Deputy Commissioner of Taxation v Kinny

[1988] HCATrans 76

IN THE •HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No Sl3 of 1988

B e t w e e n -

DEPUTY COMMISSIONER OF TAXATION

OF THE COMMONWEALTH OF AUSTRALIA

Applicant

and

NOEL KINNY

Respondent

Application for special leave to

appeal

MASON CJ
WILSON J

BRENNAN J

Kinny

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 22 APRIL 1988, AT 12.17 PM

Copyright in the High Court of Australia

SlT 7 / 1/PLC 1 22/4/88

MR D.H. BLOOM, QC:  If it please the Court, in this matter I

appear with	my learned friend, MR A. SLATER, for the
applicant.	(instructed by the Australian Government
Solicitor)

MR A.M. GLEESON, QC:  May it please the Court, I appear with

my learned friend, MR B. PAPE, for the respondent.

(instructed by Dawson Waldron)

MR BLOOM:  Your Honours, this matter raises a very short but

important question, namely, whether the liability for
provisional tax in respect of a year of income is
extinguished by the assessment of income tax in respect

of that year. The Court of Appeal answered that question

in the affirmative, reversing the learned trial judge,

although differing as to the point of time at which the

liability for provisional tax was extinguished. There

is some importance in that and I will come to that shortly,

but in the applicant's primary submission the decision

of the Court of Appeal is erroneous in point of principle.

And, in particular, the Act provides for one and one

only method of discharge of the liability for provisional

tax and that is payment.

Might I hand to Your Honours four copies of the relevant legislation and some authorities which we may

need to go to?

BRENNAN J: Is it implicit in that proposition, Mr Bloo~, that

there is a concurrent liability for income tax and
for provisional tax in respect to the same year if the

provisional tax is not paid?

MR BLOOM:  Yes, Your Honour.

BRENNAN J: And each of them must be discharged only by payment?

MR BLOOM:  Yes, Your Honour.

BRENNAN J: Which means that there are two debts in respect

to the same income?

MR BLOOM:  Yes, Your Honour.

BRENNAN J: It comes as a frightening surprise.

MR BLOOM: Especially to those at the bar table, Your Honour.

MASON CJ:	We had better declare our interest in this.
MR BLOOM:	Your Honour, I have to put it that way because there

is a special provision in the Act, as I will attempt to

show Your Honours, which says that the debt is payable

but if the Commissioner cannot use the moneys to apply
against an income tax liability he has got to refund it.

So, the system, which is a complete one, is there to ensure that the obligations to pay are met and if it happens

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Kinny

that the revenue ends up with moneys in excess of

those which it is entitled to keep, there is an obligation

on it to refund the difference.

Your Honours, the liability to pay provisional tax

is imposed by section 221YB which is at the top of the

second of the pages in Your Honour's booklP.t and it sets

out the purpose for which provisional tax that is levied and

was relied upon, certainly, by the members of the Court

of Appeal below.

BRENNAN J: Well, it is the purpose for which liability exists.

MR BLOOM:  Yes, Your Honour, but it is none the less a liability

and that is the applicant's point. It was called by

Sir Owen Dixon in the CLYNE case at 100 CLR "a liability

ancillary to income tax" but, in our submission, it does

not make it any less a liability.

Unless a notice of assessment for income tax

for the relevant year has already issued, in which case section 221YF precludes the Commissioner from notifying provisional tax, the amount of provisional tax may be

notified and calculated in accordance with section 221YC

or section 221YDA. And I can tell Your Honours, for what

it is worth, that in respect of the fiscal year 1987

the amount of provisional tax notified in Australia was

$7.9 billion. Provisional tax becomes due and payable

in accordance with section 221YD and that specifies the

date due and payable and if it happens to be before

31 March, then it is 31 March. There is now, of course,

as Your Honours are· aware, a quarterly instalment system.

Section 221YA(2) which appears at the bottom of the first page says that:

(2) In sections 206, 207, 208, 209 -

and other sections -

"income tax" or "tax" includes provisional

tax.

