Deputy Commissioner of Taxation v Jewiss & Johnson - [2004] SADC 136

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
DEPUTY COMMISSIONER OF TAXATION v JEWISS & JOHNSON
Reasons for Decision of His Honour Judge Clayton
1 October 2004
EVIDENCE
JURISDICTION - INCOME TAX ASSESSMENT ACT 1936, ss 175 and 177
The Deputy Commissioner argued that the court had no jurisdiction to entertain an argument that section 177 of the Income Tax Assessment Act 1936 prevented a defendant from tendering evidence to exclude assessments on the basis that they were issued in “bad faith” because such arguments are the province of the Federal Court or the AAT under Part IVC of the Taxation Administration Act 1953.
HELD: While the District Court is bound by section 177 it does have jurisdiction to at least consider the argument.
Also in the present case the court is able to determine whether the defendants evidence is relevant to their counterclaim.
Income Tax Assessment Act 1936 ss 175, 177; Taxation Administration Act 1953 s 59, s 255-45 of Schedule 1, referred to.
F J Bloemen Pty Ltd v Federal Commissioner of Taxation and Simons v Commissioner of Taxation (1981) 147 CLR 360; Seymour v Deputy Commissioner of Taxation (Federal Court of Australia, Northrop J, 1 December 1992); R v Commissioner of Taxation (WA) ex parte Briggs (1986) 12 FCR 301, considered.

DEPUTY COMMISSIONER OF TAXATION v JEWISS & JOHNSON
[2004] SADC 136

In each of these two actions the Deputy Commissioner of Taxation has sued for amounts allegedly owing by the defendants. There are separate actions and the claim against each defendant is separate; however common issues arise.
Each of the defendants suffers from ill health and is self-represented. In order to accommodate the health problems of the defendants an informal regime has been agreed pursuant to which the opening addresses of each party and the evidence in chief upon which each party relies had to be lodged in writing. Each party then had the right to apply to strike out inadmissible material and to apply to cross-examine the deponents to the affidavits.
The intention was to have the parties opening and the evidence before the court so that the cases could be heard on Tuesday, 5 October 2004.
A directions hearing was listed for 23 September 2004 so that a review of the preparation for trial could be made. In addition, a specially returnable application by Mr Jewiss was listed on 23 September 2004.
The specially returnable application sought orders that “..... the court nominate an accountant to act for (Mr Jewiss) or because of the particular circumstances allow the defendant, Henry William Jewiss, CPA accountant to present to the court an appraisal and make up of damages for the counterclaim without an expert supporting witness”. That application was based upon the alleged inability of Mr Jewiss to obtain the services of an independent accountant.
When the matter was called on, on 23 September 2004, Mr Sallis for the Deputy Commissioner of Taxation announced that his client objected to the affidavit material which has been produced by the defendants. He argued that the purpose of the defendants’ affidavits is to attack assessments and that there was a question of jurisdiction to be determined. Mr Sallis argued this court did not have the jurisdiction to hear an attack on the assessments because Part IVC of the Taxation Administration Act 1953 makes that the exclusive province of the AAT or the Federal Court. He argued that section 177 of the Income Tax Assessment Act 1936 made the assessments of a Commissioner of Taxation conclusive evidence of the due making of the assessment and that the particulars in the assessment are correct.
Mr Jewiss (whose argument Mrs Johnson adopts) has foreshadowed an argument that the provisions of section 177 of the Income Tax Assessment Act 1936 do not apply when the Deputy Commissioner of Taxation has acted in bad faith. It is alleged that the Deputy Commissioner acted in bad faith in the present case and that section 177(1) does not apply to the assessments upon which the Commissioner relies. Both defendants also assert that the conduct of the Deputy Commissioner gives rise to a counterclaim.
Mr Sallis argued that section 177 precluded the court in recovery proceedings from going behind any valid assessment which the Deputy Commissioner relied upon. In the case of Mr Jewiss, Mr Sallis also relied upon section 59 of the Taxation Administration Act 1953 which creates a similar provision in the case of the goods and services tax legislation.
The questions raised by Mr Jewiss’s specially returnable application would not arise if the Deputy Commissioner of Taxation was successful on the jurisdiction point. The parties therefore agreed to argue the jurisdiction point then and there even though there had been no notice of the application.
In these actions the plaintiff’s claim relies upon the documents which have been provided to the defendants and the court including certified copies of the relevant Notices of Assessment and evidentiary certificates under section 255-45 of Schedule 1 of the Taxation Administration Act 1953. While those documents, and indeed no material, has yet been admitted into evidence in the action, statements made by Mr Sallis indicate the nature of the case that the Deputy Commissioner of Taxation will bring forward when the trial commences.
