Platypus Leasing Inc v Commissioner of Taxation (No 3)

[2005] NSWSC 388

CITATION:	Platypus Leasing Inc v Commissioner of Taxation (No 3) [2005] NSWSC 388
HEARING DATE(S):	08/04/05, 13/05/05
JUDGMENT DATE :	17 May 2005
JUDGMENT OF:	Gzell J
DECISION:	Taxpayers' summons for declarations dismissed.

CATCHWORDS:	TAXES AND DUTIES - Goods and Services Tax - Plaintiffs' proceedings for declarations as to liability under A New Tax System (Goods and Services Tax) Act 1999 (Cth) - Commissioner's application for summary termination - Whether proceedings raised a matter for the purpose of the Judiciary Act 1903 (Cth), s 39(2) - Hearing reopened to allow production of signed copies of notice of assessments under the Taxation Administration Act 1953 (Cth), s 22 and a declaration under A New Tax System (Goods and Services Tax) Act 1999 (Cth), s 165-40(a) - Privative provision in the Taxation Administration Act 1953 (Cth), s 59 that production of signed copies of notices of assessment and declarations conclusive evidence that properly made and accept in proceedings in Federal Court or AAT under Pt IVC that amounts and particulars are correct - Whether the copies invoked the privative provision - Whether the notice of assessments was tentative - Whether the privative provision excluded the ingredients making up the net amounts in the tax periods - Whether ingredients included the position under A New Tax System (Goods and Services Tax) Act 1999 (Cth) of related companies, the non-receipients of notices of assessment or declarations - Whether in exercise of discretion the Court should decline to deal further with the matter
LEGISLATION CITED:	A New System (Goods and Services Tax) Act 1999 (Cth) Supreme Court Rules 1970 Judiciary Act 1903 (Cth) Taxation Administration Act 1953 (Cth) Constitution (Cth) Income Tax Assessment Act 1936 (Cth)
CASES CITED:	Platypus Leasing Inc v Commissioner of Taxation [2005] NSWSC 376 Felton v Mulligan (1971) 124 CLR 367 Federal Commissioner of Taxation v Hoffnung & Co Ltd (1928) 42 CLR 39 Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1994-1995) 183 CLR 168 R v Hickman; Ex parte Fox (1945) 70 CLR 59 Darrell Lea Chocolate Shops Pty Ltd v Commissioner of Taxation (1996) 72 FCR 175 Commissioner of Taxation v Stokes (1996) 72 FCR 160 Federal Commissioner of Taxation v Peabody (1993-1994) 181 CLR 359 at 382 Puzey v Commissioner of Taxation (2003) 131 FCR 244 Commissioner of Taxation v Jackson (1990) 27 FCR 1 Cadbury-Fry-Pascall Pty Ltd v Federal Commissioner of Taxation (1944) 70 CLR 362 Sales Tax Ruling ST 2454 Oil Basins Ltd v The Commonwealth (1993) 178 CLR 643 George v Federal Commissioner of Taxation (1952) 86 CLR 183 McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263 F J Bloemen Pty Ltd v Federal Commissioner of Taxation (1980-1981) 147 CLR 360 Federal Commissioner of Taxation v Dalco (1989-1990) 168 CLR 614 Oates v Commissioner of Taxation (1990) 27 FCR 289 at 308 Oates v Commissioner of Taxation (1990) 27 FCR 289 at 308 Harpas v Commissioner of Taxation [2002] NSWCA 198
PARTIES:	Platypus Leasing Inc - First Plaintiff International Lease Finance Corporation Inc - Second Plaintiff Interlease Aircraft Trading Corporation Inc - Third Plaintiff ILFC Australia Pty Ltd - Fourth Plaintiff Commissioner of Taxation - Defendant
FILE NUMBER(S):	SC 5056/04
COUNSEL:	Mr J Logan SC/Ms J Needham SC - Applicant/Defendant Mr D Russell QC/ M Robertson - Respondent/Plaintiffs
SOLICITORS:	Ernst & Young Law Australian Government Solicitor

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

GZELL J

TUESDAY 17 MAY 2005

5056/04 PLATYPUS LEASING INC & ORS v COMMISSIONER OF TAXATION (NO 3)

JUDGMENT

Introduction

1 Platypus Leasing Inc and three other companies commenced proceedings against the Commissioner of Taxation seeking declaratory relief with respect to their respective liabilities to tax under A New System (Goods and Services Tax) Act 1999 (Cth).

2 The Commissioner filed a notice of motion seeking summary dismissal of the proceedings under the Supreme Court Rules 1970, Pt 13 r 5. There were two strands to the Commissioner’s argument: first, that there was no “matter” before the court to enliven federal jurisdiction under the Judiciary Act 1903 (Cth), s 39(2); secondly, that the summons interfered with an investigation the Commissioner was conducting into the affairs of the companies because the Commissioner’s continued exercise of power under the Taxation Administration Act 1953 (Cth) might constitute contempt of court.

