Jewiss v Deputy Commissioner of Taxation - [2005] SASC 448

Supreme Court of South Australia
(Full Court)
JEWISS v DEPUTY COMMISSIONER OF TAXATION
Judgment of The Full Court
(The Honourable Acting Chief Justice Perry, The Honourable Justice Duggan and The Honourable Justice Anderson)
30 November 2005
TAXES AND DUTIES - INCOME TAX AND RELATED LEGISLATION - RETURNS AND ASSESSMENTS - ASSESSMENTS - CONCLUSIVENESS OF ASSESSMENT
Respondent sought to recover debts claimed to be owed by appellant in respect of income tax and additional charges - respondent relied on notices of assessment prepared pursuant to Income Tax Assessment Act, 1936, s 177(1) - trial judge upheld the claim and entered judgment in favour of respondent in the amount of $1,364,729.64 - the appeal was based on complaints of bad faith on the part of the Australian Taxation Office and, in addition, complaints going to the merits of the notices of assessment - appellant counterclaimed against respondent and certain ATO officers seeking damages - Held: bad faith not established - trial judge was correct in refusing to enquire into the merits of the assessments and in treating the notices of assessment as conclusive evidence of the making of the assessments and their correctness - appeal dismissed.
Income Tax Assessment Act 1936 s 177(1); Taxation Administration Act 1953 Part IVC, referred to.
F J Bloeman Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360, applied.

JEWISS v DEPUTY COMMISSIONER OF TAXATION
[2005] SASC 448
Full Court: Perry ACJ, Duggan and Anderson JJ

PERRY ACJ. In my view, the appeal should be dismissed. I agree with the reasons of Duggan J.
DUGGAN J. The Deputy Commissioner of Taxation (the respondent) commenced proceedings against the appellant in the District Court to recover debts which the respondent claimed were owed by the appellant in respect of income tax and additional charges for late payment. The claim was in respect of income tax liabilities incurred for the years ended 30 June 1998 to 30 June 2001 inclusive.
The trial judge upheld the claim and judgment was entered for the respondent in the sum of $1,364,729.64 including interest.
No oral evidence was called by the respondent at trial. Reliance was placed on notices of assessment prepared pursuant to s 177(1) of the Income Tax Assessment Act1936 (“the ITAA”) which provides as follows:
The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.
The effect of s 177(1) was considered in F J Bloemen Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360. In that case Mason and Wilson JJ (Stephen J concurring) at 378 noted that, in a given case, the question may arise whether the notice produced by the Commissioner is a notice of assessment. However, their Honours held at 375 that:
… once the Commissioner takes advantage of s 177(1) by producing an appropriate document, the taxpayer is precluded from contesting that the Commissioner has made an assessment or that in making the assessment he has complied with the statutory formalities. The taxpayer is entitled to dispute his substantive liability to tax in proceedings under Pt V.
The appellant is an accountant. He represented himself at the trial and on the hearing of the appeal. When the notices of assessment were tendered at the trial, the appellant objected to their admission into evidence. He submitted that they were prepared “in bad faith” and he applied to tender evidence on that issue. The learned judge decided that a voir dire hearing should be conducted to determine the admissibility of the notices.
Although the point was not argued before this court, the respondent was content to allow the appeal to proceed on the assumption that there was a limited right to challenge the admission of the notices of assessment on the ground that the assessments were made in the course of an abuse of power and for improper purposes.
The case presented by the appellant on the voir dire was based on wide ranging allegations concerning the conduct of the Australian Taxation Office (the ATO) and its Promotion Task Force in particular. The appellant complained of the conduct of officers of the ATO during raids on his premises. He claimed that they had not requested relevant records and had seized “flawed information”. He claimed that they were motivated, at least in part, by his association with a Mr Petroulis who was a former officer of the ATO and whose conduct in handling certain taxation matters had been the subject of investigation by the ATO. The appellant alleged that officers of the ATO had formed the view that the appellant had to be stopped from giving taxation advice to this clients.
The appellant alleged the basic error in the approach of the ATO to his taxation liability was that he had been treated as being in control of a service company which was, in fact, under the effective control of four other parties. He told the trial judge:
The information that I have tendered is full supporting evidence of bad faith and it is most relevant, especially when it comes to these assessments. There is a figure of $1.4 million of the difference between what my income is and what the commissioner says. $1.4 million, and it primarily comes from entities of which I have no control, or, rather, I have only a minority interest in, and I certainly had no voting control and my financial interest in one of the organisations where the bulk of the admitted income is alleged to have been omitted by me, is by an organisation called Nominee Trustee (NZ) Limited. I am not a director. I am not a shareholder. I acted purely professionally. I had a service agreement to it, and I can prove in the evidence that I have tendered, especially in affidavits from officers of those companies, that the money did not come to me. So, that is why I consider the department has acted in bad faith.
