Hadfield Finance Pty Ltd v Commissioner of Taxation

[1988] FCA 842

CATCHWORDS

INCOME TAX - assessment - review by the Administrative Appeals Tribunal - the Tribunal having power to review only those decisions of the Commissioner which can be said to form part of the process of assessment - whether the exercise or non-exercise of the Commissioner's discretion to allow an additional period for distribution under s.lO5AA of the Act forms part of such an assessment so a s to be reviewable by the Tribunal.

Income Tax Assessment Act 1936, ss.6,104,105A,105AA,166,170,

177,185,186,187,189

Administrative Appeals Tribunal Act 1975 ss.25(4),43(1)

Intervest Corporation Pty Ltd v The Federal Commissioner of

Taxation and the Deputy Commissioner of Taxation

(1984) 3 FCR S9 atfirmed.

21 April 1988

HADFIELD FINANCE PTY LIMITED v COMMISSIONER OF TAXATION

No. VG 251 of 1987

Woodward, Jenkinson & Foster JJ.
Melbourne

IN THE FEDERAL COURT OF AUSTRALIA )

1

VICTORIA	DISTRICT	REGISTRY	1	No. VG 251 of 1987
1

DIVISION GENERAL 1

ON APPEAL FROM THE TAXATION APPEALS DIVISION

OF THE ADMINISTRATIVE APPEALS TRIBUNAL

BETWEEN :	HADFIELD	FINANCE PTY.
,LIMITED

Applicant

AND :  COMMISSIONER OF TAXATION
Respondent

MINUTES OF ORDER

COURT: Woodward, Jenkinson and Foster JJ.
DATE: 21 April 1988

PLACE: Melbourne

THE COURT ORDERS THAT:

-

1.    The appeal be dismissed.

2.    The Applicant pay the Respondent’s costs.

(NOTE: Settlement and entry of orders is dealt with by 0.36

of the Federal Court Rules).

IN THE FEDERAL COURT OF AUSTRALIA	)
1

VICTORIA	DISTRICT	REGISTRY	1	No. VG 251 of 1987
)

GENERAL DIVISION

ON APPEAL FROM THE TAXATION APPEALS DIVISION

OF THE ADMINISTRATIVE APPEALS TRIBUNAL

BETWEEN:	HADFIELD	FINANCE PTY.’
LIMITED

Applicant

AND :  COMMISSIONER OF TAXATION
Respondent

COURT:  Woodward, Jenkinson and Foster JJ.

DATE: 21 April 1988

PLACE: Melbourne

REASONS FOR JUDGMENT

WOODWARD J.

I agree, f o r the reasons which he gives, with the

decision of Foster J and the orders he proposes.

I certify that this page is a
true and accurate copy of the
Reasons for Judgment herein of

The Hon Mr Justice Woodward

Associate

Dated: 21 April 1988

1 No. VG251 of 1987

)

BEZWEEN:  HADFIELD FINANCE PTY.
LIMITED

Applicant

ANI):  COMMISSIONER OF TAXATION

Respondent

l

JUDGES :	Woodward, Jenkinson and Foster	JJ.
PLACE :	Melbourne
DATE :	21 April, 1988

REASONS FOR JUDGMENT

JENKINSON J.

I am of opinion that the appeal should be dismissed with

costs, for the reasons given by Foster 3.

I certify that this page	is a true
copy of	the Reasons for Judgment

herein of the Honourable Mr. Justice

Jenkinson.

Associate

Dated: 21 April, 1988

IN THE FEDERAL COURT OF AUSTRALIA	)
1

VICTORIA DISTRICT REGISTRY ) No. VG 251 of 1987

DIVISION GENERAL 1 :*

ON APPEAL FROM THE TAXATION APPEALS DIVISION

OF THE ADMINISTRATIVE APPEALS TRIBUNAL

BETWEEN :	HADFIELD	FINANCE PTY;
LIMITED

Applicant

i

AND :	COMMISSIONER OF TAXATION
-

Respondent

COURT:  Woodward, Jenkinson and Foster JJ.

