MW McIntosh Pty Ltd & Anor v Commissioner of Taxation

[2010] HCATrans 239

[2010] HCATrans 239

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S205 of 2009

B e t w e e n -

MW McINTOSH PTY LTD ACN 000 014 915

First Applicant

INDIOC PTY  LTD ACN 003 934 692

Second Applicant

and

COMMISSIONER OF TAXATION

Respondent

Application for special leave to appeal

GUMMOW J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 3 SEPTEMBER 2010, AT 2.39 PM

Copyright in the High Court of Australia

MR A.H. SLATER, QC:   If it please the Court, I appear with my friend, MS R.L. SEIDEN, for the applicant.  (instructed by Robert Richards & Associates)

MS M.A. PERRY, QC:   If it pleases the Court, I appear with my learned friend, MR M.J. O’MEARA, for the respondents.  (instructed by Australian Government Solicitor)

GUMMOW J:   Yes, Mr Slater.

MR SLATER:   Your Honours, the point at which, in our submission, the reasoning of the Full Court in this matter goes astray is its failure to give due effect to the decision of this Court in Australian Paper Manufacturers v CIL (1981) 148 CLR 551. In our submission, that error infuses the reasoning in the leading judgment of Justice Edmonds in relation to both the issues addressed in the Full Court. To make that proposition good, your Honours, I will need to take the Court first to the legislation in issue, and I will come back later to the amendments which resulted in an adjournment to this application earlier in the year, then briefly to the reasons of the Full Court, then to the amending legislation and then our submissions on the special leave points.

So, your Honours, if I might begin with the legislation.  Your Honours will find the relevant bits set out on pages 46 and 47 of the application book.  The choice in issue is that provided for by section 703‑50 of the Income Tax Assessment Act 1997.  Your Honours will see at about line 20 that that section provides that:

(1)      A company may make a choice in the approved form given to the Commissioner within the period described in subsection (3) –

At about line 35:

(3)The period for giving the choice to the Commissioner:

(a)starts at the start of the day specified in the choice; and

(b)ends at the end of:

(i)the day on which the company gives the Commissioner its income tax return –

Your Honours, the specification that the choice be given in the approved form invokes the provisions of Division 388 in Schedule 1 to the Taxation Administration Act.  Your Honours will find there on page 46 just below line 30:

(1)      A return, notice, statement, application or other document under a taxation law is in the approved form if, and only if:

(a)it is in the form approved in writing by the Commissioner –

and meets the other conditions that are there specified.  At the top of page 47, section 388‑55 provides that:

(1)      The Commissioner may defer the time within which an approved form is required to be given to the Commissioner ‑ ‑ ‑

GUMMOW J:   There is a discretion there.

MR SLATER:   There is a discretion, yes, and it is the tension between that discretion and the provisions of subsection (3) which gave rise to the issue which the court both at first instance and on appeal ruled upon.

GUMMOW J:   Looking at the Commissioner’s supplementary submissions of 26 August, what then do you say about the point made in paragraph 2(b) in particular?

MR SLATER:   I had proposed to come back to that at the end, your Honour, but I am happy to deal with it now if your Honour would prefer me to.

GUMMOW J:   It is up to you.

MR SLATER:   If your Honour will allow me to take the other course, which I will do very briefly, your Honours.  Firstly, the factual context.  The applicants are cotton farmers in Inverell.  The second applicant is wholly owned by the first, so that they comprised a consolidated group.  The second applicant made a significant capital gain on the realisation of one of its properties.  The Inverell accountant for the applicants mistakenly believed the consolidation only applied to the big end of town and failed to make the choice provided for by section 703‑50 and instead sought to transfer losses between the two companies.  The respondent advised that could not be done because of the change in the law and the applicants then applied for an extension of time under section 388‑55 and that application was refused on the ground that there was no power to do so and that led to the proceedings in this Court.

Your Honours, Justice Graham refused the application for reasons which were not adopted by the Full Court.  There were two issues identified in the leading judgment of Justice Edmonds.  They were the scope of section 388‑55 and its relationship with section 703‑50.  Justice Edmonds decided the appeal on the first issue, and your Honours will see that on page 63 of the application book at paragraph 73, but his reasoning on that point is interlinked with the opinion he expressed on the second issue, and if I may, I will come back to that momentarily.

Justices Mansfield and Stone each separately decided the matter on the second issue by adopting the reasons of Justice Edmonds on that issue.  Each of their Honours declined to decide the matter on the first issue.  Justice Stone, at page 43 of the application book, expressed reservations about the respondent’s argument, and your Honours will see that on page 43 at about line 15 in the last sentence:

The Commissioner’s submissions that the section applies only in such circumstances go beyond what is necessary to decide this matter and do not sufficiently take account of the fact that the language of s 388‑55(1) is, prima facie, unqualified.