When one goes to section 207, it says - and reading

it, making the alteration for which section 221YA

provides:

(1) If any -

provisional -

tax remains unpaid after the time when it

became due and payable or would, but for

section 206, have become due and payable,

additional tax is due and payable by way of

penalty.

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That, of course, is subject to remission under

section 207(2). Section 208 provides that provisional:

tax when it becomes due and payable -

is a debt due to the Commonwealth -

and payable to the Commissioner in the manner and

at the place prescribed.

And section 209, reading it with the benefit of section 221YA, provides that:

Any -

provisional -

tax unpaid may be sued for and recovered in any

Court of competent jurisdiction by the

Commissioner ..... suing in his official name.

It is the applicant's contention that in the light

of this express scheme there is no room for the implication

which the Court of Appeal made in this case. There is

no absurdity or injustice exposed because of section 221YE,

and that appears at the last of the pages on the

legislation booklet:

Where a taxpayer has paid provisional tax in
respect of income of arrJ year of income,
and an assessment of income tax in respect

of that income has been made, or the

Commissioner is satisfied that no income

tax will be payable in respect of that

income, the Commissioner shall credit the amount of that provisional tax in payment

successively of -

(a) such income ..... payable) .... in respect

of that income;

(b)	any provisional tax notified ..... in respect
of income of the year next succeeding that

year of income; and

(c) any other income tax or any withholding

tax payable by the taxpayer,

and shall be liable to refund to the taxpayer

the amount of that provisional tax not so credited.

Your Honours, it is our submission that the system

is a complete one imposing upon a taxpayer who is notified

of a liability of an amount of provisional tax to pay that

amount to the Commissioner and he is never excused from

that liability except by payment of the amount.

Section 221YE is there to deal with the situation where

he may pay more than his total liability for tax and

provisional tax at the time may be.

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BRENNAN J: But the proposition is this then, is it, that

if, in relation to a year of income, provisional tax

is calculated and notified but unpaid, that in respect

of the same year an assessment to income tax is made
and the assessment to income tax is nil, then there is
still a debt in respect to that year to be discharged

but when that debt is discharged it will be refunded?

MR BLOOM:  Unless there are other amounts against which that

amount should be credited, yes, Your Honour.

BRENNAN J: Yes. So, provisional tax then serves, on your

submission, not simply as a security, as it were, for

the tax in respect to the income year but as a security

for the payment of all the sundry amounts of tax

referred to in section 221YE(l)?

MR BLOOM:  It may,in this sort of case, end up doing that.

It is not intended to be other than paid when the liability for it is imposed. The expectation is that

it will be then paid.

BRENNAN J: And the liability is imposed not simply for the

purpose stated in section 221YB but for the purpose

of providing security for other liabilities?

MR BLOOM:	The liabilityis imposed for the purpose stated in section 221YB, in our submission, but from the moment
that it is imposed the revenue have a collectable debt
and that debt does not cease to be collectable because
a taxpayer fails to pay the amount when he should have.

Your Honours, even if the court below was correct

on the principle, it is still our submission that the

majority was nevertheless incorrect. Mr Justice McHugh,

with whom the learned president agreed, held that the

issue of the notice of assessment extinguishes the

liability for provisional tax. As Your Honours are well

aware, the issue of the assessment does not, of itself,

make the income tax due let alone due and payable and

that is the result of Your Honours' decision in the

CLYNE case, 150 CLR 1.

Your Honours, the decision does lead to detriment to the revenue, even if it is a question only of a

month's additional tax which is missed out. At the

moment, I am instructed, there are a large number of

cases pending in the courts - recovery cases - where

this is an issue and the matter is therefore one of

importance to provisional taxpayers generally and to

the revenue and, in our submission, it is a proper matter

for special leave.

BRENNAN J: Mr Bloom, there.: does seem to be, however, one problem

in relation to the majority and minority judgments

if I might say so in this case. The majority of the court

said, "on issue of the assessment".

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MR BLOOM:	Yes, Your Honour.
BRENNAN J:	On your argument as just delivered it would be

perhaps, if the argument was otherwise against you,

"on the due date". Mr Justice Clarke said "on the

due date or on payment of the assessment to income

tax".