3 In Platypus Leasing Inc v Commissioner of Taxation [2005] NSWSC 376, I dismissed the Commissioner’s second argument, stayed the proceedings to enable him to complete his investigation and ordered that he might, in the interim, exercise any of his powers under the Taxation Administration Act 1953 (Cth). I stood the balance of the Commissioner’s notice of motion over for further consideration.

Background

4 International Lease Finance Corporation Inc is a corporation registered and resident in the United States of America. It is one of the largest commercial jet aircraft owners in the world. Interlease Aircraft Trading Corporation Inc is its wholly-owned subsidiary, incorporated and resident in the United States. Its purpose is to facilitate the lease of aircraft by International Lease Finance and other subsidiaries. It is registered in Australia as a foreign company. Platypus Leasing is also a wholly-owned subsidiary of International Lease Finance and it also facilitates the lease of aircraft by International Lease Finance and other subsidiaries. ILFC Australia Pty Ltd is an Australian company incorporated for the purpose of leasing aircraft to Virgin Blue Airlines Pty Ltd.

5 Prior to the transactions in question, International Lease Finance owned seven Boeing 737-7Q8 aircraft and Platypus Leasing owned four such aircraft all of which were leased to Virgin Blue.

6 Those leases were restructured. When each aircraft was in New Zealand, International Lease Finance or Platypus Leasing, as the case might be, sold the aircraft subject to lease to International Aircraft Trading. International Aircraft Trading then on-sold the aircraft subject to lease through its Australian branch to ILFC at a mark-up. When the aircraft were in Sydney, a novation and amendment agreement was executed between International Lease Finance or Platypus Leasing, as the case might be, ILFC and Virgin Blue whereunder obligations pursuant to the original leases were novated to ILFC as new lessor.

The relief

7 By an amended summons, Platypus Leasing, International Lease Finance, Interlease Aircraft Trading and ILFC sought the following declarations:

· that Platypus Leasing was not required by A New Tax System(Goods and Services Tax) Act 1999 (Cth) to deliver tax invoices to Interlease Aircraft Trading for its sales of four leased aircraft to International Aircraft Trading in specified tax periods;

· that International Lease Finance was not required by A New Tax System (Goods and Services Tax) Act 1999 (Cth) to deliver tax invoices to Interlease Aircraft Trading for its sales of seven leased aircraft to International Aircraft Trading in specified tax periods;

· that the sales by Platypus Leasing were not taxable supplies by Platypus Leasing;

· that the sales by International Lease Finance were not taxable supplies by International Lease Finance;

· that International Aircraft Trading made creditable acquisitions on buying the four aircraft from Platypus Leasing;

· that International Aircraft Trading made creditable acquisitions on buying the seven aircraft from International Lease Finance;

· that International Aircraft Trading was required by A New Tax System (Goods and Services Tax) Act 1999 (Cth) to deliver tax invoices to ILFC for its sales of the eleven aircraft to ILFC in specified tax periods;

· that the sales of the eleven aircraft by International Aircraft Trading to ILFC were taxable supplies by International Aircraft Trading;

· that ILFC made creditable acquisitions on buying the eleven aircraft from International Aircraft Trading;

· that under A New Tax System (Goods and Services Tax) Act 1999 (Cth), ILFC’s leasing of the eleven aircraft to the original lessee by way of novation agreement between the original lessor (Platypus Leasing or International Lease Finance), ILFC and the original lessee gave rise to a liability to GST in specified tax periods and will continue to give rise to a liability to GST during the term of the leases;

· that ILFC’s statements in its business activity statements for specified tax periods to the effect that it was entitled to input tax credits for the acquisitions of the eleven aircraft were neither false nor misleading within sections 8K and 8N of the Taxation Administration Act 1953 (Cth);

· that ILFC was required by A New Tax System (Goods and Services Tax) Act 1999 (Cth) to deliver a tax invoice to International Aircraft Trading for the sale of one aircraft by it in a specified tax period;

· as to the manner of application of A New Tax System (Goods and Services Tax) Act 1999 (Cth) to future sales by International Lease Finance to International Aircraft Trading and then from International Aircraft Trading to ILFC of aircraft presently leased to a lessee carrying on business in Australia.

Particulars of the last prayer for relief specified particular aircraft owned by International Lease Finance.

The Commissioner’s other challenge

8 The Commissioner filed a second notice of motion seeking an order under the Supreme Court Rules 1970, Pt 31 r 2 that the question whether the declaration with respect to future transactions be struck out pursuant to Pt 13 r 5, be dealt with separately and in advance of the other matters raised in the Commissioner’s first notice of motion. Since both motions were to be heard together, the Commissioner conceded, correctly in my view, that no further utility was served by the second notice of motion.

Is there a matter?

9 Proceedings in a State court may involve an incidental consideration of a Commonwealth statute. The point at which the interpretation of such a statute, prima facie, an apparently incidental consideration, gives rise to a matter is not readily expressed in universal terms (Felton v Mulligan (1971) 124 CLR 367 at 374).