Justice Mansfield, on page 40 of the application book at paragraph 3, adopted those views.  Both their Honours adopted the view of Justice Edmonds on the second issue without adding to it.  Your Honours, the leading judgment is that of Justice Edmonds and his Honour, after setting out briefly the facts and reciting the trial judge’s decision and the submissions of the parties through to about paragraph 63, began his reasoning at paragraph 64.  Materially, at the top of page 61 your Honours will see that his Honour said that:

I cannot agree with the primary judge at [57] of his reasons that he was bound by the decision of the majority in the Paper Manufacturers case –

and it is at that point, in our submission, that his Honour’s reasoning starts to go astray.  Instead of having regard to what was said in Paper Manufacturers, his Honour then went on to refer to and to distinguish and invert the reasons of Justice French in the BHP Billiton Case.  Your Honours will see the reasons extracted on page 61.  What we call the inversion of the reasoning is that, whereas Justice French described the quality of being “a tool of good administration” as an advantageous attribute of a power to extend time, Justice Edmonds, at page 62 at about line 50, rather took that as meaning that the quality of being a tool of good administration was a precondition to the exercise of the power. 

Your Honours will see that his Honour reasons that the administrator did not need a tool of good administration and in that regard we respectfully submit that his Honour went astray.  His Honour distinguished the decision of Justice French on the ground that the issue in the case before Justice French was concerned with a section which made specific provision for extension of time, whereas section 388‑55 makes general provision for an extension of time and, in our respectful submission, that also is in error.  Section 388‑55 is expressed in general terms but its operation must always be in specific circumstances and, in our respectful submission, a provision of the nature of section 388‑55 should be construed broadly and only if appropriate limited by the specific circumstances.  Your Honours, at page 62 of the application book the kernel of Justice Edmonds reasoning is in paragraph 71 where his Honour says, in the second sentence:

It is far more difficult to see how that policy or purpose is served when no liability to penalty or loss of existing rights would arise for failure to comply with time limits, such as where the requirement is not cast in the terms of an obligation but rather is permissive, even where the failure or omission to act within the time prescribed results in the loss of an opportunity to gain a right or privilege.

Now, your Honours, in our submission, when regard is had to what had been said in this Court in the Paper Manufacturers’ Case that reasoning is mistaken.  Can I take your Honours briefly to page 23 of the appeal book where the reasons of Justice Stephen, whose judgment was concurred in by a majority of the court, set out ‑ ‑ ‑

GUMMOW J:   Justice Brennan dissented, I think.

MR SLATER:   I am sorry?

GUMMOW J:   Did Justice Brennan dissent?

MR SLATER:   Justices Brennan and Murphy dissented, yes, your Honour, and their dissent appears on page 22 over on to page 23.  The passage I wanted to take your Honours to was the passage in what is, in effect, the majority judgment.  At paragraph 46, about line 20 on page 23, the relevant passage is set out:

so long as the provision is either permissive of the doing of an act or else confers a benefit or right as a result of doing it, being in either case linked with a period within which it is to be done, “required” can aptly be used.

Then his Honour goes on to elaborate on that in the passages further on the page, which is set out in paragraphs 47 and 48 of Justice Graham’s judgment.  Your Honours, in our submission, the giving of an approved form is something which is required in order to have the benefit of consolidation and in the context of the interaction between Division 388 and section 703‑50, it is appropriate to describe the giving of a notice of choice to consolidate as something which is required within the meaning of section 388‑55.  In our respectful submission, Justice Edmonds should have followed Paper Manufacturers and so held.  Your Honours, we would submit that this reasoning is interlinked with his Honour’s views on the second issue and we instance as examples of that the last sentence of paragraph 71 of his Honour’s judgment where he says:

This is best illustrated in the context of the analysis of the second issue –

On the next page at about line 40, where his Honour says:

If such a company decides to make the choice – it is truly a choice free of any mandate or obligation –

That is putting the matter in terms of obligation rather than, as the statute says, requirement.  At the end of paragraph 72, at the top of the page, his Honour refers to:

failure or omission to act within the time limit does not adversely impact on existing rights or privileges.

That again, in our respectful submission, rests on a mistaken premise.  The consequence of the inter‑linkage between the two schemes of reasoning in his Honour’s judgment is that whereas what might be called the majority reasoning in the Court, that of Justices Stone and Mansfield, does not rest on and exhibits some reservations about the reasoning of Justice Edmonds on the first issue, those reasons do affect what their Honours adopt on the second issue.  If I could turn then to the reasons of Justice Edmonds on the second issue, they proceed on the premise that an extension of time under section 388‑55:

would not facilitate an effective choice unless [the taxpayer] was also entitled, which it is not –

and that is the core of his Honour’s reasoning –

which it is not, to lodge an amended return for the year . . . as the head company of a consolidated group.