The appellant and his assistant, Ms Johnson, gave evidence on the voir dire. Ms Johnson said she had telephone conversations with officers of the ATO during a raid on the appellant’s office in the course of which she offered them access to all the information they sought. They explained that the records in the office were not the correct records of the entities involved in the investigation. She said that one of the officers, Mr O’Gorman, was not interested in the information she had to offer, but asked questions concerning Mr Petroulis.
Ms Johnson gave evidence of conversations she said she had with a “Mr P”. The circumstances of these conversations are referred to in the judge’s reasons on the voir dire at [22]:
Ms Johnson also gave evidence of two conversations at the Qantas Club at Sydney Airport and at a hotel at the Sydney Airport with a “Mr P”. Ms Johnson believed ‘Mr P’ to be an agent of the Australian Taxation Office.
Ms Johnson said that at a meeting in the Qantas Club it was said ‘that unless Harry Jewiss got out of the situation entirely he would have an accident’. She said that threat was mentioned several times on that occasion and also at a meeting which was held at the Sydney Airport International.
Ms Johnson said she knew “Mr P” to be an agent for the ATO because the ATO employs people with “less than scrupled principles” to serve warrants and warnings on taxpayers and she inferred from what he said that he must have been an agent.
In his evidence, the appellant referred to a meeting which he said he had with “Mr P” and another person. He alleged that he was told to think about getting out of the business and that, if he did not, he might have an accident.
The trial judge concluded that, whether or not threats were made by “Mr P”, there was no evidence indicating that he was an agent of the ATO. He also found that no connection had been established between the alleged threats and the issuing of the assessments. He noted that the assessments were default assessments issued by reason of the appellant’s failure to lodge taxation returns in respect of the relevant years.
The trial judge found that the complaints made by the appellant contained no evidence of conduct which could be described as “bad faith”. Accordingly, he admitted the notice of assessment into evidence.
The trial resumed. The notices of assessment were admitted into evidence and the respondent closed its case. The appellant then opened his case and called Ms Johnson.
After Ms Johnson had given evidence for some time, the respondent submitted that her evidence and a number of documents which the appellant said he proposed to tender, went solely to the accuracy of the assessments. He objected to further evidence along these lines on the ground that s 177(1) prevented an enquiry as to the correctness of the assessments.
The appellant replied that the evidence he wished to tender related to the argument of bad faith.
The following exchange then took place between the trial judge and the appellant:
HIS HONOUR:           I think that any suggestion that the assessments were issued in bad faith has been resolved against you.
MR JEWISS:              I realise that but the whole purpose of the trial was to expand on the evidence of the voir dire and that would prove it.
If I can introduce new evidence that was not produced before you earlier, then it still stands; that I can still prove it if I can produce evidence.
HIS HONOUR:           I won’t be revisiting my decision on the voir dire.
MR JEWISS:              No, I’m not expecting you to. What I’m saying is: this is all part of introducing new evidence before you that will show bad faith.
HIS HONOUR:           It’s too late to argue bad faith now; that is, bad faith in the issue of the assessment. If bad faith arose in some other way, I’d have to reconsider that.
MR JEWISS:              That’s what I’m trying to do. It’s bad faith in some other way, definitely.
HIS HONOUR:           For what purpose?
MR JEWISS:              For the purpose that it will show that those assessments are incorrect.
HIS HONOUR:           Any consideration of the issue that the assessments were issued in bad faith has been determined by reason of the ruling on the voir dire.
MR JEWISS:              Then, let me simplify the whole thing and I’ll conclude my whole case as of this moment. I may ask leave to appeal. In fact, I do ask for leave to appeal.
HIS HONOUR:           You have an appeal as a right. You don’t need my leave to appeal.
MR JEWISS:              Thank you kindly. I have then misread my rights to this trial when I asked some questions yesterday.
If I have no right to add evidence to the voir dire, then it’s pointless continuing the case.
HIS HONOUR:           What I’ve ruled is that the evidence does not establish that the assessments were issued in bad faith.
MR JEWISS:              Yes.
HIS HONOUR:           The consequence of that is that the assessments have been admitted into evidence.
MR JEWISS:              Yes.