10 These proceedings do not involve a mere incidental construction of A New Tax System (Goods and Services Tax) Act 1999, (Cth). Declarations are sought with respect to the rights and duties of International Lease Finance and its associated companies under that Commonwealth act.

11 The Judiciary Act 1903 (Cth), s 39(2) vests federal jurisdiction in State courts in all matters in which the High Court has original jurisdiction or in which original jurisdiction can be conferred upon it. So far is material the provision is as follows:

“The several Courts of the States shall within the limits of their several jurisdictions, whether such limits are as to locality, subject-matter, or otherwise, be invested with federal jurisdiction, in all matters in which the High Court has original jurisdiction or in which original jurisdiction can be conferred upon it…”

12 The Constitution (Cth), s 75(iii) confers original jurisdiction on the High Court in all matters in which the Commonwealth, or a person suing or being sued on behalf of the Commonwealth, is a party. In these proceedings the Commissioner is sued on behalf of the Commonwealth.

13 The Constitution (Cth), s 76(ii) provides that the parliament may make laws conferring original jurisdiction on the High Court in any matter arising under any laws made by the parliament. A New Tax System (Goods and Services Tax) Act 1999 (Cth) is such a law.

14 In these proceedings, the court is called upon to exercise federal jurisdiction. But the Commissioner argued that the proceedings involved no matter within the meaning of the Constitution (Cth) and, in consequence, the amended summons ought to be dismissed.

15 The proceedings thus involved the interpretation of the Constitution (Cth). In accordance with the Judiciary Act 1903 (Cth), s 78B, notices were served on the Attorneys-General of the Commonwealth, States and Territories. None has sought to intervene.

16 After I reserved my decision on the question whether the proceedings raised a matter for the purpose of the Judiciary Act 1903 (Cth), s 39(2), I granted the Commissioner leave to re-open his case to adduce further evidence. That evidence was that the Commissioner has now served on Interlease Aircraft Trading notices of assessment under the Taxation Administration Act 1953 (Cth), s 22(1) and has now served on ILFC notices of assessment and a declaration under A New Tax System (Goods and Services Tax) Act 1999 (Cth), s 165-40. At a resumed hearing, the Commissioner tendered copies of the notices and the declaration signed by a Deputy Commissioner.

The evidentiary effect

17 The Taxation Administration Act 1953 (Cth), s 59 provides that the production of a notice of assessment or of a declaration has conclusive effect. It provides:

“The production of a notice of assessment under this Part or of a declaration under section 165-40 or subsection 165-45(3) of the GST Act is conclusive evidence:
(a) that the assessment or declaration was properly made; and
(b) except in proceedings under Part IVC on a review or appeal relating to the assessment or declaration - that the amounts and particulars in the assessment or declaration are correct.”

18 Copies signed by a Deputy Commissioner are dealt with under the Taxation Administration Act 1953 (Cth), s 61(1) which provides that the production of a signed copy is evidence to the same extent as the original. It is in the following terms:

“The production of a document signed by the Commissioner or a Deputy Commissioner that appears to be a copy of, or extract from, any document made or given by or to an entity for the purposes of an indirect tax law is evidence of the matters set out in the document to the same extent as the original document would have been evidence of those matters.”

19 The Income Tax Assessment Act 1936 (Cth), s 177(1) is in similar terms to the Taxation Administration Act 1953 (Cth), s 59 but includes signed copies within its terms. It provides:

“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 particulars of the assessment are correct.”

20 Counsel for International Lease Finance and its associated companies pointed to the difference in language between the Income Tax Assessment Act 1936 (Cth), s 177(1) and the Taxation Administration Act 1953 (Cth), s 61(1) and submitted that the tender of the copy notices of assessment and declaration signed in conformity with the latter provision did not invoke the conclusiveness in s 59 of the latter act.

21 I reject that submission. The Taxation Administration Act 1953 (Cth), s 61(1) gives to the production of signed copy documents the same evidentiary effect that would follow the production of the original documents. Since s 59 gives conclusive evidentiary effect to the production of an original notice of assessment or declaration, the production of the signed copies has the same evidentiary consequence. The change in verbiage from the Income Tax Assessment Act 1936 (Cth), s 177(1) is immaterial.

The assessment and the declaration

22 In Federal Commissioner of Taxation v Hoffnung & Co Ltd (1928) 42 CLR 39, the Commissioner issued notices of assessment to income tax described as being tentative. At 54-55, 58, 65, the High Court held that a notice of assessment fixing a taxpayer with liability for a Crown debt must be definite and certain, or definitive as opposed to provisional.

23 In Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1994-1995) 183 CLR 168 at 199-200, 219, 229, 237, it was said that if it appeared that the Commissioner had not made an assessment definitive of the tax liability of the taxpayer, the production of the notice of assessment did not attract the conclusive operation of the Income Tax Assessment Act 1936 (Cth), s 177(1).

