Silly Solly v Commissioner of Taxation
[2001] FCA 1095
•13 AUGUST 2001
Silly Solly v Commissioner of Taxation [2001] FCA 1095
Taxation
FEDERAL COURT OF AUSTRALIA
Silly Solly v Commissioner of Taxation [2001] FCA 1095
TAXATION - Proceedings set down for hearing of appeal to the Court against income assessment issued by the Commissioner of Taxation against taxpayer company - matters in dispute potentially overlap with those the subject of adverse assessments subsequently issued to companies related to or associated with the taxpayer company - application for addition of further grounds for appeal against the assessment levied against the taxpayer company and to adduce evidence in support of such further grounds - application refused at first instance - extent to which additional evidence might be adduced though out of time fixed by trial timetable.
Income Tax Assessment Act 1936 (Cth) Part IVA, ss 80G, 177
Arthur Murray (NSW) Pty Limited v Federal Commissioner of Taxation (1965) 114 CLR 314
SILLY SOLLY MANAGEMENT PTY LTD v COMMISSIONER OF TAXATION
Q139 OF 2001
WHITLAM, KIEFEL & CONTI JJ
BRISBANE
13 AUGUST 2001
IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q139 OF 2001
ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN: SILLY SOLLY MANAGEMENT PTY LTD APPLICANT
AND: COMMISSIONER OF TAXATION RESPONDENT
JUDGE:
WHITLAM, KIEFEL & CONTI JJ DATE OF ORDER: 13 AUGUST 2001 WHERE MADE: BRISBANE
THE COURT ORDERS THAT:
1. Application for leave to appeal refused.
2. Applicant to pay the Respondent's costs of the application.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q139 OF 2001
ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN: SILLY SOLLY MANAGEMENT PTY LTD APPLICANT
AND: COMMISSIONER OF TAXATION RESPONDENT
JUDGE: WHITLAM, KIEFEL & CONTI JJ DATE: 13 AUGUST 2001 PLACE: BRISBANE
REASONS FOR JUDGMENT
1 This is an application for leave to appeal from the decision of Drummond J made on 1 September 2001, whereby his Honour refused to permit the addition of a proposed further ground of appeal against the appealable objection decision of the Respondent made on 12 May 2000, and left open for future consideration by the Trial Judge (Dowsett J) a second proposed ground of appeal, and whereby his Honour further refused to adjourn the proceedings at first instance, already set down for hearing by the Trial Judge, relating to such appealable objection decision, being proceedings scheduled to be heard on 1 September 2001 by the Trial Judge.
2 The factual matrix against which such interlocutory proceedings before Drummond J below were conducted may be summarised for present purposes as follows:
(i) The Applicant received shortly prior to the expiry of the fiscal year ended 30 June 1996 certain management fees from other companies related to or otherwise associated with the Applicant, which fee income the Applicant thereafter returned to the Respondent as assessable income derived during such fiscal year; the Applicant had also sought to deduct for income tax purposes from that management fee income, in relation to the same fiscal year, certain tax losses which had been transferred to it from a related company, purportedly pursuant to s 80G of the Income Tax Assessment Act 1936 (Cth) (as amended), thereby producing a nil taxable income in respect of that fiscal year.
(ii) The Respondent disallowed the Applicant tax deductibility in respect of the amount of such purported transfer of tax losses, and thus assessed the Applicant in respect of the whole or substantially the whole of the management fees so derived from its related or associated companies in relation to the fiscal year ended 30 June 1996.
(iii) Notice of objection in relation to such disallowance of deductibility was furnished by the Applicant to the Respondent on 1 October 1999, and the same was rejected by the Respondent; as a consequence, the Applicant thereafter appealed to this Court.
(iv) Up to the time of lodgment of the Applicant's notice of objection, the Respondent had not given notice of disallowance of the related or associated companies' claims to income tax deductibility in respect of their respective outlays of such management fees in favour of the Applicant; however the Respondent did subsequently adopt that course, though only after the Applicant had appealed to the Court against the objection decision the subject of the present proceedings; such appeal of the Applicant had been filed on 14 July 2000, and those adverse income tax assessments did not issue to such related or associated companies until 12 March 2001; notices of objection in relation to such assessments were lodged by the related or associated companies on 22 May 2001.
