Kwikspan Purlin System Pty Ltd v The Commissioner of Taxation of the Commonwealth of Australia

[1987] FCA 171

Re: KWIKSPAN PURLIN SYSTEM PTY. LTD.
And: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
No. G143 of 1986
Income Tax

COURT

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Fox J.
Spender J.
Burchett J.

CATCHWORDS

Income Tax - amendment of assessments - powers of Court - case remitted for reassessment - whether Commissioner acts under Court order or his amendment powers - whether amendment "to give effect to" earlier decision.

Income Tax Assessment Act 1936 ss.170,199(1)

HEARING

BRISBANE

#DATE 10:4:1987

Counsel for the Appellants: G.L. Davies Q.C. with B. Clarke

Solicitors for the Appellants: Darke, Walker & Leahy.

Counsel for the Respondent: H.G. Fryberg Q.C. with P. Keane.

Solicitors for the Respondent: Australian Government Solicitor.

ORDER

The appeal be dismissed with costs.

Note: Settlement and entry of orders is dealt with in

Order 36 of the Federal Court Rules.

JUDGE1

This is an appeal from Macrossan J. of the Supreme Court of Queensland who decided, against the taxpayer, that it was open to the Commissioner to amend his original assessment for the year ending 30 June 1981 by disallowing as a deduction an amount shown in the taxpayer's accounts as "franchise expense". This decision had consequences for the taxpayer's 1982 and 1983 assessments, but it is not necessary to deal separately with those years.

1. The original point at issue was whether an amount of $450,000 described in the taxpayer's 1981 return as a "receipt in respect of Licence Agreements" was a capital or income receipt. However, although from one point of view the taxpayer could be regarded as having received $450,000 for the licences sold by it, the fact is that in net terms the relevant figure was always $380,000. The taxpayer having sold its rights in respect of Queensland, immediately repurchased the rights relating to a particular geographical area for $70,000, which rights it later sold. Instead of showing the net income of $380,000 as a capital receipt, its accounts showed a capital receipt of $450,000 and a (revenue) "franchise expense" of $70,000.

2. It was decided by D.M.Campbell J. in the Supreme Court of Queensland that the amount in question was of a capital nature and should not therefore be treated as part of the taxpayer's assessable income. The order of D.M. Campbell J. was expressed as follows:
   
   

"It is this day ordered that the said appeal be allowed with costs and that the case be remitted to the Commissioner of Taxation for reassessment".

1. There was no doubt that he was dealing with the sum of $450,000 received for the licences. The Commissioner did reassess but not simply by treating the amount of $450,000 received as capital but as well by treating the franchise expense of $70,000 also as capital, and disallowing it as a deduction. The taxpayer conceded before D.M.Campbell J., and in these proceedings, that the amount of $70,000 was of a capital nature and was in exactly the same position as the $450,000. Its submission is that the Commissioner had no power to amend so as to deduct this amount from what was shown as revenue outgoings and treat it as part of the capital expense. This argument seems to be without merit, legal or otherwise.

2. It was plainly required of the Commissioner that in execution of the order made by D. M. Campbell J., he should treat the whole $450,000 as being of a capital nature. Before Macrossan J. reliance was placed upon the powers to amend given to the Commissioner under s.170 of the Income Tax Assessment Act 1936 ("the Act"), but before us, and probably for the first time, reliance was placed by the Commissioner on s.199 of the Act. Section 199(1) at the relevant time was in the following terms:-
   
   

"199.(1) The Supreme Court hearing an appeal under section 197 may make such order as it thinks fit, and may by such order, confirm, reduce, increase or vary the assessment."

1. It may be a question as to the extent to which the order made in this case will justify a complete reassessment by the Commissioner. It is sufficient to say that it did authorise him to deal with the amounts that have been mentioned. We do not think there can be any doubt that the Court hearing an appeal may require an amendment to an assessment, notwithstanding that the conditions of s.170 (leaving aside sub-section (7)) would not be satisfied. Section 170 deals with the powers of the Commissioner to amend of his own volition. The conditions in which he may do so are fairly closely circumscribed. Sub-section (7) is in the following terms:-
   
   

"170.(7) Nothing contained in this section shall prevent the amendment of any assessment in order to give effect to the decision upon any appeal or review, or its amendment by way of reduction in any particular in pursuance of an objection made by the taxpayer or pending any appeal or review."

1. It can be argued that the presence of this sub-section implies a limitation on the powers of the Commissioner to amend even pursuant to an order made by the Court under s.199, but this does not seem to us to be a tenable view. It can be said that sub-section (7) would not appear were it not intended that the whole section apply generally to amendments whether made by the Commissioner of his own volition or pursuant to an order of the Court. This is certainly a factor which tends slightly against the view we have expressed, but we think the explanation for sub-section (7) lies in the fact that there are so many detailed provisions in s.170 circumscribing the Commissioner's powers, that it is there to make it clear that there is no constraint upon the ability of the Commissioner to give effect to an order of the Court.

2. The ultimate question in a particular case could be rather a fine one, namely as to what extent an incidental power of amendment arising by virtue of an order of the Court goes beyond what is covered by the specific terms of sub-section (7). In some case it may become necessary to explore the limits of the powers arising from the combination of s.199(1) together with s.170(1) as freed from the constraints imposed by sub-sections (2) to (6) inclusively by virtue of sub-section (7).

3. The consideration just mentioned does not in our opinion arise in the present case because the language of the sub-section is plainly adequate to deal with the amendment which was made. The $70,000 was bound up with the $450,000, and although it was a repayment it had to be taken into account in giving effect to the decision of the Court.

4. If therefore one were to look simply at sub-section (7), its terms would in our view be satisfied. We are therefore of the view that the Commissioner had the power to amend which has been challenged and that the appeal should be dismissed with costs.