24 It was argued on behalf of International Lease Finance and its associated companies that the assessments were tentative and did not attract the protection of the Taxation Administration Act 1953 (Cth), s 59.

25 While the Taxation Administration Act 1953 (Cth), s 22(1) provides that the Commissioner may at any time make an assessment of a net amount for a tax period, liability under A New Tax System (Goods and Services Tax) Act 1999 (Cth), does not depend upon assessment. If a net amount for a tax period is greater than zero, tax is payable in terms of s 33-5(1). Section 17-5 defines the net amount as the sum of all the GST for which a person is liable on taxable supplies attributable to the tax period, less the sum of all input tax credits for which the person is entitled for creditable acquisitions and creditable importations attributable to that tax period.

26 By his notice of assessments to Interlease Aircraft Trading, the Commissioner increased the net amount in specified tax periods by approximately $70 million.

27 The notice of assessments does not explain the basis for the Commissioner’s increase in the net amounts. However, A New Tax System (Goods and Services Tax) Act 1999 (Cth), s 66-5(1) provided that if one acquired second hand goods for the purpose of sale or exchange in the ordinary course of business, the fact that the supply of the goods was not a taxable supply, did not stop the acquisition being a creditable acquisition. The evidence reveals that this was the bone of contention in communications between the Commissioner and International Lease Finance and its associated companies and, the Commissioner’s rejection of its operation is the likely cause of the increase in net amounts.

28 The notice of assessments to ILFC, also increased the net amount of that company in specified tax periods.

29 A New Tax System (Goods and Services Tax) Act 1999 (Cth), s 165-40(a) provides that for the purpose of negating a GST benefit an avoider gets from a scheme, the Commissioner may make a declaration stating the amount that is the avoider’s net amount for a specified tax period.

30 A GST benefit arises in terms of A New Tax System (Goods and Services Tax) Act 1999 (Cth), s 165-10(1)(a) if an amount payable under the act could reasonably be expected to be smaller than it would be apart from a scheme.

31 By his declaration addressed to ILFC, the Commissioner stated the same net amounts for the same tax periods as he had specified in his notice of assessments addressed to ILFC.

32 International Lease Finance and its associated companies submitted that the assessments were tentative because they depended upon the exclusion of the operation of A New Tax System (Goods and Services Tax) Act 1999 (Cth), s 66-5(1) whereas the declaration depended upon its operation to grant a GST benefit.

33 In R v Hickman; Ex parte Fox (1945) 70 CLR 598 at 614 the court said that a privative clause was to be interpreted as meaning that no decision given by a body was to be invalidated on the ground that it had not conformed to the requirement governing its proceedings, or the exercise of its authority, or had not confined its acts within the limits laid down by the instrument giving it authority, provided, always, that its decision was a bona fide attempt to exercise its power, that it related to the subject matter of the legislation and that it was reasonably capable of reference to the power given to the body. The High Court in Richard Walter held this principle of construction to apply to the Income Tax Assessment Act 1936 (Cth), s 177(1).

34 Like A New Tax System (Goods and Services Tax) Act 1999 (Cth), the former sales tax legislation was self-executing and did not depend upon the issue of a notice of assessment.

35 Darrell Lea Chocolate Shops Pty Ltd v Commissioner of Taxation (1996) 72 FCR 175 concerned notices of assessment issued under that former legislation. At 185, the court held that the Hickman principle applied equally to a privative provision in the former sales tax legislation similar to the Income Tax Assessment Act 1936 (Cth), s 177(1). There is no reason why it should not also apply to A New Tax System (Goods and Services Tax) Act 1999 (Cth), s 59.

36 Counsel for International Lease Finance and its associated companies eschewed reliance upon the Hickman principle and based his argument solely upon the proposition that the assessments were tentative.

37 Just as a non bona fide assessment or declaration would not attract the conclusive effect of the Taxation Administration Act 1953 (Cth), s 59, there is no reason why a tentative assessment should not also exclude the operation of that provision.

38 But there is nothing tentative about the net amounts specified by the Commissioner in the assessments on the one hand and the declaration on the other so far as ILFC is concerned. The amounts are identical. There is nothing tentative about the net amounts specified with respect to Interlease Aircraft Trading and no declaration was issued to it.

39 In Richard Walter, the Commissioner included the same amount of assessable income in the same year of income in assessments issued against different taxpayers. It was held that that circumstance did not violate the Hickman principle.

40 By parity of reasoning, the inclusion of the same net amount in specified tax periods on different bases of liability should not infringe the Hickman principle. Nor should it be tentative in the relevant sense. Each could be correct. If the Commissioner was entitled to exclude the operation of A New Tax System (Goods and Services Tax) Act 1999 (Cth), s 66-5(1), there is no scope for the operation of the declaration. But if the Commissioner was not entitled to disregard s 66-5(1), the declaration will have effect if ILFC gained a GST benefit from a scheme.