MR BLOOM:	Yes.
BRENNAN J:	Now, do you seek to support in any way the proposition "or on the payment of the assessment to income tax"?
MR BLOOM:	Assuming that the liability is extinguished by the

debt for income tax arising but the debt for income tax

is earlier discharged, yes, we would, Your Honour.

That is assuming, against us, the principal.

MASON CJ: Yes, the main point.

MR BLOOM:  Yes, Your Honour.

MASON CJ: Assume the main point is decided against you, you

would wish to endeavour to support Mr Justice Clarke's

approach?

MR BLOOM:  Yes, Your Honour.

BRENNAN J: In favour of - - -?

MR BLOOM:  In favour of the due date for payment of income tax.

BRENNAN J: Due date for payment is one thing but Mr Justice Clarke

expressed himself in the alternative.	I do not
understand the alternative exactly.

MR BLOOM:  We have presumed, Your Honour, that His Honour meant

that if it is an earlier payment, that is, if before

the date due and payable the liability is discharged,

then one would not wait for that day.

BRENNAN J:  I see.

MR BLOOM:  And if that is correct then we would support his

approach in those respects.

BRENNAN J: Yes. Otherwise you would support the conclusion

to which he arrived in the instant case?

MR BLOOM:  Yes, Your Honour. If Your Honour pleases.

MASON CJ: Yes, Mr Gleeson?

MR GLEESON:	Your Honours, a good practical way to test both the issue of general principle and the point of departure
between the majority and Mr Justice Clarke in the court
below is to look at the provisions of section 218 of the INCOME TAX ASSESSMENT ACT which was the subject of
a decision of this Court in CLYNE V DEPUTY COMMISSIONER, 150 CLR 1.

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WILSON J: Which is the case Mr Bloom has provided us with,

immediately below the statute.

MR GLEESON:  I see, I had not noticed that, Your Honours.

WILSON J: Yes. It saves you handing it up.

MR GLEESON:  Your Honours, this Court held, in CLYNE's case,

that for the purposes of consideration of the power

of the Connnissioner to actually require payment from

third parties under section 218 as, for example, by

giving a notice to a bank, the amount due to the

Commissioner in respect of income tax becomes due upon

service of the notice of assessment and not 30 days

later upon the due date for payment. So, when you

come to consider the operation of section 218, in our

respectful submission, first of all, in its terms, it

would produce a very surprising result if there could

be currently due to the Commissioner both a liability

for provisional tax and a liability for actual tax in

respect of the same period because then, presumably,

two notices could be issued under section 218 and

two amounts could be recovered. Second: the actual

decision in CLYNE's case makes it clear that the debt

becomes due and can be the subject of a section 218

notice, not at the expiration of 30 days, but immediately so that the difference between the debt being due and the

debt being payable is of considerable practical
importance in relation to the operation of section 218

and was vital in CLYNE's case. That, in our respectful

submission, supports the reasoning of Mr Justice McHugh

and Mr Justice Kirby to their ultimate conclusion.

I do not think Mr Justice Clarke's attention was drawn

to the provisions of section 218 and he certainly did not

refer to it in his reasons for judgment.

A second practical matter that is of importance

and that has also been adverted to relates to what

happened in this very case. In this very case, as is
not uncommon, the provisional tax for the year ended

30 June 1978 as notified on the 1977 assessment was

calculated on the basis that the taxable income for the

year ended 30 June 1978 would be greater than it, in fact,

turned out to be. In other words, the provisional tax

calculated in year 1 for year 2 was X dollars whereas

the actual tax payable for year 2 turned out to be X minus

Y dollars. The Commissioner's argument nevertheless is

that additional tax under section 207 is payable at the

rate prescribed as it may be from time to time upon the

amount of X dollars and continues to run on the amount

of X dollars notwithstanding an assessment to actual

tax in respect of the same period of X minus Y dollars.

Now, that is not an anomaly that is in any way remedied

by the provisions of section 221YE. So, there are those

two anomalies arising in relation to the operationaf

section 218 and that arising in relation to the amount or

principal upon which the rates relevant to section 207

are calculted that fully support the reasoning and

conclusion of the majority.