HIS HONOUR: And having been admitted into evidence, s 177 of the Income Tax Assessment Act has a part to play.
MR JEWISS:              Then I conclude this trial.
HIS HONOUR:           Take it step by step, you have no further questions of Ms Johnson?
MR JEWISS:              In light of what you just said, it’s a waste of the court’s time for me to continue and Ms Johnson, I can see has had sufficient today. That’s not my reasoning for stopping. My reasoning in stopping it is I think it’s pointless me continuing the questioning.
HIS HONOUR:           Do you wish to ask Ms Johnson any questions in the light of that intimation?
MR SALLIS:Not in the light of that intimation.
+NO CROSS-EXAMINATION
NO FURTHER QUESTIONS
WITNESS RELEASED
+THE WITNESS WITHDREW
HIS HONOUR:           You don’t wish to adduce any further evidence?
MR JEWISS:              No.
HIS HONOUR:           In that event, there would normally be addresses by counsel. Do you wish to add anything further to what you’ve said already?
MR JEWISS:              No.
After further discussion the appellant was permitted to tender the voir dire evidence on the trial, subject to the exclusion of some pages of the transcript.
In addition to the amended grounds of appeal, the complaints made by the appellant are set out in a document tendered by him on the hearing of the appeal. They consist of complaints against officers of the ATO and can be summarised under the following headings:
1Complaints concerning the conduct of ATO officers in the course of their investigation into the matter before the court including-
(a)irregularities in the course of the searches of the appellant’s premises,
(b)the wrongful seizure of documents to which legal professional privilege attached,
(c)the seizing of documents used by the respondent for training purposes in the knowledge that they were not related to the appellant’s financial affairs,
(d)using the appellant’s office as a training facility for recruits to the Promotion Task Force.
2The refusal by the ATO to receive documents which purported to be the appellant’s taxation returns on the ground that they were incomplete.
3Issuing assessments in the knowledge that they were calculated on the basis of income wrongfully attributed to the appellant.
4The imposition of penalties on the basis that the appellant was a non-co-operative tax payer when this was not the case.
5The circulation of letters to the officers’ superiors and a member of Parliament alleging that the appellant had broken the law.
6The preparation of a document which recorded a conversation between the appellant and an ATO officer which did not take place.
7The failure to exercise leniency in dealing with minor and technical issues concerning the appellant’s financial affairs.
8The use of agents to make threats and to carry out unlawful acts against the appellant.
9Engaging in blackmail and oppressive conduct amounting to torture in relation to the granting of relief to the appellant by Centrelink.
10Applying for garnishee orders and other orders restricting the appellant’s travel movements without regard to the appellant’s state of health.
As will be apparent, a number of these issues were raised by the appellant on the voir dire hearing before the trial judge. The additional matters relating to bad faith which the appellant claims he was prevented from raising at the trial suffer from the same difficulty as those which were raised at the trial. No connection was established between the alleged conduct and the conduct of the officers who carried out the relevant assessments.
The remainder of the complaints relate to issues which go to the merits of the assessments. As previously observed, the court is prevented from investigating that issue as a result of the operation of s 177 of the ITAA. It should also be noted that the appellant has challenged the assessments in other proceedings which are presently before the Federal Court on appeal. This challenge was made pursuant to Part IVC of the Taxation Administration Act 1953 which replaced Part V of the ITAA referred to by Mason and Wilson JJ in Bloemen’s case.
In my view, the trial judge acted correctly in treating the notices of assessment as conclusive evidence of the making of the assessments and their correctness. It follows that the appeal against the judgment sum must be dismissed.
The appellant counterclaimed against the respondent and certain named ATO officers, seeking $10m by way of damages. It was alleged that the appellant’s business and reputation were destroyed as a result of the actions of the respondent and its officers.
The allegations in support of the counterclaim were the same as those put forward to establish bad faith on the part of the ATO. The counterclaim was dismissed on the ground that it was unsupported by the evidence.
The grounds of appeal do not appear to contest the dismissal of the counterclaim. The trial judge commented in his judgment that the defence and counterclaim were effectively abandoned by the appellant after the finding that the issue of bad faith had been resolved by the decision on the voir dire.
I think it would have been appropriate for the judge to raise the issue of the counterclaim during the discussion he had with the appellant which is quoted above. However, the evidence which the appellant wished to call at the trial has now been identified in detail and, in my view, it could not have established the basis for a successful claim of the nature pleaded in the counterclaim.
I would dismiss the appeal.
ANDERSON J. In my view, the appeal should be dismissed. I agree with the reasons of Duggan J.