41 In Darrell Lea, the Commissioner issued four notices of assessment to sales tax in respect of the same goods under different acts. At the time the assessments were made they were not only wrong, but the Commissioner knew them to be so. He made no genuine attempt to ascertain the sale value of the goods. It was held that there was no bona fide exercise of the power of assessment and the equivalent of the Taxation Administration Act 1953 (Cth), s 59 was not enlivened.

42 In Commissioner of Taxation v Stokes (1996) 72 FCR 160, the Commissioner served three notices of amended assessment for the one year on the one taxpayer in differing amounts of taxable income. It was held that there was no definitive assessment and the Income Tax Assessment Act 1936 (Cth), s 177(1) was not enlivened.

43 The instant circumstances are clearly distinguishable from Darrell Lea and Stokes. In each there was no definitive amount because there had been no attempt to determine the actual sale value or taxable income. In the one case, the amounts in the notices of assessment were, to the knowledge of the Commissioner, wrong. In the other case, differing amounts were put forward with respect to the same taxpayer in respect of the same year of income.

44 Here, specific net amounts are put forward by the Commissioner, both in relation to ILFC and in relation to Interlease Aircraft Trading and there is no difference in the amounts specified in the declaration addressed to ILFC.

45 The Income Tax Assessment Act 1936 (Cth), s 177F(1)(b) provides that where a tax benefit has been obtained in connection with a scheme, the Commissioner may, in the case of a tax benefit referable to a deduction, determine that the whole or a part of the deduction will not be allowable.

46 In Federal Commissioner of Taxation v Peabody (1993-1994) 181 CLR 359 at 382, it was held that the existence of the discretion under the Income Tax Assessment Act 1936 (Cth), s 177F is not made to depend upon the Commissioner’s opinion or satisfaction that there is a tax benefit or that the benefit is obtained in connection with a scheme. These circumstances are posited as objective facts.

47 In Puzey v Commissioner of Taxation (2003) 131 FCR 244 the Commissioner issued notices of amended assessment disallowing deductions and he made a determination pursuant to the Income Tax Assessment 1936 (Cth), s 177F, purporting to cancel tax benefits in the amounts of the deductions, but otherwise did not further amend the assessments. Shortly before the hearing of the appeal from the adverse decision by the Commissioner upon the taxpayer’s notice of objection, the Commissioner, as a precaution, made a new determination under s 177F cancelling the tax benefits and further amended the assessments by incorporating the new determinations, without altering the amount of the taxable income. It was held that the second set of amended assessments were not tentative and operated as amended assessments, even though the amount of taxable income and tax payable were the same as the amounts shown in the first set of amended assessments. It was also held that the Commissioner’s view, when making the second set of assessments, that the deductions were not allowable, did not affect the second set of determinations.

48 At 267, the court rejected the taxpayer’s argument that the Commissioner, having determined that the deductions were not allowable, could not make a determination under the Income Tax Assessment Act 1936 (Cth), s 177F because that determination depended on his view that the deductions were available. The Court pointed out that s 177F was not predicated upon the Commissioner forming the opinion that a deduction was allowable, before making the determination that operated to disallow the deduction. All that is necessary is that there is a deduction, allowable to a taxpayer, that would not have been allowable if the relevant scheme had not been entered into or carried out.

49 In my view, the same considerations apply in the instant circumstances and, accordingly, neither the assessments nor the declaration are tentative.

50 In Commissioner of Taxation v Jackson (1990) 27 FCR 1, it was held that a determination under the Income Tax Assessment Act 1936 (Cth), s 177F was perfected only by the issue of an amended assessment and since no amended assessment issued in that case, the Commissioner could not rely on the determination.

51 In Puzey at 266-267, the court questioned whether that decision was correct and analysed the position upon the alternative bases that it was correct and that it was incorrect. In view of my approach to this matter, it is unnecessary for me to carry out that exercise.

52 The Commissioner relied upon Cadbury-Fry-Pascall Pty Ltd v Federal Commissioner of Taxation (1944) 70 CLR 362 in which it was that held the former Income Tax Assessment Act 1936 (Cth), s 104 and s 105 relating to insufficient distributions by private companies, were separate and independent powers of assessment.

53 It is unnecessary for me to decide whether a similar approach should be taken to the Taxation Administration Act 1953 (Cth), s 22 and A New Tax System (Goods and Services Tax) Act 1999 (Cth), s 165-40(a).

54 In my view, the Taxation Administration Act 1953 (Cth), s 59 applies to the notices of assessment issued to Interlease Aircraft Trading and to ILFC respectively and to the declaration issued to ILFC.

The fate of the matter argument

55 In light of the tender of the signed copies of the notices of assessment and declaration, for the reasons expressed below, it is unnecessary for me to express an opinion on the Commissioner’s argument that the proceedings raised no matter.

56 It was not contended by the Commissioner that proceedings in a State court seeking declaratory relief with respect to liability under A New Tax System (Goods and Services Tax) Act 1999 (Cth) will never raise a matter. On the contrary, he submitted that such proceedings are appropriate in some instances.

