Dunn and Commissioner of Taxation

[2008] AATA 503

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2008] AATA 503

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No WT2004/445

TAXATION APPEALS DIVISION		)
Re		GREGORY JOHN DUNN

Applicant

And COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal Mr A Sweidan, Senior Member

Date12 June 2008

PlacePerth

Decision The Tribunal affirms the decision under review.

.........(sgd Mr A Sweidan)…....

Senior Member

CATCHWORDS

Income Tax – objection to assessment –  delay by Commissioner in deciding objection – applicant contending that Tribunal should decide review application on basis of applicant’s Grounds of Objection and without any evidence other than s.37 documents – decision under review affirmed

LEGISLATION

Income Tax Assessment Act 1936 – s 51(1) and 82 KZM, 177C (1), 177D, 177F (1)

Taxation Administration Act 1953 – Part IVC, s 14ZZ, 14ZZK (b (i)), 14ZY (3), 14ZZA. 14ZZK

82KZM, 14ZV

CASES

Federal Commissioner of Taxation v Dalco [1990] HCA 3, (1990) 168 CLR at 614 

McCormack v Federal Commissioner of Taxation [1979] HCA 18 (1979) 143 CLR 284

Gauci v Federal Commissioner of Taxation [1975] HCA 54 (1975) 135 CLR 81

Re Federal Commissioner of Taxation; Ex parte Australena Investments Pty Ltd & Ors (1983) ALR 577

NAES v Minister for Immigration & Multicultural & Indigenous Affairs [2003] FCA 2

REASONS FOR DECISION

12 June 2008	Mr A Sweidan, Senior Member
BACKGROUND

1.      The respondent issued an amended assessment dated 7 June 1999 to the applicant in respect of the taxation year ended 30 June 1994 (the “amended assessment”). 

2.       The adjustment sheet accompanying the amended assessment disallowed certain deductions claimed by the applicant in his 1994 tax return relating to Satcom Corporate Services Pty Ltd, thereby increasing the applicant’s taxable income by the amount of the disallowed deductions.  The primary tax and the Medicare levy assessed and the penalty tax imposed in the amended assessment was calculated on the applicant’s increased taxable income.

3.       The applicant by Notice of Objection dated 27 July 1999 objected against the amended assessment, claiming it was excessive and that his taxable income should be reduced by the amount of the disallowed deductions and that the primary tax assessed and the Medicare levy and the penalty tax imposed in the amended assessment should also be reduced in accordance with the grounds set forth therein. 

4.       The respondent disallowed the applicant’s objection in full on 11 October 2004, i.e. approximately 5 years and 2 months after the date of the objection.

5.       The applicant seeks a review of the respondent’s decision.

APPLICANT’S CONTENTIONS

6.      Applicant filed written submissions and also made oral submissions.

7.      Certain aspects of the applicant’s submissions were in the Tribunal’s view both confused and confusing, particularly in light of earlier correspondence between the parties legal representatives as well as the withdrawal by applicant’s counsel at the hearing of certain of the written submissions (see below).  In the earlier correspondence the applicant’s solicitors appeared to indicate that the applicant would, at the hearing of the application, rely solely on the contention that the amended assessment should be set aside because of the respondent’s failure to make the objection decision under review within a reasonable time.

8.      The applicant contended that a reasonable time is 12 months.

9.      This contention is relied on in paragraph 14 of the applicant’s written submissions tendered at the hearing (see below).  However applicant’s counsel expressly withdrew that submission when clarification thereof was sought by the Tribunal.

10.     The applicant’s written submissions were lengthy and detailed.  The submissions, in the Tribunal’s view, may be summarised as follows:-

10.1The High Court of Australia in Re O’Reilly; Ex parte Australena Investments Pty Ltd and Oths (1983) 83 ATC 4, 807 in a judgment delivered by Murphy J on 21 December 1983 said in relation the interpretation of former section 186 of the Income Tax Assessment Act 1936:

“Whether the Commissioner has a public duty to allow or disallow within a reasonable time. … He contended that there is no time limit whether reasonable or otherwise in which he is required to determine an objection.  Where time limits have not been specified in other sections of the Act a reasonable time limit has been implied (see Ganke v D.F.C.T of 75 ACT 4, 097 (1975) 1 NSW LR252).  Without a time limit any duty will be illusory.  I interpret section 186 of the Act as requiring the Commissioner to allow or disallow an objection in whole or in part within a reasonable time.”

10.2In the case cited Murphy J held that a delay of 12 months would, unexplained, involve failure by the Commissioner to perform his public duty.

10.3The applicant contended that the respondent therefore had “an implied statutory duty” to make his decision on the objection within 12 months and that the respondent had failed to perform his statutory duty in that regard where the circumstances were such that his delay for a 62 month period was unexplained.

