Johnston, G.H. v The Commissioner of Taxation
[1988] FCA 115
•22 MARCH 1988
Re: GRANT HEATON JOHNSTON
And: THE COMMISSIONER OF TAXATION
Nos. WAG 2051 and 2053 of 1988
Taxation
COURT
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J.(1)
CATCHWORDS
Taxation - practice and procedure - power of court to require definition of issues - power to strike out or dismiss where no tenable case disclosed - Taxation (Unpaid Company Tax) Assessment Act 1992 - vendor shareholders nature of rights of objection and appeal.
Taxation (Unpaid Company Tax) Assessment Act 1982
Taxation (Unpaid Company Tax - vendors) Act 1982
Income Tax Assessment Act 1936
Jurisdiction of Courts (Miscellaneous Amendments) Act 1987
Federal Court Rules
Bayne v. Riggall (1908) 6 CLR 382
Dey v Victorian Railways Commissioners (1949) 78 CLR 62
General Steel Industries Inc. v Commissioner for Railways (NSW) (1964) 112 CLR 125
McMahon v Smith (1986) 69 ALR 527
W.A. Pines Pty Ltd v Bannerman (1980) 30 ALR 559
Nest1e Australia Limited v Deputy Federal Commissioner of Taxation 86 ATC 4,130
Western Australian Capital Investments Co. Ltd v The Commissioner of Taxation (unrep. French J. 9/3/88)
Federal Commissioner of Taxation v Offshore Oil NL 80 ATC 4,457
HEARING
PERTH
#DATE 22:3:1988
Counsel for the Applicant: Mr R.K. O'Connor with Mr S.R. Paterniti
Solicitors for the Applicant: Parker & Parker
Counsel for the Respondent: Mr P. Macliver
Solicitors for the Respondent: Australian Government Solicitor
ORDER
The applicant's Amended Points of Claim be struck out.
The applicant have leave to file and deliver a fresh statement of his grounds for the appeal on or before 15 April 1988.
The respondent to file and deliver his response to the fresh statement of grounds for the appeal on or before 22 April 1988.
Note: Settlement and entry of orders is dealt with in
order 36 of the Federal Court Rules.
JUDGE1
On 10 August 1981 the Commissioner of Taxation issued notices of assessment to two companies, Oakengates Pty Ltd and Benson Investments Pty Ltd, for ordinary company tax for the year ended 30 June 1979. In the case of Oakengates, the company's income was assessed at $495,484.00 and the tax payable calculated at $377,971.70, including $113,961.32 by way of additional tax for an incorrect return. Benson Investments' income was assessed at $856,549.00, giving rise to a tax liability of $591,018.81, including additional tax of $197,006.27. On 30 March 1983 copies of each of these notices were issued to Grant H. Johnston who, it is said, was the beneficial owner of shares in each of the companies prior to their sale in June 1979. It is common ground that in so serving the notices, the Commissioner purported to act under sub-s.l8(5) of the Taxation (Unpaid Company Tax) Assessment Act 1982 (TUCT Act). It is not necessary to canvass that legislation in detail. It is sufficient for present purposes to say that, read together with the Taxation (Unpaid Company Tax - Vendors) Act 1982, it imposes liability to a recoupment tax upon vendors of shares in companies with an outstanding liability to ordinary company tax or undistributed profits tax, which remains unpaid.
Section 18 of the TUCT Act provides, inter alia, for the Commissioner to serve on persons who are likely to be liable to pay vendors recoupment tax a copy of the notice of assessment served on the company.
By virtue of sub-s.l8(8) a person receiving such a copy notice may exercise the same rights of objection and appeal as the company would have had under Division 2 of Part V of the Income Tax Assessment Act 1936 if the notice of assessment had been served on the company on the date on which the copy was served on the vendor shareholder.
It was in the exercise of these rights that Mr Johnston lodged objections to each of the assessments on 30 May 1983. The objections were comprehensive, each running into some 53 pages embodying a wide range of grounds. They were disallowed and notice of disallowance was sent on 17 August 1983 in respect of the Oakengates' assessment and 25 August 1983 in respect of the Benson Investments' assessment. On 12 October 1983 Mr Johnston requested that each objection be treated as an appeal and referred to the Supreme Court. This request was not complied with until 31 January 1996. On 1 September 1987 the appeals were transferred to this Court pursuant to the provisions of the Jurisdiction of Courts (Miscellaneous Amendments) Act 1987. They came before the Court for directions on `9 September and on that date directions were given which included the following:-
The applicant do on or before 30 October 1987 file and deliver a statement of his grounds for appealing against the assessment in question, the statement to follow as nearly as practicable the form applicable to a statement of claim.