DATE: 21 April 1988

PLACE: Melbourne

REASONS FOR JUDGMENT

FOSTER J. This is an appeal from a decision of the Taxation

Appeals Division of the Administrative Appeals Tribunal ("the

Tribunal"), given on the 28th August, 1987 at Melbourne. The Tribunal affirmed the decision of the Respondent disallowing, under S. 186 of the Income Tax Assessment Act, 1936 ("the Act"), an objection lodged by the Applicant company under

S . 185 of the Act. The objection was against an amended

assessment made by the Respondent on the 19th September,

1985. Under that assessment, the Applicant became liable to pay an amount of tax under Division 7 of Part I11 of the Act for the 1981 tax year. The assessment was made pursuant to

S . 104 of the Act on the basis that the Applicant company had

not in that year been deemed to have made a sufficient

distribution pursuant to the .provisions of S . 105A of the
Act.

The Applicant had, pursuant to S. 187 of the Act, requested the Respondent to refer the decision on the objection to a Taxation Board of Review. The matter was referred in April 1986 but the hearing before the Board had not commenced before the 30th June, 1986. Consequently,

pursuant to the Taxation Board of Review	(Transfer of
Jurisdiction) Act 1986,	the reference was deemed to be an

application	to the Administrative	Appeals	Tribunal	for
review	of	the respondent's decision	disallowing	the

objection.

Prior to the issue of the amended assessment, the
Applicant had made a request to the Respondent pursuant to S .

105AA of the Act for a determination of a further period in

which it might pay dividends for the purpose of making a

sufficient	distribution in relation to the 1981	year of
income.

This request was made by letter of the 19th October, 1984, setting out grounds upon which it was submitted that the request should be granted. On the 3rd September, 1985 the respondent replied, advising that the request was refused and that:-

"Therefore it is proposed to raise a Division

VI1 assessment on $122,459-undistributed in

respect of the year ended 31st.July, 1981."

The amended assessment	was	thereafter	made on the 19th
September, 1985.

One of the grounds of the Applicant's objection was

that the Respondent's refusal to allow an additional period under S. 105AA of the Act was erroneous and should be reversed. It appears that in February, 1987 a preliminary question was argued before the Tribunal as to whether the Tribunal had power to review the Respondent's decision under

S. 105AA. On the 24th June, 1987 the Tribunal held that it

had no power to do so and gave its reasons for this decision. It was conceded on behalf of the Applicant that if the Respondent's refusal to allow the further period for the making of a sufficient distribution could not be reviewed, then the assessment could not otherwise be attacked. The Tribunal accordingly affirmed the Respondent's decision

disallowing the objection under S. 186 of the Act.

The Applicant, by its appeal to this Court, seeks

that the Tribunal's decision be set aside and that the proceedings be remitted to it for further hearing according to law, on the grounds that the Tribunal erred in law in holding that it was not empowered to review the Respondent's decision under S. 105AA (i)(a) of the Act and in holding that the decision of the Respondent refusing the request did not form part of the assessment of the tax payable by the Applicant under Division 7 of Part I11 of the Act.

These two questions of law thus raised are

inter-dependent as is demonstrated by a review of the

relevant sections of the Act.

Section 166 of the Act provides:-

"From the returns, and from any other information in his possession, or from any one or more of these sources, the Commissioner shall make an assessment of the amount of the taxable income of any taxpayer, and of the tax payable thereon."

Section 170(1) provides:-

"The Commissioner may, subject to this

section, at any time amend any assessment by making such alterations therein or additions

thereto as he thinks neces ary,

notwithstanding that tax may have been paid in

respect of the assessment."

"Assessment" is defined in S. 6 as meaning:-

"(a) the ascertainment of the amount of taxable income and of the tax payable thereon; or

(b) the ascertainment of the amount of

additional tax payable under a provision of

Part VII;"

A taxpayer who is dissatisfied with an assessment

may:-

"within sixty days after service of the notice

of assessment, lodge with the Commissioner an
objection in writing against the assessment stating fully and in detail the grounds on

which he relies. It (Section 185).

By S. 186 the Commissioner considers the objection

and either disallows it	or allows it either wholly or in
part.	If the taxpayer is dissatisfied with this decision, he
may, pursuant	to S. 187, request the Commissioner (inter

alia) to refer the decision to the Tribunal, a request with
which the Commissioner is required to comply (S. 189(1)).