10.4 The consequence, it was submitted, is that the Tribunal should, in view of the delay in determining the objection, set aside the decision of the respondent and substitute a decision either setting aside the decision under review and directing that the amended assessment should be cancelled or remitting the matter to the respondent for the respondent’s reconsideration in terms proposed by the applicant, the effect in both cases being that the respondent should decrease the taxable income of the applicant as contended in the applicant’s grounds of objection.

10.5This, it was argued by the applicant, should occur without the Tribunal hearing any further evidence or considering anything other than the section 37 documents before the Tribunal and the applicant’s notice of objection as contained therein.

10.6It was also contended that if the Tribunal is of the opinion that none of the grounds of applicant’s objection cover the matters set out in paragraphs 10.1 to 10.5 above the Tribunal should make an order allowing the applicant to amend the applicant’s objection to include a ground that the respondent’s failure to make his objection decision within a reasonable time should have the result set out in paragraphs 10.4 and 10.5 above.

11.     As noted earlier, notwithstanding these contentions contained in the applicant’s written and oral submissions, the applicant’s counsel at the hearing in response to questions raised by the Tribunal expressly withdrew the argument contained in ground 14 of the applicant’s written submissions.  That ground read as follows:

“There is nothing new in the Tribunal setting aside an objection decision by the Respondent to disallow a taxpayer’s objection, and substituting its own decision to allow the taxpayer objection in full (see D3 above).  The novelty in this review is that the Tribunal is being requested to set aside the Respondent’s Objection Decision on the basis that it was not made within a reasonable time pursuant to the statutory obligation imposed upon the Respondent to that effect.  If the Tribunal accepts the Applicant’s contentions set out at I2 and I3 above, the Applicant requests that the Tribunal set aside the Respondent’s Objection Decision in accordance with subsection 43(1)(c) of the AAT Act, and make a decision (in substitution for the Respondent’s Objection Decision) as at 26 July 2000 to allow the Applicant’s Objection in full in accordance with subsection 43(1)(c)(i) of the AAT Act (which decision has the effect that the Applicant’s taxable income in the Amended Assessment is reduced by the amount of the Adjusted Income).”

ISSUES

12.     It appears to the Tribunal that the issues which it needs to determine are:

13. Whether the applicant has failed to discharge the onus under sec 14ZZK (b) of the Taxation Administration Act 1953 (“the TA Act”) of proving his assessment for the income year ended 30 June 1994 is excessive, and consequentially, the Tribunal should affirm the respondent’s objection decision to disallow deductions of $90,000 claimed by the applicant in the year of income in respect of his acquisition of 3 Satcom Corporate Services Pty Ltd franchises (“the claimed deductions”). The respondent disallowed the claimed deductions pursuant to secs 51(1) and 82KZM of the Income Tax Assessment Act 1936 (“the Act”).  (The Tribunal notes that the respondent also made a determination under sec 177F(1) of the Act that the applicant had obtained in connection with the Satcom Corporate Services Pty Ltd franchise arrangement a tax benefit within the meaning of sec 177C(1) and sec 177D of the Act in the form of the claimed deductions).

14. Whether the Tribunal has jurisdiction under Part IVC of the TA Act to set aside the respondent’s objection decision for the reasons stated by the applicant at paragraphs 11 to 15 of his written submissions (noting that paragraph 14 was withdrawn) and paragraphs 5.7 and 5.8 of his statement of issues/statement of facts, issues and contentions, namely, that the respondent delayed in making his objection decision.

TRIBUNAL’S FINDINGS

The applicant has not discharged the onus of establishing the assessment is excessive

15. It is not in issue that the respondent has decided the applicant’s objection against the assessment, that the notice of 11 October 2004 is a notice of the objection decision given by the respondent pursuant to sec 14ZY (3) of the TA Act and, that the objection decision is a reviewable objection decision for the purposes of sec 14ZZ of the TA Act.

16. The applicant has exercised his statutory right to have the objection decision reviewed by the Tribunal. Pursuant to secs 14ZZA and 14ZZ of the TA Act and sec 25 of the Administrative Appeals Tribunal Act 1975 the Tribunal has the respondent’s objection decision before it for review. On the Tribunal exercising the review power under sec 14ZZ, the review is governed (in part and relevantly) by sec 14ZZK which provides at sec 14ZZK (b) (i) that the applicant has the burden of proving that if the taxation decision concerned is an assessment that assessment is excessive.

17. It is established law that for an applicant to discharge the onus of proof in sec 14ZZK (b) (i) he must satisfy the Tribunal as to the correct amount of his taxable income for the income year. He must establish affirmatively on the balance of probabilities that the amount of taxable income for which he has been assessed exceeds the actual taxable income which he has derived during the year of income. In Federal Commissioner of Taxation v Dalco (1989) 168 CLR at 623-624, 632,633.9-634, Brennan J stated:

“Although the grounds of objection limit the grounds of appeal, the ultimate question for the court hearing the appeal is not whether the grounds have been made out but whether the amount assessed as taxable income is wrong.  The burden which rests on a taxpayer is to prove that the assessment is excessive and that burden is not necessarily discharged by showing an error by the Commissioner in forming a judgment as to the amount of the assessment.”