(v) Also during May 2001 or thereabouts, the Applicant sought to propound an additional basis for attack upon the Respondent's assessment made in relation to the Applicant for the fiscal year ended 30 June 1996 (referred to in (ii) above), the following ground of objection on its part being propounded:
"That any payment or entitlement to payment from State Wide Super Stores Pty Ltd, Family Variety Stores Pty Ltd, Solly Stanton Investments Pty Ltd, Lake Towa Pty Ltd included in its assessable income which is disallowed as a deduction by the Respondent in the assessment of its taxable income for the year ended 30 June 1996 is, to the extent to which such disallowance is correct in fact and law, not properly included in the assessable income of the Applicant for that year of income."
This foreshadowed basis for additional objection was raised against the context of orders made on 8 December 2000 by Dowsett J for the filing of statements of facts issues and contentions in the taxation appeal at first instance brought by the Applicant in the subject proceedings, and for the filing of any supporting affidavits by 6 April 2001, and further for the hearing of the subject proceedings to commence on 10 September 2001.
(vi) Thereafter on 6 June 2001, the Applicant filed an amended notice of motion which sought first, to vacate the hearing date fixed by Dowsett J, and secondly and in any event, to add the following grounds to its taxation objection and thus of its appeal, in lieu of that single ground set out in (v) above:
"(a) That any payments or entitlements to payment included in the Applicant's assessable income for the year ended 30 June 1996 received or receivable from Silly Solly Management Pty Ltd, Statewide Super Stores Pty Ltd, Family Variety Stores Pty Ltd, Silly Solly Investments Pty Ltd as trustee for the S Stanton Discretionary Trust and Lake Towa Pty Ltd included in its assessable incomes which is disallowed a deduction by the Respondent in the assessment of the taxable incomes of Statewide Super Stores Pty Ltd, Family Variety Stores Pty Ltd, Silly Solly Investments Pty Ltd as trustee for the S Stanton Discretionary Trust and Lake Towa Pty Ltd for the year ended 30 June 1996 is, to the extent to which such disallowance is correct in fact and law, not properly included in the assessable income of the Applicant for that year of income.
(b) That any payments or entitlements to payment received or receivable by the Applicant from Statewide Super Stores Pty Ltd, Family Variety Stores Pty Ltd, Silly Solly Investments Pty Ltd as trustee for the S Stanton Discretionary Trust and Lake Towa Pty Ltd should have been properly included in the Applicant's assessable income for the year ended 30 June 1997 in accordance with the decision of Arthur Murray (NSW) Pty Ltd v Deputy Commissioner of Taxation (1965) 114 CLR 314."
(vii) The Respondent has not yet notified the related or associated companies of disallowance of their objections to their respective adverse assessments referred to in (iv) above, so that the possibility of a combined hearing of any appeals against such assessments with the taxation objection appeal of the Applicant the subject of the present proceedings, which the Applicant would embrace, cannot now eventuate; the Respondent has not sought to explain why it has apparently been unable thus far to respond to such objections, in order that all taxation issues in dispute involving this association or group of companies relating to their respective affairs conducted during the year ended 30 June 1996 (and also 1997 for the reason apparent from [5] below), could be conveniently resolved.
(viii) The National Crime Authority (NCA) has commenced investigation into the affairs of persons associated with the Applicant and its associated or related companies, which investigation may conceivably lead to criminal proceedings; such investigation is said to be presently imposing, or be capable of imposing, obstacles in the way of officers of the investigated companies engaging in mutual dialogue for the purposes of the current taxation litigation.
3 Drummond J rejected below as a viable ground for adjournment of the pending proceedings at first instance before Dowsett J the subsistence of the NCA investigation upon the basis that the potential delay to the hearing of such taxation appeal proceedings would be virtually open-ended. The Applicant sensibly discontinued the pursuit of that ground of appeal in address before us.