By S . 189(2) the referral of the decision upon the objection to the Tribunal shall, for the purposes of the Administrative Appeals Tribunal Act 1975, be deemed to constitute the making by the taxpayer of application to the Tribunal for review of the decision. By S. 190, on a review before the Tribunal, the taxpayer, unless an order to the contrary is made, is limited to the grounds stated in the objection and has the burden of proving that the assessment is excessive.

The Tribunal then deals with the referred objection under S. 2 5 ( 4 ) of the Administrative Appeals Tribunal Act. By S. 43(1) of that Act, it may, f o r the purpose of reviewing the decision of the Respondent, exercise all the powers and

discretions conferred upon him by the Act.

It is thus plain that the Tribunal under these

sections has power to review on the merits only those

decisions of the Respondent which can be said to form part of

the process of "assessment" under the Act, i.e. the ascertainment of the amount of the taxpayer's taxable income and of the tax payable thereon.

The Tribunal, in the present case, held that the

Respondent's decision to refuse the Applicant's request under

S. 105AA for the determination of a further period, for the

making of a sufficient distribution was not part of the assessment of the Applicant to pay additional tax under S. 104 for the relevant years of income, and that it, therefore, had no power to review that decision. In these proceedings, the Applicant asserts that, in so holding, the Tribunal was wrong in law.

Before considering the correctness or otherwise of the Tribunal's decision on this point, it is helpful to refer to some portions of the judgment of Kitto, J. in Batagol v. F.C.T. (109 C.L.R. 243) in which his Honour considered the definition of "assessment" in the Act. His Honour (at page

251) after referring to the definition in S. 6 said:-

"'Ascertainment' is a word the force of which depends upon the context. It is here used in an Act under which the service of a notice of assessment is the levying of the tax. Assessment in the sense of mere calculation produces no legal effect. No step that the Commissioner may take, even to the point of satisfying himself of the amount of the taxable income and of the tax thereon, has

under the Act any legal significance. But if	the Commissioner, having gone through the
process of calculation, serves on the taxpayer a notice that he has assessed the taxable income and the tax at specified amounts, the
tax becomes by force of the Act due and
payable on the date specified in the notice or (if no date is specified) on the thirtieth day
after the service of the notice: S. 204.
Thus, and thus only, there is brought about an "ascertainment" of the taxable income and of the tax, in the sense that thereafter it is possible to say what could not have been said before: that amounts have been fixed so that they are to be taken for all purposes (except those of appeal: see S. 177) to be the result flowing from the application of the Act in the
particular case. The respective amounts of
the taxable income and the tax have been
rendered certain. The word "ascertainment"
being understood in this sense, the definition
of "assessment" means, in my opinion, the
completion of the process by which the
provisions of the Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case."
Later, (at page 253) his Honour spoke of

"assessment" as meaning:-

"the whole process which comes to a head in

the service of a notice of assessment and

thereby becomes, as	a whole, an act	in the
law.

It is also important to bear in mind that the

Respondent makes his "assessment" from the "returns, and from any other information in his possession, or from any one or more of these sources" (S. 166). The Act does not refer to the act of "ascertainment" being based upon any factual

material which does not fall into these categories.

The Tribunal, in its reasons, referred to the fact that in one case before the Board of Review ( E 23, 73 A.T.C.

under S. 105- formed part of an assessment and that there	174) it had been held that a decision refusing a request
was therefore power to review that decision at the taxpayer's request. However, in a later case, ( K 57, 78 A.T.C. 551)
some doubt was expressed as to the existence of the power.
The Tribunal based its decision that it lacked the relevant power of review upon the decision of Smithers, J. in
Intervest Corporation Pty. Ltd. v. The Federal Commissioner
of Taxation and the Deputy Commissioner of Taxation, (1984) 3
F . C . R . 591 . In that case, an application under S. 105- had
been made and refused after the Commissioner had assessed the taxpayer company to additional tax under Part I11 Division 7 of the Act. There was posed for his Honour's decision the
question whether the Commissioner's refusal to allow a
further period under S. 105AA was reviewable by the Court pursuant to S. 5 of the Administrative Decisions (Judicial Review) Act, 1977 ("the Judicial Review Act"). It was submitted on behalf of the Respondents that the decision was excluded from review through the operation of S. 3 and clause (e) of the First Schedule of the Judicial Review Act, in that it was a decision:-