A similar but not identical point was argued before Master Norman on 29 August 2003 on an application for particulars of the Statements of Claim. The plaintiff relied upon section 177 and argued that once a Notice of Assessment is served upon a taxpayer that is “conclusive evidence” of the due making of the assessment and that all particulars contained in the assessment were correct. The plaintiff said that the only way in which the taxpayer could contest a calculation of an assessment was in proceedings under Part IVC of the Taxation Administration Act 1953 by way of a review. The learned Master held that in recovery proceedings the court may not go behind the notices of assessment and inquire into the calculation of taxation because that is the proper function of Part IVC proceedings. The Master dismissed the application for particulars.
The Master was referred to F J Bloemen Pty Ltd v Federal Commissioner of Taxation and Simons v Commissioner of Taxation (1981) 147 CLR 360 where the effect of section 177 was considered. Mason and Wilson JJ with whom Stephen J agreed said that once section 177 is invoked the taxpayer is precluded from contesting that the Commissioner has made his assessment or that in making the assessment he has complied with all the statutory formalities.
The Master noted that it did not necessarily follow that the Act excluded the general jurisdiction of the court and that the court had jurisdiction to decide whether an assessment had been made where an appropriate document was not produced.
The point now raised by the defendants is a slightly different one. The defendants assert that the Deputy Commissioner cannot rely upon the assessments because the Deputy Commissioner has acted in bad faith. The Deputy Commissioner says that the court has no jurisdiction to entertain that argument.
Whether the Commissioner has acted in bad faith or not is not for me to determine at this stage. I am simply concerned with the question of whether this court has jurisdiction to entertain the defendants’ claim notwithstanding section 177.
I mention the distinction between the correctness of the contents of an assessment on the one hand and the question of whether a document is in fact an assessment for the purpose of section 177 on the other hand.
I have not yet had the benefit of the defendants’ argument as to the basis for the claim of bad faith. Any allegation of bad faith is something which will require the strictest proof.
The learned Master came to the decision that there was no right to particularity of the claim governed by District Court Rule 46A.09. He dismissed the application and held that the assessments were conclusive evidence and could not be challenged other than by way of a review pursuant to Part IVC, subject to the qualifications set out in the cases.
No doubt the Commissioner will attempt to prove the assessments by certificates pursuant to section 255-45 of the Taxation Administration Act 1953. That section says that evidentiary certificates are prima facie evidence of certain matters. That provision does not exclude the jurisdiction of the court. As the certificates are only prima facie evidence there is a possibility of other evidence. The defendants carry the onus of producing evidence to rebut the presumption, but they are entitled to produce evidence and the court does have jurisdiction to consider the facts asserted in the evidentiary certificates.
I do not think that the jurisdictional objection of the Deputy Commissioner that the assessments cannot be attacked can be determined ahead of the trial. The submission of Mr Sallis was that once the Deputy Commissioner has taken advantage of section 177 the court is foreclosed from going behind the accuracy of an assessment, whether in good faith or bad faith. I have not been referred to any authority which supports a proposition as wide as that. It would be surprising, for example, if the court had no jurisdiction even to hear argument that a document which was a forgery could not be relied upon. Whether a document issued as a result of “bad faith” can be relied upon may depend upon the circumstances. In my opinion the court does have jurisdiction to determine the provenance of documents which are covered by section 177. Objections to the admissibility of assessments should be determined as and when they arise. In considering the tender of the documents the court should have regard to section 177.
Even if the evidence of bad faith which the defendants wish to produce could not be admitted to challenge the making of the assessments the evidence may be relevant and admissible for the purpose of establishing the defendants’ counterclaim. I have not been told enough about the case to form any view on the admissibility of the material.
Accordingly, I do not think that I should find that the court has no jurisdiction to entertain the case which the defendants wish to bring forward.
Although I have not been taken to any authority which specifically establishes that section 177 does not apply when the Deputy Commissioner has acted in bad faith, there are cases which lend support to that proposition.
The starting point is F J Bloemen Pty Ltd v Federal Commissioner of Taxation and Simons v Commissioner of Taxation (supra). The effect of the judgments is summarised in the headnote in the following terms:
“.... although the courts have jurisdiction to decide whether an assessment has been duly made, once a document satisfying s.177(1) is produced a court is compelled to treat it as conclusive evidence that the Commissioner has made an assessment or that in making the assessment he has complied with the statutory formalities.”
For present purposes it is unnecessary for me to descend into a detailed analysis of the court’s reasons. However, I refer to the joint reasons of Mason and Wilson JJ with whom Stephen J agreed at page 376:
“It does not necessarily follow from what we have said that the Act excludes the general jurisdiction of the Supreme Court. Section 177(1) specifically operates by compelling a court, for example the Supreme Court, in the exercise of its jurisdiction to treat a notice of assessment on its production as conclusive evidence that the assessment has been duly made and thereby foreclosing that issue. In theory s.177 leaves the Supreme Court with jurisdiction to decide whether an assessment has been duly made in a case in which an appropriate document is not produced.
However, the rights of review given to the taxpayer by Pt V are comprehensive. Quite evidently it was contemplated that the Commissioner would in every case take advantage of s.177(1) and foreclose the exercise of jurisdiction to decide whether an assessment has been duly made. The general tenor of the statutory provisions suggests that a taxpayer wishing to challenge a notice of assessment served upon him will be effectively confined to the Pt V procedures.”
