Stocks and Holdings (Sales) Pty Ltd v Federal Commissioner of Taxation

[1969] HCA 35

HIGH COURT OF AUSTRALIA

McTiernan J.

STOCKS &HOLDINGS (SALES) PTY. LTD. v. FEDERAL COMMISSIONER OF TAXATION

(1969) 122 CLR 139

6 August 1969

Income Tax

Income Tax—Companies—Opinion of Commissioner—Reasonable that company be treated as public company—Whether request of company necessary—Whether Commissioner entitled to form opinion where company subsidiary of public company—Income Tax Assessment Act 1936-1965 (Cth), s. 103A*.

Decision

1969, August 6.
McTIERNAN J. delivered the following written judgment : -
Appeal under s. 187 (b) of the Income Tax Assessment Act 1936-1965 (Cth). (at p142)

2. The appellant, Stocks &Holdings (Sales) Pty. Limited, hereinafter called "the taxpayer" is a company incorporated pursuant to the Companies Act of New South Wales. The relevant year of income is that which commenced on 1st July 1965 and ended on 30th June 1966. The taxpayer's return for that period included statements that it was a private company (meaning a private company for the purposes of Pt III, Div. 7 of the Income Tax Assessment Act) ; and that it was not a subsidiary of a public company (meaning that it was not a subsidiary of Stocks &Holdings Limited, according to the terms of the definition to be found in s. 103A (4)). The taxpayer was in fact a subsidiary of that company. The shares of Stocks &Holdings Limited were listed conformably with s. 103A (2) (a). At its request the Commissioner had before 1st July 1965, considered the position of that company under s. 103A (3) and formed an opinion pursuant to s. 103A (5) resulting in the company being "deemed" to be a public company under s. 103A (2) (a) in relation to the relevant year of income. The assessment under appeal was issued on 3rd February 1967. The notice of the assessment which was served upon the taxpayer was accompanied by an adjustment sheet. The terms of the latter document were these :

"The following adjustments have been made to the income returned for the year ended 30th June 1966. Taxable income as returned $30,164 In terms of s. 103A (5) the company has been deemed a public company for income tax purposes."

The notice of assessment included these particulars :

Taxable Income Rate % Tax Amount Payable $ $ $ 10000 37 1/2 3750.00
20164 42 1/2 8569.70 12319.70

These rates were adopted from par. 1 of the Sixth Schedule to the relevant Tax Act. They were not applicable to a "private company". They would be applicable to a company referred to in s. 103A (2) (d) (v) where it would, under s. 103A (4), be a subsidiary of a public company in relation to the year of income, or where it would not, but the Commissioner was, pursuant to s. 103A (5), of the opinion that it was reasonable that the company should be treated as a public company in terms of that subsection. The rates payable by a private company are as set out in par. 3 of the Sixth Schedule. Apart from the rate, fifty per cent, mentioned in par. 3 (c), the rates of tax payable by a private company are less than the rates in par. 1 of the Schedule. It is not disclosed that the taxpayer would have been liable for any tax payable at the rate mentioned in par. 3 (c). (at p144)

3. It is apparent upon the face of the adjustment sheet and the notice of assessment that the Commissioner regarded the case as one which attracted the discretion conferred by s. 103A (5) ; for if it were otherwise, the rates of tax specified in par. 3 (a) and (b) of the Sixth Schedule would, no doubt, have been adopted. (at p144)

4. The taxpayer complains that the assessment is excessive because even though it was a subsidiary of Stocks &Holdings Limited it was not a public company under s. 103A (2) (d) (v) and sub-s. (4) and was therefore a private company to which the rates of tax specified in par. 3 (a) and (b), not the higher rates in par. 1 (a) and (b), applied. On this appeal the burden of proving that the assessment is excessive is placed, by s. 190 (b) of the Income Tax Assessment Act, upon the taxpayer. A document under the hand of a Deputy Commissioner purporting to be a copy of the notice of assessment was produced. By s. 177 (1) of the Income Tax Assessment Act the production of this document was conclusive evidence of "the due making of the assessment", but in these proceedings it was not conclusive evidence that the "amount and all the particulars of the assessment are correct". (at p144)