LT

"making, or forming part of the process of.

making, o r leading up to the making, of

assessments or calculations of tax . . . l '

His Honour held that the decision did not fall
within the excluded category and was therefore reviewable.
He held that the refusal was not, in law, a decision making or forming part of the process of making an assessment. In

this regard, his Honour said (at pages 593 to 5 9 4 ) : -

"Assessment as defined in S. 6 of the Act is
the ascertainment of the amount of taxable
income and of the tax payable thereon. The
amount of taxable income and the tax payable

thereon must be ascertained by the Commisioner

by reference to he facts before him

concerning the income of the taxpayer. Those facts are established by the taxpayer's return of income and such other information as he may

a .

reference to which the amount of income on which he is liable to pay tax may be reduced and the amount of his taxable income may be

ascertained. Decisions making or forming part

of the process of making an assessment or
calculation of tax are clearly made in the
process of assessing tax. Decisions leading
up to the making of an assessment may not
necessarily be so confined. But, in my view,
a decision not being connected directly or
indirectly with the process of the making of
an assessment is not within the category
specified in cl. (e) of the Schedule merely
because the making of an assessment or a
particular assessment thereafter was a
consequence of business dealings which flowed

from the decision and affected	its	income
position and tax liability	but	did not
otherwise operate upon or have	any	other

significance in respect of the assessment."

His Honour found support for this analysis in

previous decisions of this Court. He cited from Deputy

Commissioner of Taxation v. Clarke & Kann (1984) 1 F.C.R.

322, a case involving the question of whether the

Commissioner's demand for information under S. 264 of the Act

was 'reviewable under S. 5 of the Judicial Review Act, the

following passage from the judgment of the Full Court (at pp.

325-6) :-

"Because par. (e) plainly intends to exclude

from review some decisions which are made

prior to assessment, it must be taken to refer not only to assessments which have been made

but to those which will be made. The

decisions which are excluded from review by par. (e) of the Schedule are decisions making assessments, decisions forming part of the process of making assessments, and decisions leading up to the making of assessments. Each category provides for some extension of the former, but the overall effect is to emphasise the essential need for a connection between

the decisions and an assessment.

It is inappropriate to attempt to define the boundary between those decisions which are and those which are n o t 'decisions leading up to' the making of an assessment. However, a supply voluntarily or on demand of the Commissioner. ...

A refusal of a request made under S. 105AA
after service of a notice of assessment is
relevant to the liability of-the applicant to
pay the tax demanded in the notice of
assessment which has been issued. If the
request is granted a reduction in liability
may result. If it is refused the chance of
any such reduction is eliminated. But there
is no sense in which a decision to refuse the
request is a decision making an assessment or
calculation of tax, o r a decision forming part

of the process of making an assessment or

calculation of tax. A .decision refusing a ~

request denies to the taxpayer making the request an opportunity to change the basis of fact by reference to which an assessment, or an amended assessment, depending upon appropriate calculations, might be made."

His Honour further held that the decision was not,

in law, one leading up	to the making of an assessment of tax.
He said (at page 595):-

"The distinction between the Commissioner's

assessment function and his administrative

function is relevant in this case. It is in his administrative function that he may or may not sanction the taking of steps by a taxpayer which, if taken by him, may produce a state of facts by reference to which an amended assessment may be made which might differ from

that upon which the assessment already made

was made. When he approaches the task of making an assessment with reference to the facts before him and makes the necessary