Also at page 378 their Honours said:
“Accordingly, in our opinion the Supreme Court is bound, on production of a notice of assessment, to rule that the assessment was duly made both in statutory proceedings and in the exercise of its general jurisdiction. In a given case a question may arise as to whether the notice produced by the Commissioner is a notice of assessment, e.g. a notice expressed to relate to a definitive assessment as distinct from a provisional or tentative assessment. Unless it can be characterized as a notice of an "assessment", s.177(1) will have no operation.”
On that analysis, there is no blanket exclusion of the jurisdiction of the court. The court still has a role to perform.
In Seymour v Deputy Commissioner of Taxation (Federal Court of Australia, Northrop J, 1 December 1992) the taxpayer argued that it should be allowed to challenge the making of an assessment to overcome the provisions of sections 175 and 177(1) of the Income Tax Assessment Act 1936. His Honour held that section 177(1) does not authorise the conduct of process, such as the issue of an assessment, for improper purposes and permitted the taxpayer to go behind the assessment.
In one of the applications before Northrop J (V G220 of 1991) the taxpayer challenged the validity of the amended assessment on the basis that the assessment was issued in bad faith. The Commissioner took out a motion for judgment. His Honour said that the court must determine whether on all the evidence before it the matters raised by the taxpayer were arguable so as to justify the court in refusing to give judgment for the Commissioner on the motion for judgment. That is His Honour allowed the taxpayer to go behind the assessment. His Honour said at page 505 of the report “this of itself is not sufficient to say that the amended assessment is invalid. However, the material supports the suggestion ....”. Northrop J referred to R v Commissioner of Taxation (WA) ex parte Briggs (1986) 12 FCR 301 where the Full Federal Court (Bowen CJ, Sheppard and Beaumont JJ) distinguished Bloemen and Simons and allowed the court to go behind an assessment. In ex parte Briggs the court said:
“In our opinion, the present case may be distinguished from both Bloemen and Simon. In each of those cases, and in Bloemen especially, there was nothing to indicate that the notice of assessment was something different from what, on its face, it purported to be. But here, the respondents have admitted that the documents issued by them were not, in truth, assessments of taxable income: according to para.4 of the admitted facts, none of the respondents, prior to the issue and service of the notices of assessment, made any attempt to ascertain the prosecutor's taxable income, nor intended to undertake any relevant process of calculation; rather, the first respondent issued the said notices for the purpose of forcing the prosecutor to consult with him or his officers; and, by para.9, the first respondent, in the person of the second respondent, decided to issue the notices of assessment, knowing that they did not reflect any rational assessment of a liability of the prosecutor or with reckless indifference to whether they did or did not reflect any such assessment. The respondents have thus elected to proceed upon a footing different from that contemplated by the Act, for the statute proceeds upon the hypothesis that the Commissioner will not be motivated in the exercise of his powers by improper or collateral purposes (see Bloemen, per Mason and Wilson JJ. at p.375). But, to adapt the language of Isaacs J. in Clarke, the present case does not involve a ‘curial diving’ into ‘confidential channels of information’. Rather it is a case, no doubt unusual, of the respondents' asserting that they have abused their powers. This assertion, it is true, is made in a statement of facts which is agreed on a limited basis only. Nonetheless, we must accept the assertion as accurate.
A genuine attempt to ascertain the taxable income of a taxpayer, even if carried out cursorily or imperfectly, is one thing. But when regard is had to the whole of the facts and surrounding circumstances of the present case and it appears that the respondents never intended to embark and did not in fact embark, upon the process of ascertaining the taxpayer's income, no ‘assessment’ is involved. So much is really conceded by the respondents in the agreed facts and that consideration takes the case beyond what was decided in Bloemen. It must follow that s.177(1) can have no operation.”
Ex parte Briggs is therefore another example of the court having jurisdiction to go behind a Notice of Assessment.
At the moment the defendants have not explained the basis for their assertion that the assessments were issued in bad faith and cannot be relied upon. It may be that at the end of the day section 177 will prevail and the assessments should be treated as conclusive evidence as contemplated by that section. However, I do not think that I should preclude the defendants from calling evidence and arguing that there is some reason why section 177 does not apply. The court permitted that to happen in ex parte Briggs and in Seymour.
Also, as I have mentioned, the defendants have counterclaims. Section 177 does not preclude the defendants from calling evidence in support of the counterclaims.
Accordingly, I reject the submission of the plaintiff that the court does not have jurisdiction to entertain the defendants’ argument.
I should make it clear that I have not considered the admissibility of the material upon which the defendants rely. All that I have determined is that the court has jurisdiction to hear the arguments. Either party can raise objections to the admissibility of particular evidence during the course of the trial. When the court arrives at its decision in the actions it must obviously give effect to section 177, but that falls a long way short of saying that the court should not even entertain the material relied upon in support of the defendants’ defence and counterclaim.