires a connection between the objects of taxation, being the person on whom the liability to pay the tax is imposed, and the subject of taxation, being the criteria according to which the tax criteria was created, or the event or thing which gave rise to the liability.
In this case it was submitted that such a connection did not exist as the defendant never derived or otherwise received any benefit from the income allegedly paid to him by the third party.
I reject this contention. Assuming for present purposes that such a requirement is arguable, I accept the plaintiff’s submission that such a requirement would be satisfied by the fact that the notice of assessment states that the defendant is the object of the tax and has been taxed on his taxable income, being the subject of the tax.
It would be an absurdity if the taxing power of the Commonwealth under s 51(ii) of the Australian Constitution was undermined if the Commissioner of Taxation made an error in the assessment of taxable income. The authorities relied on by the defendant do not stand for this proposition.[15]
[15]MacCormick v Federal Commissioner of Taxation (1984) 158 CLR 622; Deputy Commissioner of Taxation (Qld) v Truhold Benefit Pty Ltd (No 3) (1985) 158 CLR 678.
Orders
I will enter judgment for the plaintiff in the following sums:
(a)income tax and associated general interest charges in the sum of $1,066,665.44;
(b)shortfall interest charge and associated general interest charges in the sum of $45,110.36; and
(c)administrative penalties and associated general interest charges in the sum of $496,322.20;
being a total of $1,608,098.00.
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