18.     An applicant must go further than showing the assessment is wrong and show what the correct assessment should be, i.e. what corrections should be made in order to make the assessment right.  The applicant has placed no evidence before the Tribunal in this regard.  The grounds of objection are clearly not evidence.

19.     In the absence of evidence, the Tribunal is not able to infer facts in favour of a taxpayer: see McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284 at 303 and 306.8.

20.     The TA Act (and the Act) does not place any onus on the respondent to show that the assessments were correctly made or that they are supported or sustained by evidence. In Gauci v Federal Commissioner of Taxation [1975] HCA 54 (1975) 135 CLR 81, Mason J stated:

“The Act does not place any onus on the Commissioner to show that the assessments were correctly made.  Nor is there any statutory requirement that the assessments should be sustained or supported by evidence.  The implication of such a requirement would be inconsistent with sec. 190(b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail.”

21.     The Tribunal reviews the matter de novo in the light of the evidence placed before it.  The question for the determination of the Tribunal is whether the decision made by the respondent was correct or preferable on the material now before the Tribunal.  The applicant has not filed any witness statements or documentary or other evidence to establish that the claimed deductions are allowable.  He has failed in that regard and in his written submissions to demonstrate that the assessment is excessive. 

22.     In the Tribunal’s opinion the decision which the applicant is pressing the Tribunal to make, namely, that his taxable income be reduced by the claimed deductions simply because of delay in making the objection decision, is contrary to law and the applicant’s contentions are misconceived.

The Tribunal does not have jurisdiction to set aside the objection decision for delay

23. The applicant’s contentions about delay in making the objection decision do not form part of the grounds of his objection and the Tribunal is not prepared to make an order permitting him to raise them, as requested by the applicant pursuant to sec 14ZZK(a) of the Act. Despite the applicant’s attempts to encompass these contentions within the existing grounds of the objection logically, new grounds based on delay in making the objection decision cannot retrospectively form part of the grounds of the predating notice of objection upon which the decision has been made.

24. Further and significantly, sec 14ZV of the TA Act limits the objection right in respect of a taxation decision being an assessment amended in any particular, as is the situation here. The right to object to that amended assessment is limited to a right to object to alterations and additions in respect of, or matters relating to, that particular. The application to amend the grounds, made in the alternative, is refused by the Tribunal as being an application without merit and futile.

25. The Tribunal is of the view that the applicant’s contentions that the objection decision is impugned by delay in the making are misguided and futile. The invitation to the Tribunal to set aside the objection decision without proceeding to review the decision, that is, without determining whether the assessment is excessive, is clearly contrary to the legislative scheme of Part IVC of the TA Act.

26.     The applicant cites Re Federal Commissioner of Taxation; Ex parte Australena Investments Pty Ltd & Ors (1983) ALR 577 in support of his argument. The decision is not apposite in the Tribunal’s opinion. The applicant in Australena Investments sought in the High Court of Australia an order nisi for mandamus directed to the respondent to perform his duty to decide an objection against an assessment.  The application was for a constitutional writ in the original jurisdiction of the High Court of Australia over Commonwealth officers under sec 75(v) of the Australian Constitution.

27. In refusing the application for an order nisi for mandamus, the first question the High Court considered was whether the respondent had a public duty to allow or disallow an objection within a reasonable time. Justice Murphy construed sec 186 of the former Part V of the Act as requiring the respondent to do so “within a reasonable time” and held that “In the ordinary case the requirement that the Commissioner determine an objection within a reasonable time means that he should act promptly. A delay of 12 months would, unexplained, involve a failure to perform his public duty”. In all the circumstances his Honour was satisfied that the delay was adequately explained and no basis was disclosed from which it might be concluded that the respondent had failed to perform his duty to determine the objections within a reasonable time.

28.     In Australena Investments the applicant was seeking constitutional relief from the High Court of Australia as the court of competent jurisdiction so it could challenge the assessment in a Court.  The ratio decidendi of the judgment is clearly that the constitutional writ of mandamus may lie against the respondent for failure to perform a public duty if there is an unexplained delay of 12 months in determining an objection.  The applicant here did not proceed to a court of competent jurisdiction in an attempt to seek similar relief at any time before the objection decision was made on 11 October 2004.  No explanation has been given as to why he omitted to do so, if the matter was of such concern to him as he now claims.

