Federal Commissioner of Taxation v Australian Boot Factory Limited

The Federal Commissioner of Taxation (the plaintiff) brought an action against The Australian Boot Factory Limited (the defendant) seeking to recover additional income tax determined to be payable by the company for the financial years ending 31 December 1920 and 31 December 1921. The dispute arose from the Commissioner's determination, under section 21 of the Income Tax Assessment Act 1922, that the company had not distributed at least two-thirds of its taxable income to its shareholders and that a further sum could reasonably have been distributed. The High Court of Australia considered demurrers filed by both parties.

The legal issues before the Court were whether section 32(2) of the Income Tax Assessment Act 1922 precluded the Commissioner from making assessments under section 21 for financial years prior to 1 July 1922; whether the Commissioner's determination under section 21 constituted an "assessment" for the purposes of section 54(1), which requires notice of assessment to be served; and whether the Commissioner's determination could be challenged in the action on the grounds that there were no relevant facts known to the Commissioner upon which he could reasonably have made his determination.

The Court held that section 32(2) did not prevent the Commissioner from applying section 21 to earlier financial years, particularly in light of section 2 of the Income Tax Assessment Act 1924. It was also determined that the calculation and notification of the excess amount payable by the company under section 21(2) was not an "assessment" within the meaning of section 54(1), and therefore, the notice requirements of section 54(1) did not apply to these determinations. Furthermore, the Court affirmed that the Commissioner's determination under section 21, unless set aside on appeal, could not be challenged in an action for recovery on the basis that the Commissioner lacked reasonable grounds for his determination.

The demurrers of the defendant to the statement of claim were overruled, and the demurrer of the plaintiff to paragraph 7 of the defence was allowed. The defendant was ordered to pay the costs of the demurrers, with leave to amend its pleadings.