4 As to the two further proposed grounds of appeal which the Applicant has sought to pursue, additionally to those earlier set forth in its taxation objection which was lodged within the prescribed time, being those two grounds set out in [2(vi)] above, his Honour declined to accede to the Applicant's application to amend its presently filed notice of appeal to the Court for the following reasons:
(i) It is irrelevant to the characterisation for income tax purposes of the payments received by the Applicant from its related or associated companies as to how the Respondent treated or characterised the same for income tax purposes as income in the Applicant's hands derived from such related or associated companies.
(ii) In any event, unless and until the Commissioner might disallow the objections of the related or associated companies to the denial of their respective claims to tax deductibility, the Court would not necessarily know what issues would be involved in any amended appeal proceedings necessarily to be instituted by such companies consequential upon any such disallowances.
5 Nevertheless Drummond J did not close the door entirely upon the opportunity for the Applicant to raise in the proceedings before Dowsett J the second ground of challenge to the assessment presently in issue, being that designated (b) in [2(vi)] above. His Honour observed in that regard that the Applicant had not yet been able to assemble the affidavit evidence it required in order to support such proposed additional ground of taxation appeal, but that subject to the trial date not being put in jeopardy, it would be open to the Applicant to apply to Dowsett J for the appropriate leave to pursue such additional ground of objection, once the Applicant had assembled the affidavit evidence upon which it proposed to rely in support of the additional ground, and had done so in sufficient time to enable the Respondent to put on any evidence in reply. The following passage appearing in Arthur Murray (NSW) Pty Ltd v Federal Commissioner of Taxation (1965) 114 CLR 314 at 318 assists to illustrate the kind of evidence which might be required on the part of the Applicant to sustain such proposed additional ground:
"As Dixon J, observed in Carden's Case (1938) 63 CLR 108: "Speaking generally, in the assessment of income the object is to discover what gains have during the period of account come home to the taxpayer in a realised or immediately realisable form" (1938) 63 CLR 108 at 155. The word "gains" is not here used in the sense of the net profits of the business, for the topic under discussion is assessable income, that is to say gross income. But neither is it synonymous with "receipts". It refers to amounts which have not only been received but have "come home" to the taxpayer; and that must surely involve, if the word "income" is to convey the notion it expresses in the practical affairs of business life, not only that the amounts received are unaffected by legal restrictions, as by reason of a trust or charge in favour of the payer - not only that they have been received beneficially - but that the situation has been reached in which they may properly be counted as gains completely made, so that there is neither legal nor business unsoundness in regarding them without qualification as income derived.
The ultimate inquiry in either kind of case, of course, must be whether that which has taken place, be it the earning or the receipt, is enough by itself to satisfy the general understanding among practical business people of what constitutes a derivation of income. A conclusion as to what that understanding is may be assisted by considering standard accountancy methods, for they have been evolved in the business community for the very purpose of reflecting received opinions as to the sound view to take of particular kinds of items."
6 Mr Russell QC, who now appears for the Applicant, explained that the Applicant would seek to go further by way of propounding additional grounds of appeal. He explained that since the hearing before Drummond J, the Commissioner has issued an amended assessment against the Applicant raising an issue as to the application of Part IVA of the Act adversely to the Applicant, and that particularly since s 177 provides for compensating adjustments where Part IVA has been adversely applied, a measure of evidentiary material, additional to that required for establishment of the Arthur Murray defence to the Applicant's assessment, may be conceivably necessary to place before the Court, in order to engage this further ground of attack on the Respondent's part now being propounded by the Commissioner. The Applicant would thus still seek leave to pursue the proposed appeal ground (a) set out in [2(vi)] above, but in the following altered terms:
"(a) That any payments or entitlements to payment included in the Applicant's assessable income for the year ended 30 June 1996 received or receivable from Statewide Super Stores Pty Ltd, Family Variety Stores Pty Ltd, Silly Solly Investments Pty Ltd as trustee for the S Stanton Discretionary Trust and Lake Towa Pty Ltd which are disallowed as deductions by the Respondent in the assessment of the taxable incomes of Statewide Super Stores Pty Ltd, Family Variety Stores Pty Ltd, Silly Solly Investments Pty Ltd as trustee for the S Stanton Discretionary Trust and Lake Towa Pty Ltd for the year ended 30 June 1996 is, to the extent to which such disallowances are correct in fact and law, not properly included in the assessable income of the Applicant for that year of income."