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In our respectful submission, in so far as the

actual issue in the present case was concerned, of course,
it was not important whether one takes the view of the

majority in the Court of Appeal or the view of

Mr Justice Clarke. The fact is that the Connnissioner

sued Dr Kinny upon the 1977 assessment, sought to prove

his case simply by tendering the notice of assessment

to provisional tax, and steadfastly declined to seek any

amendment that would produce the consequence that he

could base his claim upon the 1978 assessment. So, in

terms of the actual outcome of this litigation, as it

was pleaded and conducted, nothing turns upon the

second of the issues referred to by my learned friend

and we would add in that connection that if that were

thought to be the issue of importance justifying

consideration by this Court, then appropriate protection

in terms of costs ought to be given to my client,

the protection that we would seek being an undertaking
that no application would be made to disturb the orders

for costs made below or to seek costs of the appeal.

WILSON J: What was paid in 1984 that supplied the end point

of the additional tax? The 32,000, was that the

provisional tax assessed in 1977?

MR GLEESON:  I think a larger amount that included the 32,000,

Your Honour, and other years too.

WILSON J: Had the income tax for 1978 already been paid?

I just could not be sure that the taxpayer had not, in fact, paid both amounts but perhaps he had.

MR GLEESON:  Some of it had been paid before. I think the

fact is that over a period of time various amounts were

paid.

WILSON J: Yes. I do not think it is material to pursue it,

Mr Gleeson.

MR GLEESON:  Your Honours, our respectful submission is that

on the issue relevant to the way this case was pleaded

and conducted, the decision of all the members of the

Court of Appeal was correct and on the issue not

relevant to the actual decision in this case, in which

there is a difference of view between the majority and

Mr Justice Clarke - the view of the majority was

correct for the reasons that we have sought to demonstrate

and that it is not a case that ought to result in the

grant of special leave.

I notice that making the generous assumption that

page 6 of the application book, line 3, contains a

typographical error, the basis upon which this application

is put is very free of particularity. The serious problems

in administration of the Act are not elaborated -whether

they involve rewriting.a computer programne might be one possibility -
and the loss or potential loss to the Cctim:mwealth .. that

has been adverted to in argum:nt, is only the loss.over that 30-day

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period. Of course, there would be a further loss of
revenue but one that my learned friend has not adverted

to and that is the one that I mention, that is the

fact that additional tax, under section 207, if the

Commissioner is right, will continue to run on the

higher amount, that is the amount of provisional tax

calculated on a putative income, that was greater

than it was ultimately assessed to be by the

Commissioner and if that is a loss of revenue to the

Commonwealth that is revenue the Commonwealth deserves

to lose.

WILSON J: Mr Gleeson, before you sit down: your reliance

on section 218, I can appreciate the relevance of

that to the main argument, the argument of substance,
section 218 being putting the emphasis on when the

tax is due.

MR GLEESON:  Yes.

WILSON J: It is not relevant to the point that divided the

Court of Appeal, is it?

MR GLEESON:  We submit it is for this reason, Your Honour: that

Mr Justice Clarke looked for some process of construction or implication that would overcome the 30-day gap,

if I can use that expression, and he said, "As a matter

of construction of the legislation I'd go all the way
with the majority except that I would say that the
provisional liability is discharged or extinguished

when the actual liability or the actual amount of tax

becomes payable." His Honour overlooked the significance,

for the purpose of section 218, of the actual issue or
service of the notice of assessment which actually
entitles the Commissioner to recover from third parties

the amount of the debt for actual tax; even, it would

be suggested, presumably, also the amount of the debt

for provisional tax but at least the amount of the debt

for actual tax before it becomes actually payable. And,

in our respectful submission, that, itself, is a reason

for treating the liability for provisional tax as being

extinguished upon assessment. If it were otherwise,

the Commissioner, pursuant to the decision in CLYNE's

case, could recover the relevant amount even before it

became payable.