The respondent do on or before 27 November 1987 file and deliver a response to the applicant's statement of grounds, the response to follow as nearly as practicable the form applicable to a defence provided that it shall embody a statement of the grounds upon which the respondent supports his assessment.
Further directions relating to delivery of particulars and discovery were also then made. It is not necessary to recite the interlocutory history of the matter thereafter save to say that, at present, there is on the record a statement of amended points of claim filed by the applicant on 28 January in respect of each matter. The Commissioner has filed responses.
By motions dated 12 February 1988 the Commissioner moves to strike out the amended points of claim and for an order dismissing the appeals pursuant to O.52A r.l3 and 0.20 r.2 of the Federal Court Rules and alternatively, as it emerged in argument, in the exercise of the Court's implied incidental power to prevent an abuse of its process.
The filing of the points of claim and the responses was ordered pursuant to the power of the Court under O.52A r.13(2) to give directions for the defining of the issues in the appeal. While this is not the only nechanism by which issues may be defined, the necessity for some such course to be taken is apparent when the Notice of Objection covers as wide a range of grounds as in the present case. Where the points of claim or grounds of appeal delivered pursuant to such an order make it clear that the applicant advances no tenable grounds for his appeal, then the Court can either strike out the grounds and offer the applicant an opportunity to amend, or if no amendment be possible, may dismiss the application generally.
The principles governing such summary disposition are in my opinion, the same as those enumerated in such cases as Bayne v Riggall (1908) 6 CLR 382, 398; v Victorian Railways Commissioners (1949) 78 CLR 62, 91; General Steel Industries Inc. v Commissioner for Railways (NSW) (1964) 112 CLR 125, 130; McMahon v Smith (1986) 69 ALR 527.
Before turning to the principal substance of the Commissioner's motions I should refer to one aspect which has already been dealt with in a number of related appeals. In the amended points of claim in each case the applicant has set out in seven paragraphs his grounds for challenging the assessment and by para.8 has added:-
"The applicant reserves the eight to rely upon any one or more of the grounds set out in his objection."
A paragraph in this form does not comply with the purpose of the directions given which was to define the issues. From submissions made in elated appeals in which the question arose, it would appear that the applicant's object is to reserve his position with respect to the grounds of objection until after discovery and possible interrogatories. Such a speculative use of the ancillary processes of the Court is, according to well established principles, not permissible - W.A. Pines Pty Ltd v Bannerman (1980) 30 ALR 559, 567 and 575; Nestle Australia Limited v Deputy Federal Commissioner of Taxation 86 ATC 4,130, 4,134. As in the related appeals, 2049, 2050, 2052, 2054 and 2055 of 1987, I will strike out para.8 in each case - Western Australian Capital Investments Co. Ltd v The Commissioner of Taxation (unrep. French J. 9/3/88).
The substance of the Commissioner's motions however, concerns the rest of the amended points of claim. In No. 2051 of 1987 relating to the Oakengates' assessment, the amended points of claim are set out as follows:-
"1. The applicant is Grant Heaton Johnston.
2. The respondent is the Commissioner of Taxation.
3. The company in respect of which tax is purportedly assessed is Oakengates Pty Ltd ("the company").
4. On or about 30 March 1983 the Deputy Commissioner of Taxation alternatively the respondent, purported
000 to issue and serve an assessment pursuant to
000 Section 18(5) of Taxation (Unpaid Company Tax) Act
000 1932 (sic) ("the TUCTA assessment") upon the
000 applicant in respect of ordinary company tax
000 allegedly payable by the company in respect of the
000 year ended 30 June 1979 ("the ordinary company
000 tax").
000
5. The TUCTA assessment shoved a taxable income assessed of $495,484.00.
000
6. The TUCTA assessment was incorrect in that if the company had any amount of taxable income in respect of the year ended 33 June 1979, which is not admitted, it was not amount of $495,484.00 ("the amount") as claimed in the assessment.