7 A major difficulty to be overcome in any giving of leave to pursue such further amended proposed ground of appeal is that the same would be directed to a different issue to that which formed the basis for the proposed appeal ground (a) propounded before Drummond J as set out in [2(vi)] above. The basis for such prior ground (a), as articulated by previous Counsel representing the Applicant in the context of the interlocutory proceedings conducted before Drummond J below, was described and disposed of by his Honour in the following terms:
"If the Commissioner of Taxation is ultimately successful in maintaining his view as between himself and the third parties that he is entitled to refuse to allow deductions from their own income of the fees they paid to the applicant, and which are now included in the applicant's assessable income, that does not necessarily mean that those sums should be excluded from the applicant's income. On behalf of the Commissioner, it has been submitted that the approach by the applicant in seeking the amendment in question (and then the adjournment of the trial) erroneously assumes that a decision to disallow a payment as a deduction in respect of one taxpayer must necessarily reduce the assessable income of the taxpayer receiving that payment. The Commissioner submits that the characterisation of payments is to be undertaken for each individual taxpayer. The Commissioner further submits that the application to amend, at least to raise the first issue, should therefore be refused, as an attempt to introduce irrelevant factual matters into the present proceedings and to link impermissibly those proceedings with the decision of the respondent to disallow the deductions claimed by the third parties and to delay the hearing of the present proceedings."
Senior Counsel for the Applicant now appearing on the present appeal proceedings before us immediately eschewed any juridical basis for any viable ground of taxation objection as so previously articulated on behalf of the Applicant before Drummond J. As has been already indicated, Senior Counsel propounded an amended form of ground (a) in the altered text set out in [6] above, and for that purpose, he foreshadowed the possibility of an application for leave to adduce evidence in relation to the Part IVA issue inherent in such recast ground of objection, particularly in the light of s 177 of the Income Tax Assessment Act concerning the Commissioner's statutory authority to make compensating adjustments in relation to a taxpayer, in relation to whose dealings etc Part IVA may be purportedly affected by the Commissioner's resort to Part IVA.
8 We are unable, however, to identify in principle any reason why the Applicant would be excluded in any event from articulating and/or opposing (as the case may be) any viable basis for propounding or resisting (as the case may be) compensating adjustments made purportedly pursuant to s 177, upon the hypothesis that Dowsett J may, in the events which happen, uphold the Respondent's proposed Part IVA attack upon the Applicant. Moreover, if the Applicant was to seek to present to Dowsett J, prior to or in the context of the trial proceedings before his Honour, any affidavit material in support of the Applicant's defence of the Respondent's Part IVA attack, it would become a matter for his Honour as the Trial Judge to determine whether in all the circumstances then prevailing, the same should be admitted into evidence at any such time or times. In the meantime, it would be open in principle to the Applicant to seek appropriate particulars of the Respondent's Part IVA case, including particulars of any s 177 adjustments proposed by the Commissioner, in order to determine if further evidence should in any event be adduced in opposition thereto. It may well be that the evidence which the Applicant may seek to adduce in relation to the Arthur Murray issue now under consideration on its part may serve a dual purpose, this is to say, a purpose related to Part IVA issue additionally to that of the Arthur Murray issue.
9 We are therefore of the view that no viable basis has been established by the Applicant for the grant of leave to appeal from the decision of Drummond J below, or indeed for upholding any such appeal had we been minded to grant such leave. That being so, it is unnecessary for us to determine principles of statutory interpretation concerning the entitlement or otherwise of taxpayers to amend taxation objections and grounds of appeal, being principles which have been raised by both the Applicant and the Respondent in argument and in written submissions before us. Such issues are best left to the occasion when (if at all) the Applicant might move for any specific amendments in circumstances where to do so has become more appropriate.
10 We therefore propose to dismiss the present application for leave to appeal against the interlocutory judgment of Drummond J.
I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti.
Associate:
Dated: 13 August 2001
#DATE 13:08:2001
Counsel for the Applicant: Mr D Russell QC & Mr P G Bickford Solicitor for the Applicant: Hawthorn Cuppaidge & Badgery Counsel for the Respondent: Mr J Logan SC Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 27 July 2001 Date of Judgment: 13 August 2001