Your Honours will find that at paragraph 78 on page 64.  Then his Honour goes on to conclude in the next paragraph that because:

an extension of time alone would not facilitate an effective choice . . . in section 703‑50 –

the time provided in that section –

is fixed and not to be extended by the exercise of a general power –

and he goes on to say that section 703‑50 does not contemplate the filing of an unconsolidated return.  In our submission, this reasoning proceeds on a false premise.  The Act does contemplate amended returns.  That can be seen in section 162 of the Act which expressly provides for the requirement to file a fuller and further return if the Commissioner so demands, and section 170 which provides for the request for amendment to be made by the taxpayer which is predicated upon a different return being made.  A different return would be a necessary concomitant of an extension and a consolidation choice because the prior return would be wrong.

Our friends in their submissions concentrate on what they describe as a right to amend the return.  In our submission, that is a misdirected concentration.  What is relevant is that a further return is contemplated by the Act and that by the further return, the choice would be made effective.  His Honour proceeded on a false premise that a choice could not be given effect to but, in our respectful submission, it can be given effect under either section 170 or if no assessment had been made, under section 166. 

Underlying his Honour’s reasoning is the idea that there must be a requirement or obligation to file an approved form.  In our submission, that is not so, and we have given instances on page 78 of the application book of that.  Your Honours, Justice Edmonds refers to other matters at page 65 of the application book.  We have addressed those observations at page 81 of the application book, and I will not take your Honours’ time with doing that again.  We would respectfully submit that the judgment is wrong.  Your Honours, can I then return to the point which your Honour suggested that I might deal with, and that is the ‑ ‑ ‑

GUMMOW J:   It is developed in particular by Ms Perry in paragraphs 9 and 10 of the supplementary argument.

MR SLATER:   Yes.  Your Honours, our friends have provided, as we understand, to the Court a bundle of materials which conveniently sets out the text of the amended legislation and of the transitional provision.  Do your Honours have that to hand?  Under tab 3, your Honours will find the amended text of section 703‑50.  Your Honours will see that in the first line, the reference to an approved form has been removed and the choice now required is only a choice in writing.  The other amendment that was made was an amendment to subsection (3), but the amendment was not a substantive one.  It was an amendment rather of expression.  The time limit is still:

the day on which the company gives the Commissioner that income tax return –

Your Honours, it was the introduction of a Bill to make those amendments to section 703‑50 which led to the adjournment of these proceedings earlier.  The consequence of Division 388 not being invoked is that our challenge to a decision under section 388‑55 no longer arose.  The legislature has preserved the cases where a choice in the approved form had not effectively been made before the enactment of the amendment.  Your Honours will see that under tab 4 in those materials in item 193.  There your Honours will see that the amendments made by the Act apply from 1 July 2002, that is item 193(1)(b), unless the head company “makes a choice in accordance with subitems (2)” that the provisions of the amended Act do not apply to it.  So that it is open to the applicants to elect under that provision that they continue to be governed by the Act as it stood before it was amended. 

There are two significant things to be said about that preservation of rights.  The first is that it preserves the position of the applicants and other head companies in a like position.  We are not in a position to say how many such companies there are.  That is known only to the respondent and the respondent is constrained by section 16 of the 1936 Act from divulging that information.  The respondent does not say, though presumably the respondent either knows or is capable of knowing, how many such cases there are.  The second thing we say about Item 193 is this, that there is no need for item 193 if the decision of the Full Court is correct.  There is no occasion to preserve a right which does not exist.  The decision of the Full Court had been given before this amendment was made. 

In our submission, what that shows is that the legislature recognises that there is at least the possibility that the decision of the Full Court is wrong and that it is a matter of sufficient importance to warrant legislative treatment.  Apart from saying that, your Honours, there is not a great deal we can say in response to the consequences of the amendment for the particular application of these provisions.  What we can say is that the issue which was live in the Full Court is, as a result of item 193, still live until such time as this Court brings to an end the appellate process.

In our submission, the error that we say was made by the Full Court warrants review by this Court, firstly, because it wrongly narrows the scope of section 388‑55 which is a relieving provision and, secondly, because it wrongly narrows the options in relation to consolidation and this would be the first occasion for this Court to consider the scheme of consolidation which is a major new scheme in the taxation laws of Australia.  As to the first point, your Honours ‑ ‑ ‑

GUMMOW J:   The red light is on, Mr Slater.  It has been on for some time.

MR SLATER:   I am sorry, your Honour.  I had overlooked it.  My apologies, your Honour.

GUMMOW J:   No, go on.

MR SLATER:   I think I had finished what I had to say, in substance.

GUMMOW J:   Are you sure?

MR SLATER:   Yes, your Honour.  If your Honours please.

GUMMOW J:   We do not need to trouble you, Ms Perry.

The respondent’s supplementary summary of argument, in particular, paragraphs 2, 9 and 10, establish the absence of any point of general importance respecting the construction of the now amended provisions of the Income Tax Assessment Act 1997 (Cth).  They also demonstrate that in any event the adverse exercise of discretion which occurred makes this an inappropriate occasion to consider the issue of statutory construction advanced by the applicant.  The application, therefore, is dismissed with costs.

We will adjourn to reconstitute.

AT 3.02 PM THE MATTER WAS CONCLUDED