57 There is a long history of declaratory proceedings against the Commissioner in disputes arising under the former sales tax legislation. Indeed, the Commissioner issued Sales Tax Ruling ST 2454 expressing his approval of such proceedings in appropriate cases. Their utility in resolving disputes with the Commissioner prior to the issue of a notice of assessment is demonstrated by Oil Basins Ltd v The Commonwealth (1993) 178 CLR 643 in which Dawson J held that the fact that the Commissioner had not made up his mind whether or not to issue an assessment did not deprive the court of jurisdiction for want of a proper contradictor.

58 In his final submissions, counsel for the Commissioner submitted that it was “theoretically possible” that a case with a factual controversy could be the subject of declaratory relief by a State court. It was submitted that appropriate cases for this form of relief were those where not factual controversy existed. I doubt that is a valid distinction or that the grant of jurisdiction under the Judiciary Act 1903 (Cth), s 39(2) is so circumscribed. However, that is a matter for another day.

Utility of the declaratory proceedings

59 International Lease Finance and its associated companies pointed to the utility and the convenience of proceeding to a hearing on the merits in this court. There is obvious force in those arguments in light of the material that has already been filed in these proceedings, the allotment of a hearing date and the delay that will inevitably be occasioned by the procedures in the Taxation Administration Act 1953 (Cth), Pt IVC.

60 Nevertheless, signed notices of assessment and a declaration have now been tendered in this court and the effect of that tender must be analysed.

The effect of production of the copy notices and declaration

61 It was held in Richard Walter at 186 that the Income Tax Assessment Act 1936 (Cth), s 177(1) did not exclude the jurisdiction of a State court. The production of a notice of assessment means that the jurisdiction must be exercised in a particular way.

62 The Commissioner argues that, effectively, that means the entire matter can only be litigated under the Taxation Administration Act 1953 (Cth), Pt IVC.

63 In George v Federal Commissioner of Taxation (1952) 86 CLR 183 at 206-207 the High Court drew a distinction between the first limb of the Income Tax Assessment Act 1936 (Cth), s 177(1) relating to the procedural steps by which taxable income and tax are ascertained and the second limb going to the substantive liability of a taxpayer:

“The clear policy of s. 177 is to distinguish between the procedure or mechanism by which the taxable income and tax is ascertained or assessed on the one hand and on the other hand the substantive liability of the taxpayer. The former involves the due making of the assessment…Obviously the “due making of the assessment” was intended to cover all procedural steps, other than those if any going to the substantive liability and so contributing to the excessiveness of the assessment, the thing which is put in contest by an appeal.”

64 In McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263, Dixon CJ, McTiernan and Webb JJ considered that the second limb covered the entire scope of the substantive liability of a taxpayer. They said at 270:

“The ground over which s. 177(1) gives conclusiveness to the assessment is described as the due-making of the assessment and the correctness of the amount and all the particulars of the assessment. But that appears to us to comprise the whole ground. It is the manifest policy, one may now almost say the historical policy, of the legislation on the one hand to give to the taxpayer full opportunity on objecting to his assessment of contesting his liability in every respect before a court or before a board of review but on the other hand to require that in proceedings for the recovery of the tax the taxpayer will be concluded by the assessment and will not be entitled to go behind it for any purpose.”

At 281-282, Taylor J said that, except in proceedings by way of appeal, it was impossible to challenge an assessment on any ground:

“There seems no doubt that s. 177(1) was intended to make it impossible for a taxpayer, in proceedings other than appeal against it, to challenge an assessment on any ground and, accordingly, there is every reason for thinking that the second limb in s. 177(1) covers all grounds upon which an assessment may be challenged other than those covered by the first limb. But in terms, the second limb relates to “the amount and all the particulars of the assessment” and it is contended that these words are not appropriate to preclude a taxpayer from asserting in any proceedings that facts did not exist authorising the exercise of the power to amend under s. 170(2). It may be conceded that the choice of words is unfortunate and it is possible that the draftsman had in contemplation the case of original assessments rather than amended assessments. But in many cases the question whether an amended assessment correctly states a taxpayer’s assessable or taxable income will raise precisely the same problem as the inquiry whether his return of income had made a full and true disclosure of all the material facts necessary for his assessment. Assessable income may have been omitted from the return or unjustifiable claims for deductions may have been made and if, in proceedings other than an appeal of the specified character, the assessment constitutes conclusive evidence of the particulars therein stated, a strange result would follow if the taxpayer should, nevertheless, be at liberty to prove, or require the commissioner to prove, in justification of the assessment, that the non-disclosure of which the particulars of the assessment assumed, in fact, took place. In my view s. 170(1) should be understood as precluding a taxpayer in proceedings other than an appeal (or a reference) under the Act from challenging an assessment on any ground. This means, of course, that where a taxpayer objects to an amended assessment on the ground that there was no failure to make a full and true disclosure, he alleges, in the words of s. 177(1), that the assessment, both in amount and the specified particulars is not correct.”