29.     Further, the decision in Australena Investments was made before Part V of the Act was repealed and the regime in Part IVC of the TA Act enacted for taxation objections, reviews and appeals. There is no time limit prescribed in Part IVC within which the respondent must make his objection decision, and sec 25(5) of the Administrative Appeals Tribunal Act 1975 has no application here (contrary to the applicant’s contention). However, sec 14ZYA (2) of the TA Act provides for a person to give the respondent written notice requiring him to make an objection decision, and if the objection decision is not made by the end of 60 days after that notice, the respondent is deemed by force of sec 14ZYA (3) to have made a decision to disallow the objection. Again, the applicant did not avail himself of this provision, and has given no explanation for not doing so despite his claimed concern about delay.

30. In the Tribunal’s opinion what the applicant is contending for is contrary to the legislative scheme for contesting an assessment. To set aside the respondent’s objection decision for delay would involve removing the very step prescribed under Part IVC which gives rise to a taxpayer’s statutory right under sec 14ZZ of the TA Act to contest the respondent’s assessment by Tribunal review or appeal to the Federal Court. As Murphy J observed in Australena Investments the disallowance of the objection by the respondent “is a prerequisite for challenging an assessment by way of review or appeal”. 

31. In the Tribunal’s opinion section 14ZYA (2) of the TA Act and the remedy it combines there is a clear legislative direction that objections are not to be allowed simply on the ground that the Commissioner has delayed in making his decision.  In the opinion of the Tribunal the clear intention of the legislation is that if the Commissioner delays, then he is deemed to have disallowed the objection, thereby opening the right to seek a review by the Tribunal or to appeal to the Court.

32.      In NAES v Minister for Immigration & Multicultural & Indigenous Affairs [2003] FCA 2 Beaumont J cited Australena Investments stating:-

“[14] But, significantly for present purposes, Murphy J did not hold that if undue and unexplained delay had been demonstrated, it would have had the consequence that the taxpayer's objection was to be treated as allowed. To have done so, would have undermined the legislative scheme for dealing with the merits of the Commissioner's assessment.

[15] At the same time, his Honour made it clear that, if inexcusable delay had been demonstrated, the Court would issue mandamus compelling the Commissioner to perform his statutory duty by considering the objection, and ruling on it, as soon as reasonably practicable. In my opinion, this form of relief would give effect to, rather than undermine, the statutory scheme, and accordingly would be the appropriate type of remedy in a case of the present kind….”

33.     Further, the Tribunal is of the opinion that any decision by the Tribunal to set aside the objection decision for delay would be beyond the statutory jurisdiction of the Tribunal.

34. Under sec 25 of the Administrative Appeals Tribunal Act 1975 the jurisdiction of the Tribunal is bestowed by an enactment. In relation to a taxation decision that is an assessment against which an objection may be lodged under sec 175A of the Act and sec 14ZY of the TA Act, the enactment which gives the Tribunal the jurisdiction to review is sec 14ZZ of the TA Act. That section provides that a person dissatisfied with the respondent’s objection decision can apply to the Tribunal for review of the decision. That is, an applicant has no right of review by the Tribunal against a taxation decision that is an assessment unless and until the respondent has made and notified a decision on the objection lodged by the taxpayer against the assessment.

35. Division 4 of Part IVC of the TA Act governs the Tribunal’s review of objection decisions and modifies the Administrative Appeals Tribunal Act 1975 in certain aspects.

36. As noted above, in reviewing an objection decision in respect of an assessment, the terms of sec 14ZZK of the TA Act and sec 43 of the Administrative Appeals Tribunal Act 1975 require the Tribunal to reach one or other of the following decisions depending on whether the applicant has established that the assessment objected against is excessive:-

36.1if the assessment is not demonstrated by the applicant taxpayer to be excessive, the objection decision would commonly be affirmed;

36.2if the assessment is demonstrated by the applicant taxpayer to be excessive, the objection decision would commonly be varied or set aside accordingly.

37.     Within this statutory jurisdiction (and contrary to what the applicant contends), there is no scope for the Tribunal to set aside the objection decision because a lengthy period has elapsed between the time the objection against the assessment was lodged and the time the objection decision was made, regardless of the length of that period.

DECISION

38.     The Tribunal is of the opinion that:

(a)the Tribunal has the jurisdiction to set aside the objection decision only where the applicant has discharged the onus of establishing that the assessment is excessive; and

(b)as the applicant has failed to do so, the correct and preferable decision is that the objection decision under review should be affirmed.

I certify that the 38 preceding paragraphs are a true copy of the reasons for the decision herein of Mr A Sweidan, Senior Member

Signed: ……..(sgd T Freeman)........
  Associate

Date of Hearing  22 April 2008
Date of Decision  11 June 2008
Counsel for the Applicant         Mr D Shaw
Solicitor for the Applicant          Shaw & Associates
Counsel for the Respondent     Ms L B Price
Solicitor for the Respondent     Government Solicitor