BRENNAN J:  Mr Gleeson, that really raises - seems to

raise a question. But applying CLYNE's case and the

reasoning based on section 218 to this, the debt for
tax assessed arises on service of the notice. If it
be the appropriate application of 221YB that there

cannot be two debts in respect to the same tax year

coexisting, then one can see very readily that the

debt in respect of provisional tax might run up to the

time when the debt in respect of income tax assessed

arises, that would be up until service of the notice

of assessment. At the moment, the majority are saying

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"on issue of the assessment". If one applies 218 onet

says "on service of the assessment". If one takes

Justice Clarke's view it would be "30 days after".

MR GLEESON:  I think it is fair to say that 218 was not mentioned

in the court below and the significance of the difference

between those particular points was not adverted to.

In our respectful submission, any difficulty in that

regard could be overcome if this Court were otherwise

minded to deny special leave to appeal, by this Court

making an observation to the effect that there does

not appear to have been consideration of that particular

difference.

BRENNAN J: Is it in issue, really, between the parties here?

MR GLEESON:  None of this affects the issue between the

parties.

BRENNAN J: Issue between the parties - well we cannot deal

with it anyhow.

MR GLEESON:  Yes. Because the Commissioner conducted his case

against Dr Kinny by tendering the 1977 assessment
including the claim for provisional tax and, as they

say, sitting down.

MASON CJ:	Who says "sitting down"?
MR GLEESON:	Counsel. This is a racey expression we use,

Your Honours. I presume that is the reason why there

was no application for leave to amend in the Court of

Appeal. I am told that there was a good deal of

discussion in the Court of Appeal about why the

Commissioner did not just amend the statement of claim and sue on the 1978 claim for tax. That, presumably,

is the reason why he did not. If Your Honours please.

MASON CJ: Yes, Mr Bloom?

MR BLOOM:  Your Honours, what my learned friend, Mr Gleeson, has omitted to tell Your Honours is that the

Commissioner, in issuing the assessment for 1978,

adopted an administrative practice which he does
adopt which is,notwithstanding there is no provision

in the statue for him to do so, credits the amount of unpaid provisional tax so that that reduced the

amount actually payable on the statement of account

which was contained in the notice of assessment.

BRENNAN J: He then debited the same amount, did he not?

MR BLOOM: Well, he left open the provisional tax amount

which was unpaid. And when in 1984 - many years later -

the taxpayer, in this matter, first made a payment

it was of some 1977 income tax and the provisional tax

for 1977.

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Your Honours, it is our respectful submission

that section 218 should not be used for the purpose of construing the provisional tax provisions. We are not

certain that in the years in which the provisional

tax provisions went in tax in section 218, indeed,

included provisional tax. It now does but we are not

certain that in those years and, indeed, until

recent amendments, it did at all. But in any case,

it does now refer to provisional tax as a tax in

respect of which the Commissioner can claim moneys

from other people and if the debt for that tax is

due then a notice can be served appropriately under

section 218 immediately after the debt for provisional

tax becoming due and payable.

Your Honours, as far as section 207 of the INCOME

TAX ASSESSMENT ACT is concerned, I remind Your Honours,

of course, that the Commissioner has power to remit

additional tax under that section and a decision

refusing or improperly remitting tax under that

section is the subject of review potentially under

ADMINISTRATIVE DECISIONS (JUDICIAL REVIEW) ACT so

that the taxpayer is not without a remedy in that

respect. They are our submissions, Your Honour.

MASON CJ: One thing, Mr Bloom: is ground 5 in your draft

notice of appeal a live question between the parties

in this litigation? Mr Gleeson has told us it is not,

having regard to the way in which the case was

conducted. That is the point dividing the majority

and the minority in the Court of Appeal.

MR BLOOM: Yes, it is, in my respectful submission, a live

issue, Your Honour. In so far as we are incorrect

on the point of principal, then the additional tax
on the provisional tax would, in the Commissioner's

submission, run until the date upon which the income

tax under the 1978 notice of assessment became due

and pay ab le.

MASON CJ: That is the difference in the dates. The 30 days,

I suppose, is it?