PARTICULARS
(1) The respondent through his authorised representative, Gary Anthony Scanlon, has by affidavit dated 16 December 1987 admitted that the amount is incorrect.
(2) The respondent purported to issue and serve an amended assessment on 30 March 1983 to correct the said error.
In the premises:
(a) the TUCTA assessment is null and void; and
(b) the respondent is precluded from relying upon Sections 175 - 177 of the Income Tax Assessment Act,
the applicant is not liable to pay the amount claimed-by the respondent in the assessment, or any amount."
The amended points of claim in the Benson Investments' case are similarly expressed. In that case the applicant asserts that the "TUCTA assessment" which showed an amount payable by the company of $591,018.81 for the year ended 30 June 1979 was incorrect. The basis of that contention is said to be the issue and service of an amended assessment on 30 March 1983.
The amended points of claim seem to be misconceived. Each contends in para.4, that on 30 March the Commissioner purported to "issue and serve" in the case of Oakengates and "serve" in the case of benson Investments "a notice of assessment pursuant to Section 18(5) of Taxation (unpaid Company Tax) Act 1982 (sic) ("the TUCTA assessment") upon the applicant in respect of ordinary company tax allegedly payable by the company in respect of the year ended 30 June 1979".
Under sub-s. 18(5) the Commissioner merely serves upon the vender shareholder a copy of the notice of assessment served on the company. To contend as the amended points of claim do in para.7 that "the TUCTA assessment is null and void", discloses a confusion between the process of primary assessment of the company under the Income Tax Assessment Act 1936 and the process of notification to vendor shareholders under the TUCT Act. The confusion of concept is heightened by the further contention in para.7 that "applicant is not liable to pay the amount claimed by the respondent in the assessment, or any amount". What is in issue in each appeal is the company's lia bility, not that of its vendor shareholders albeit that those liabilities are ultimately founded on that of the company.
Assuming that the amended points of claim could be further amended to make clear that the applicant's attack is on the assessment issued, the question will arise whether that attack would be sustainable.
Counsel for the applicant effectively conceded in the course of argument, that his client's real contest was with the assessments issued and served upon the companies. The basis of that appeal was that the assessments were demonstrably incorrect because amended assessments had issued. In the case of the Oakengates' assessment, reliance was also placed upon a statement in an affidavit of a senior taxation officer that the amount of taxable income originally assessed, $495,434.00, was incorrect, the true figure being $858,547.00 and that being the figure evidently reflected in the amended assessment.
The amended assessment issued on 30 March 1983 in respect of Benson Investments, reduced the assessed tax from $591,018.81 to $394,012.54 by deleting an amount of $197,006.27 additional tax for an incorrect return.
Counsel contended that the amended assessment "superseded" the original assessment. It seemed to follow from his submission that the original assessment in each case could found no liability at all once shown to be incorrect in any respect. Such a contention is inconsistent with the scheme of the Income Tax Assessment Act and in particular s.l85 as it stood when the amended assessments issued on 30 March l983:-
"A taxpayer dissatisfied with any assessment under this Act may, within sixty days after service of the notice of assessment, post to or lodge with the Commissioner an objection in writing against the assessment stating fully and in detail the grounds on which he relies: Provided that, where the assessment is an amended assessment, the taxpayer shall have no further right of objection than he ~could have had if the amendment had not been made, except to the extent to which by reason of the amendment a fresh liability in respect of any particular is imposed on him or an existing liability in respect of any particular is increased."
A taxpayer taking an objection to an amended assessment might rely upon as wide a range of grounds as though it were an original assessment. The maximum extent of the reduction of his liability however, was I limited to the increase effected by the amendment - Federal Commissioned" of Taxation v Offshore Oil NL 80 ATC 4,457.
Given the formulation of the amended points of claim in these cases, it is a little difficult to see precisely what point it is that the applicant wishes to make. Whatever it is, it seems to have little to do with the substantial merits of the assessment. In their present form however, for reasons earlier expressed with respect to the operation of the TUCT Act they are manifestly unsustainable.
Rather than dismissing the appeals, I consider the appropriate course is to enable the applicant to reformulate his grounds in each case, to remove the confusion to which I have already referred and perhaps to clarify the substantial point that he seeks to make. While that point, as foreshadowed, does not strike me immediately as a particularly meritorious one, I consider it should be properly and precisely expressed before any summary and final disposition of the proceedings is considered.
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