5. The formation of the opinion under s. 103A (5) on which the operation of the deeming provision of the subsection depended was antecedent to the making of the assessment of the amount of the taxable income and of the tax payable thereon : s. 166. The taxpayer sought to prove that having regard to the limits imposed by pars. (a), (b), (c) and (d) of s. 103A (5) the opinion of the Commissioner assumed to underlic the assessment was not supportable and wholly unreasonable. The taxpayer tendered a statement setting out a number of facts agreed between it and the respondent and called a number of witnesses, the most important of whom was its managing director. Before these proceedings began the taxpayer's solicitor applied to the Commonwealth Crown Solicitor, the solicitor acting for the respondent, to give to the taxpayer's solicitor the name of the delegate of the Commissioner, who formed the opinion which is here in question. The reply was that the opinion was formed by the "Acting First Assistant Commissioner of Taxation (Policy and Legislation Division)". This officer whose name is Mr. N. W. T. Killen was called by the taxpayer as a witness. He was examined in chief by Mr. Kerrigan, counsel for the taxpayer, and cross-examined by Mr. Deane, counsel for the respondent. (at p144)

6. Mr. Deane formally objected to the admissibility of any question put by Mr. Kerrigan to Mr. Killen, relevant to the forming of the opinion, which was in issue. Mr. Deane did this in order that the objection would be open to him if an appeal was brought. Mr. Kerrigan's examination of Mr. Killen was strictly conducted as an examination in chief. It was not contrary to any decided case to admit the questions asked by Mr. Kerrigan of Mr. Killen. On the contrary I think the admissibility of all the questions is supportable by a number of well-known decisions of the High Court. The point of distinction made by Mr. Deane is that the opinion referred to in s. 103A (5) is a legislative fact on the existence of which the deeming provision of the subsection is expressed to take effect. I would refer to views I expressed in Giris Pty. Ltd. v. Federal Commissioner of Taxation (1969) 119 CLR 365, at pp 375, 376 , which I think would have warranted the admission of the evidence of Mr. Killen. (at p145)

7. I do not set out here the contents of the statement of admitted facts, because it is an exhibit in these proceedings. As to the respective evidence of the managing director and of Mr. Killen it has also to be considered in full : the testimony of either is not easily summarized. I am of the opinion that nothing in the admitted facts or in the evidence of the managing director or of any other witness called by the taxpayer is sufficient to raise an inference that Mr. Killen did not conform with the directions in pars. (a), (b) and (c) or that he had regard to any matter which was beyond the scope of par. (d). I would find on the matters contained in the annexures to the taxpayer's return, the statement of admitted facts and the totality of the evidence adduced in these proceedings that the taxpayer has not discharged the onus of proving that the opinion of Mr. Killen is not authorized by the provisions of pars. (a), (b), (c) and (d) of sub-s. (5) or, as the taxpayer allges, is irrational and capricious. (at p145)

8. It is evident from the adjustment sheet that the Commissioner was unable to take the view on the information in his possession that the taxpayer, although a subsidiary of Stocks &Holdings Limited, was not, in accordance with the terms of s. 103A (4), a subsidiary of that company, and that the taxpayer was therefore not a public company under s. 103A (2) (d) (v). Mr. Deane relied upon matters elicited in cross-examination of the managing director to establish that in the case of Stocks &Holdings Limited the requirements of pars. (a) and (b) of s. 103A (4) were met as well as pars. (c) and (d). The taxpayer did not dispute that in the case of Stocks &Holdings Limited the latter paragraphs were met. This point did not arise out of any ground of objection. Nevertheless the point could be properly raised : Federal Commissioner of Taxation v. Wade (1951) 84 CLR 105, at p 117 But I am of opinion that the admissions made by the managing director are not sufficient to support the point. The contentions for the taxpayer upon this appeal raised two questions depending upon the construction of s. 103A (5). The first was that it is a condition, not express, but according to the argument, necessarily implied in the section, that the power conferred by the subsection does not arise unless the company concerned, being a private company, requests the Commissioner to treat it as a public company. In my view it would be contrary to the intention evinced by the language of the section to insert by implication such a condition. To imply such a condition would be an attempt to amend the subsection. This would be contrary to well-settled rules of statutory construction. The second contention was that a company which is a private company and is a subsidiary of a public company but not in accordance with s. 103A (4) cannot be the subject of an opinion which s. 103A (5) authorizes the Commissioner to entertain. A condition precedent to the exercise of this power is that expressed by the words : "Where a company would not, under the last three preceding sub-sections, be a public company. . . ." The words "a company" clearly extend to a private company which is a subsidiary of a public company but not by operation of s. 103A (2) (d) (v) and sub-s. (4). In my opinion it would be contrary to what is enacted by the first part of s. 103A (3) to exclude any company which is within the operation of the words quoted above from the operation of the rest of the subsection. (at p146)

9. I am of the opinion that the Court should pursuant to s. 199 (1) of the Income Tax Assessment Act confirm the assessment under appeal and that the appeal be dismissed with costs. (at p146)

10. I would therefore now pronounce judgment in these terms. (at p146)

Orders

Assessment confirmed. Appeal dismissed. Order that the costs of the appeal be paid by the taxpayer.