65 In so far as it was decided in F J Bloemen Pty Ltd v Federal Commissioner of Taxation (1980-1981) 147 CLR 360 at 371, 375 that there was a disconformity between the Income Tax Assessment Act 1936 (Cth), s 175 and s 177(1), that view was held to be erroneous in Richard Walter. Otherwise, however, the decision in Bloemen was not criticised. Indeed, its analysis of s 177(1) was approved by Mason CJ at 183.

66 In Bloemen at 375, Mason and Wilson JJ regarded what had been said by Taylor J in McAndrew at 281-282 as an explicit and correct statement of the effect of the Income Tax Assessment Act 1936 (Cth), s 177(1). They went on to say:

“This interpretation gives expression to the policy which underlies, and is manifest in, the statutory provisions. The effect of this policy is 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 Income Tax Assessment Act 1936 (Cth), Pt V was the forerunner of Pt IVC of the Taxation Administration Act 1953 (Cth).

67 In Federal Commissioner of Taxation v Dalco (1989-1990) 168 CLR 614 at 620, Brennan J pointed out by reference to the above authorities that in proceedings on appeal a taxpayer is not forclosed by the Income Tax Assessment Act 1936 (Cth), s 177:

“That is because s. 177 distinguishes “between the procedure or mechanism by which the taxable income and tax is ascertained or assessed on the one hand and on the other hand the substantive liability of the taxpayer. The former involves the due making of the assessment”: George’s Case (1952) 86 CLR at pp. 206-207; McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263 at p. 271; and see F J Bloemen Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360 at p. 373.”

68 The Taxation Administration Act 1953 (Cth), Pt IVC applies to the notices of assessment and the declaration in question. Section 62(1)(c) provides that a taxpayer dissatisfied with a reviewable indirect tax decision may object against the decision in the manner set out in Pt IVC. A reviewable indirect tax decision is defined in s 62(3) to include the making of an assessment under s 22. Section 62(1)(a) provides that dissatisfaction with a reviewable GST decision also enables a taxpayer to object in the manner set out in Pt IVC. A reviewable GST decision is defined in s 62(2) to include, as item 38 in the table to that provision, the making of a declaration to negate a GST benefit under A New Tax System (Goods and Services Tax) Act 1999 (Cth), s 165-40.

69 The Taxation Administration Act 1953 (Cth), s 14ZL(1) provides that Pt IVC applies if a provision of an Act provides that a person dissatisfied with an assessment, determination, notice or decision may object against it in the manner set out in Pt IVC. Proceedings under that Part are available to Interlease Aircraft Trading and ILFC consequent upon the service upon them of the notices of assessment and the declaration. They are entitled to lodge an objection under s 14ZU. The Commissioner is required to allow, wholly or in part, or disallow the objection under s 14ZY(1). If Interlease Aircraft Trading or ILFC is dissatisfied with the Commissioner’s objection decision, it may apply to the Administrative Appeals Tribunal for review of the decision or appeal to the Federal Court against the decision in terms of s 14ZZ. Neither the review nor the appeal is circumscribed by production of the notices of assessment or declaration under the second limb in s 59(b).

70 To the contrary of the proposition that the rights of International Lease Finance and its associated companies to the declaratory relief claimed in the amended summons is foreclosed by the production of the notices of assessment and declaration against Interlease Aircraft Trading and ILFC, it was argued that the notices of assessment and declaration did not touch the declarations sought with respect to International Lease Finance and Platypus Leasing and the Taxation Administration Act 1953 (Cth), s 59, like the Income Tax Assessment Act 1936 (Cth), s 177, was limited to excluding argument about the amounts and particulars in the notices of assessment and declaration. It did not prevent a State court from considering the ingredients that went to make up the amounts or particulars in the other declarations sought.

71 In Oates v Commissioner of Taxation (1990) 27 FCR 289 at 308, Hill J said that the Income Tax Assessment Act 1936 (Cth), s 177 did not foreclose consideration of the ingredients that made up taxable income:

“The Commissioner’s submission assumes that tender of the notice or copy is conclusive evidence of the assessable income and the allowable deductions of that year, these being the “particulars” to which s 177(1) refers. However, in my opinion, when s 177 speaks of the particulars of the assessment, it speaks of that which, on its face, is contained on the face of the notice, normally the taxable income and tax payable thereon. It does not encompass the ingredients which go to making up that taxable income.”

His Honour continued at 309 to confine the conclusiveness of the particulars to the taxpayer for the year to which the assessment relates:

“In my view, the purpose and effect of s 177 is to prevent challenge of an assessment, other than in accordance with Pt V proceedings and then only as to the issue of the excessiveness of the assessment. The notice of assessment is only conclusive of the particulars in it (taxable income and tax payable thereon) in respect to the taxpayer whose assessment it is in the year of income to which the assessment relates. The section should be given no wider operation than this purpose and effect requires.”