his assessment function. But however widely	calculations for that purpose he is exercising
the net is cast by the words of cl. (e) it does not cover a decision not being part of the process of assessment and which relates only to the question whether a taxpayer shall be permitted to carry out transactions which may reduce the amount of income upon which he is liable to pay tax. It may result in the making of an amended assessment. But it is so far removed from the assessment process .that it does not, in the relevant sense, lead up to the making of an assessment. It provides an opportunity for the taxpayer to make payments the making of which will introduce new
elements into his financial affairs by
decision does not lead to the making of an assessment merely because it precedes the making of an assessment or because its purpose
is to enable or facilitate the making of any
assessment which may be made. A decision is not a decision leading up to.- the making of an assessment unless the making of an assessment has followed or will follow from the decision.
The notices are decisons because they are demands for information (Judicial Review Act,
S. 3(2)(e)). Although a sharp distinction
cannot be drawn between the appellant's
inquisitorial function and his assessment
function, where, this in as case, no
assessment has been made and there can be no ~ certainty that an assessment will be made, it cannot be concluded that a demand for information which does not form part of the making of an assessment necessarily is leading up to the making of an assessment. The information produced by the demand may result in an assessment, or in a decision not to assess, or may be of no utility. There is no sufficient relationship between the demands for information and the making of an assessment to attract par. (e) of the
Schedule. 'I
His Honour also relied upon Tooheys Ltd. v .

Minister for Business & Consumer Affairs ((1981) 54 F.L.R.

421; and on appeal at 42 A.L.R. 260) a case in which it was

argued, in support of the submission that a determination

under S. 273 of the Customs Act was not reviewable under the

process of, or that it led up to the making of, a calculation	Judicial Review Act, that the determination was part of the
of duty, and was therefore not reviewable by virtue of
paragraph (e) of Schedule 1.

At first instance, Ellicott, J. said (at p. 436) in

a passage which was	approved by the Full Court	(at page
271) :-

"The words 'leading up to .the making' are intended to point to decisions which have to be made or in the circumstances it is appropriate to make before the actual process of assessment or calculation can begin. A

determination may be made under S. 273

relating to particular goods but the process

of calculating duty does not depend on. it any

more than it depends on the existence of the general provisions of the Act relating to value or duty.

In other words, what par. (e) is directed to is the process whereby the liability to tax or duty is calculated in a particular case. A decision to make a by-law or determination is ~

a decision which affects liability. It is not

a decision dealing with	the	calculation of
liability."

Their Honours in the Full Court (at page 2 7 0 ) also

said:-

"The primary Judge rightly explained the necessity of having in mind the distinction between provisions in a taxing statute which prescribe the circumstances in which liability to tax can arise and those in which the amount of tax is calculated or assessed in a

particular case. I'

In my view, these authorities clearly support his

Honour's conclusion that the Respondent's refusal of the request under S. 105AA did not fall within the categories

enunciated in clause (e) of Schedule 1 of the Judicial Review
-	Act.

Before the Tribunal and before this Court,

submissions were made that the present case was

distinguishable from Intervest on the basis that in the latter case the S. 105AA request was made after the assessment had issued and that in the present case it

preceded the assessment. I consider that this submission

should be rejected. If the refusal of a S. 105AA request cannot properly be characterised as part of the assessment process or as a decision leading up to an asessment of tax, simply -because it cannot be accommodated, as a matter of strict analysis, within those concepts, then it matters not whether the refusal precedes or follows the assessment.

It was finally argued that this Court should

disapprove the reasoning of Smithers J. in Intervest and hold that, at least in the situation where a refusal of a S. 1 0 5 A A request precedes the making of an assessment, the refusal is properly part of the asessment.

It was put that matters not apparently considered by Smithers J. compelled this result.

In the first place, it was submitted that cases

such as Commissioner of Taxation v. Brian Hatch Timber Co.

(Sales) Pty. Ltd. ( 1 9 7 1 - 2 ) 1 2 8 C.L.R. 28; Kolotex Hosiery

(Australia) Pty. Ltd. v. C. of T. ( 1 9 7 4 - 5 ) 1 3 2 C.L.R. 535;

Avon Downs Pty. Ltd. v . C. of T. ( 1 9 4 9 ) 7 8 C.L.R. 3 5 3 ; and

Perron v. F. C. of T. ( 1 9 7 2 ) 1 2 8 C.L.R. 595, provide strong

arguments by way of analogy for the acceptance of the

proposition that the refusal of additional time was truly part of the assessment process. It was not put that they were determinative of that proposition.