MR BLOOM:  Yes.

MASON CJ: And how much is involved in that?

MR BLOOM:  In this particular matter, not very much, Your Honour,

but across the board, in the hundreds of cases in which

this is a very live issue, substantially more.	I am not
in a position to give Your Honour a figure.	Mr Gleeson

is working his calculator, Your Honours, and he says it

is $300 or $400 in this particular case.

BRENNAN J: If the difference was between the date of the issue

of the assessment and the date of the service of the

notice, would you be minded to pursue it?

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Kinny

MR BLOOM:  If that were the only issue, Your Honour - the

point that divides the majority and the minority

in this case is the full 30 days.

MASON CJ:  Mr Gleeson, do you want to say anything more

on ground 5, having regard to what Mr Bloom has said?

MR GLEESON:  Your Honours, as I would understand it, what I

should do is look at the actual conclusion of

Mr Justice Clarke. I think what happened was that

Their Honours remitted the matter to Mr Justice Smart

and therefore one does not come to a money conclusion,

as it were. As I would understand the facts, the

position is that the only practical difference to the

outcome of the present case that would be made - if

the Commissioner is right on the main point, then

no problem about ground 5 arises. If the Commissioner

is wrong on the main point, then unless I am overlooking

something, he has not made his claim or framed his

claim in a way that would give rise to that point. But

assuming I am wrong in that, the amount of money involved
would be the amount payable by way of interest or

penalty for 30 days on a principal sum of $32,000

which, as I understand the rates that were applicable,

if they were up to a maxium of 20 per cent - - -

WILSON J: No, it was 10 per cent in those -

MR GLEESON: It was 10 per cent. Well, it is about $200. So, it would be a miniscule amount and, of course,

in relation to the difference between date of issue

and date of service, it would be maybe $10 or $15 or

so.

MASON CJ: Yes. Well, I understand your attitude to this.

You say it is too small to warrant the grant of special

leave to appeal notwithstanding its overall importance

in terms of collection of tax. But you say, in any event,

if the matter is to go forward then the Commissioner

should give an undertaking to pay the costs of the appeal

in any event.

MR GLEESON:

Yes. And we also say, Your Honours, that a way

the Court could overcome the problem about date of issue

against date of service, if that were troubling the

Court, would be by saying something cautionary on this

occasion, bearing in mind that it is not a matter that

was never directed to that point of difference. was agitated before the judges below and their attention

MASON CJ:  Mr Bloom, can you tell us whether you are in a

position to give an undertaking to pay the costs in any

event, in the event that we come to the conclusion

that the appeal should go forward on ground 5 in your

draft notice only?

MR BLOOM:  I am not in that position at the moment, Your Honour,

but I can get instructions, very shortly, if Your Honour

would excuse me. Yes, Your Honour.

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Kinny

MASON CJ: Well, the simplest way, if we come to that conclusion,

may be to make it a condition of the appeal. But the

Court will shortly adjourn in order to consider the

course that it will take in the matter.

AT 12.50 PM SHORT ADJOURNMENT

UPON RESUMING AT 12.57:

MASON CJ: The Court has come to the conclusion that the

decision of the Court of Appeal on the principal

question sought to be raised by the applicant in its

proposed appeal is not attended with sufficient doubt

to warrant the grant of special leave to appeal. My

reference to "the principal question" is designed to

embrace the grounds included in groundsNos 1 to 4

in the applicant's draft notice of appeal.

As to ground 5 in that draft notice, the period

during which additional tax should be computed in

accordance with section 207(1) of the INCOME TAX

ASSESSMENT ACT is a matter for determination by

Mr Justice Smart on the remitter ordered by the Court

of Appeal. The judges of that court have expressed	different views on that question but those expressions
of view are obiter and the matter will be at large before His Honour. Accordingly, the application for special leave to appeal is refused.

MR GLEESON:	We ask for costs.
MASON CJ:	You do not dispute that, Mr Bloom?
MR BLOOM:	No.
MASON CJ: The application is refused with costs.

AT 12.59 PM THE MATTER WAS ADJOURNED SINE DIE

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