72 The argument of the Commissioner, rejected by Hill J in Oates, was that, although the taxpayer admittedly sustained losses of $20,433 in the 1978 year, no objection had been raised to the assessment and the production of the notice of assessment, stating a taxable income of $20,800, necessarily precluded the argument that tax losses of that year were available to be carried forward.

73 There was no challenge to the amount and particulars in the notice of assessment for the 1978 year. The taxpayer’s claim was with respect to the years of income 1980 to 1985 and his entitlement to off-set taxable income by carry-forward losses he sustained in 1978 and 1979. Hill J was conducting appeal proceedings under the then Income Tax Assessment Act 1936 (Cth), Pt V. The ingredients to which his Honour referred were not those with respect to an amount or particulars for the tax years in question.

74 In this case, on the other hand, the notices of assessment and declaration relate to the tax periods in question. They preclude this court calling in question the amount or particulars with respect to those tax periods.

75 Hill J was not concerned, as I am, with the submission that, notwithstanding the availability of proceedings under the Taxation Administration Act 1953 (Cth), Pt IVC in which the amounts and particulars in the notices of assessment and declaration may be contested on any basis, I should continue to deal with the matter on the basis that I am addressing ingredients of those amounts and particulars that are not foreclosed by the production of the notices of assessment and declaration.

76 I reject that submission. Once the signed notices of assessment and declaration were tendered, this court was precluded from considering the amounts and particulars contained in those documents and that precluded any consideration of the ingredients of which they were composed. Oates is not authority to the contrary. The approach I take is consistent with George, McAndrew, F J Bloemen, Richard Walter and Dalco. Indeed, Hill J made reference to McAndrew, F J Bloemen and Dalco in Oates at 308.

77 In my view, the authorities are clear that the review and appeal procedures under the Taxation Administration Act 1953 (Cth), Pt IVC apply to the substantial liability of Interlease Aircraft Trading and ILFC and any argument with respect to their liability to GST is, in terms of s 59(b), an argument that the amounts and particulars in the assessments and declaration are incorrect.

78 In light of that structure, there is no scope, in my view, for residual arguments with respect to the ingredients making up the amounts and particulars in the assessments and declaration to be further ventilated in this court. The actions of International Lease Finance and Platypus Leasing constitute ingredients for this purpose. Those actions have relevance only in so far as they led to the actions of Interlease Aircraft Trading and ILFC that are impugned by the Commissioner.

Strike out principles

79 In Platypus Leasing Inc v Commissioner of Taxation [2005] NSWSC 376 at [6] I set out the principles applicable to an application for summary termination of proceedings. The case must be very clear to justify summary intervention to prevent a plaintiff submitting a case for determination in the usual way. The court’s powers should not be exercised unless the lack of a cause of action is clearly demonstrated. In my view, that demonstration has been made out.

Exercise of discretion

80 If I be wrong in my view, there are two reasons why, in the exercise of my discretion, I should refuse to deal further with the matter.

81 First, the declarations unaffected by the notices of assessment and declaration are staging posts to an end, that being a lack of liability to GST in Interlease Aircraft Trading and ILFC. Granting declarations as staging posts is frowned upon. Courts should proceed to the ultimate relief. As Young J said in McKeown v Cavalier Yachts Pty Ltd (1988) 13 NSWLR 303 at 312:

“The plaintiff’s summons asks for a declaration that the yacht is the property of the plaintiff. I do not believe that such a declaration should be made. Declarations should not be made as a staging post in litigation, and in a case where some executive orders have to be made, it is usually best to proceed to consider those executive orders rather than making declarations.”

82 Secondly, simultaneous proceedings in two courts dealing with the same issues are to be avoided. As the Court of Appeal said in Harpas v Commissioner of Taxation [2002] NSWCA 198:

“The Court will dismiss this appeal for the reasons given by the trial Judge. However we also think that the procedure adopted was totally inappropriate in the first place.

Although the point was not taken by the Commissioner before Dunford J, the commencement of proceedings for a declaration in the Supreme Court when an action raising the same issue is pending in the District Court is totally inappropriate. If objection had been taken the Supreme Court should have dismissed these proceedings without embarking on the merits. If anyone else is tempted in the future to take proceedings in the Supreme Court for a declaration when an action raising the same issue is pending in the District Court the Court itself or the Commissioner should object to that procedure.

Declaratory relief was never intended to divide up or fracture legal proceedings pending in another court from which there is a full appeal on fact and law.”

83 As I have said, the Taxation Administration Act 1953 (Cth), Pt IVC gives taxpayers a full right of appeal or review. It is inappropriate that some remnants of the prayers for relief should continue to be entertained in this court.

84 If the applications for declaratory relief with respect to the past transactions should not be entertained by this court, it is inappropriate for it to consider the proposed replication of events with respect to other aircraft.

Proposed orders

85 I will dismiss the summons. I will hear the parties on costs. I direct the parties to bring in short minutes of orders reflecting these reasons.

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