I do not find it necessary to refer to these cases in detail. In my view, the decisions made by the Commissioner in those cases under s s . 80A and 99A of the Act were quite clearly part of the process of assessment and

different in kind from a decision of refusal under S. 105AA.

A decision within this section, as pointed out in the pasages cited earlier, is one which either affords or denies the taxpayer company the opportunity of altering the factual basis upon which its assessment to tax is to be made. It is an opportunity which, if granted, need not necessarily be availed of. That is a matter within the company’s own discretion, a discretion which is necessarily interposed between the discretion of the Commissioner to grant or refuse the request and the ultimate calculation of tax. The decisions in the cases referred to led directly to the assessment and were necessarily involved in it. The decisions, indeed, in my view, point up the exclusion of the

S. 105AA decision process from the process of assessment.

This latter process involves the application of the

appropriate income tax legislation to the relevant facts as

application. [See passage cited from Batagol]. In arriving	found by the Commissioner to exist at the time of that
at his ascertainment of this factual basis of the assessment, he will have to make decisions which may well involve rejection of assertions of fact made by or on behalf of the taxpayer. Such decisions are quite clearly, in my view, different in kind from decisions of a discretionary nature allowing or disallowing a taxpayer an opportunity to produce
an alteration to that factual basis such as by the payment of
additional dividends in order to produce asufficient
distribution under S. 105A. In my view, such a decision does
not even "lead up" to the making of. the assessment as it
cannot be said that the making of the assessment "will follow from the decision" (Deputy Commissioner of Taxation v. Clarke & Kann (op cit) at p. 325). It is a decision which "affects
liability. It is not a decision dealing with the calculation of liability." (Tooheys Ltd. v. The Minister for Business and Consumer Affairs (op cit) at p. 436).
It was further submitted that policy considerations compel a conclusion that the Respondent's decision under S . lO5AA is to be regarded as part of the assessment process. It was put that, as by S. 177 of the Act a notice of assessment is conclusive evidence of the due making of the assessment and (except in proceedings on appeal against the assessment) that the amount and all particulars of the assessment are correct, it is to a high degree desirable that
all discretionary decisions of the Commissioner which could have any relation to or bearing upon the making of the assessment should be reviewable on the merits by way of the
appeal procedures put in place by the sections already set
out. This policy was said to be discernible in Jolly v.
Federal Commissioner of Taxation, (1936) 53 C.L.R. 206 at
214, where Rich and Dixon, JJ. said:-

"The Board is only an executive body in an administrative hierarchy. The purpose of erecting it was to enable taxpayers to have a reconsideration or re-examination of the process by which liability has been imposed upon them, particularly in relation to matters in which the Commissioner had a discretion."

However, this comment must, in my opinion, be read in the context of the issue in that case, which was whether the Commissioner's discretion to remit additional tax wholly or in part was reviewable by the Board. The High Court held that it was, as being a decision of the Commissioner clearly bound up with his power to impose additional tax in respect

of an assessment. The case, in my view, has no direct

bearing upon the question arising here.	It may be that there
is unfairness in	restricting a taxpayer company, denied an

opportunity to make sufficient distribution after the expiry of the prescribed period, to an appeal confined to administrative law considerations rather than affording it a full reconsideration on the merits. However, this unfairness, if such it be, can, in my view, be remedied only by the Legislature; it cannot be eliminated by any available construction of the Act.

I am therefore, with respect, of the opinion that

the decision of Smithers, J. in Intervest correctly

categorises a refusal of a request under S. 105AA as being no

part of the process of assessment under the Act.

Accordingly the Tribunal's decision that it had no power to review the Respondent's decision in the present case was correct in law.

I propose that the Appeal be dismissed with costs.

I certify that this and the sixteen preceding
pages are a true copy of the Reasons for
Judgment herein of his Honour, Mr. Justice

Foster.

Associate

Dated: 21 April 1988

Counsel f o r the Applicant:  Mr G. Davies

Solicitors for the Applicant: Mowbray

Counsel for the Respondent: Mr G. Nettle

Solicitors for the Respondent: Australian Government

Solicitor

I