Sutton v Commissioner of Taxation

[1994] FCA 1108

JUDGMENT No. .!&%,...l ..%!kW.

IN THE FEDERAL COURT OF AUSTRALIA )

NEW SOUTH WALES DISTRICT REGISTRY )	No. NG 823 of 1993
GENERAL DIVISION	1

Between:  JOHN RIDLEY SUTTON

Applicant

2 U %Q 2001 And : COMMISSIONER OF TAXATION

LIBRARY Respondent

REASONS FOR JUDGMENT

EINFELD J SYDNEY 8 SEPTEMBER 1994

By his amended application of 4 March 1994, the applicant seeks a declaration that certain notices of assessment issued under the Income Tax Assessment Act are not true notices under that Act, do not make assessments under that Act, and are void and of no effect. He seeks consequential declarations that there is no liability to pay any tax under the notices and the assessments. The notices and the assessments seek payment of some $54,021.12 in total for the years ending 30 June 1983 to 30 June 1986 inclusive. To make his point in these regards, the applicant seeks a declaration of the unconstitutionality of sections 166, 175 and 177 of the Income Tax Assessment Act and also seeks an injunction in respect of certain proceedings in the District Court seeking to recover the sums contained in the notices.

amended statement of claim dated 10 March 1994. The relevant	assertions for the purposes of determining the matters raised in
the amended application are set out in paragraphs 7 to 9 inclusive. Paragraph 7 alleges that the Commissioner did not have any basis in fact or law to make the assessments set out in the notices. Paragraphs 8 and 9, which have a number of similarities, allege inter alia that the notices and the assessments were issued for improperpurposes, particularised as:

In support of his amended application the applicant has filed an

The extraction of payment purportedly in respect of tax due and payable from the applicant when the respondent knew or should have known that no liability to tax existed.

Another improper purpose,is alleged to have been the harassment of the applicant and there is an allegation that the Commissioner failed to exercise his powers under the Act:

fairly and with evenhandedness towards all taxpayers.

It is also alleged that he acted:

so unreasonably that no reasonable person could have

so exercised the power.

And that he exercised a power or powers:

that was or were ultra vires the Act.

The applicant filed and served an affidavit on 10 August 1994. This affidavit, which was the subject of only minor objection and was not subjected to any cross-examination, set out the facts,

as apparently understood by the applicant, concerning his activities in the years in question, how it came about that the contents of his income tax returns for the four relevant years were created, and how the income, as stated in those returns, was calculated and derived. Apart from the returns and notices and objections to the assessments, together with a few other peripheral documents, the affidavit is the only evidence before the Court. It contains no evidence that the assessments were issued without any attempt to ascertain the applicant's true taxable income. There is no assertion that the Commissioner failed to carry out a proper investigation of the applicant's affairs, nor of a failure by the Commissioner to consider any and all material provided by the applicant prior to the issue of the notices and the making of the assessments. No evidence is produced that the Commissioner used irrational, illogical or other unreasonable methods of considering the returns and assessing the income tax payable, so as to undermine any proper justification for the issue of the notices. The affidavit provides no evidence that the notices were issued in bad faith, or that the assessment process was conducted otherwise than in an appropriate and bona fide way. In other words, there was no

sworn or af f irmed evidence that the contents of paragraphs 8 and

9 of the statement of claim are true.

During submissions the applicant, who appeared for himself, assertedthat the documentary evidence provides a clear inference that the Commissioner has, or must have, conducted his activities in an improper and unreasonable way. He said that I should imply from the documentary evidence that the Commissioner's motives were, as alleged in the statement of claim, that the applicant should pay tax when he clearly has no liability to do so and that the purpose of issuing the notices was to harass him. In further argument, this matter became particularised as an assertion that the applicant was assessed for taxation in the relevant years by reason of the affairs of one or more companies for whom he acted as a solicitor at relevant times and who apparently came under notice, perhaps adverse notice, of the taxation authorities. The affidavit contains no evidence to support such an assertion, yet I was again asked to infer and imply from the documentation that this must have been the case.

The constitutional argument is subject to some technical difficulty. Pursuant to an order of Hill J at an earlier stage of the proceedings, the applicant gave notice under section 78B of the Judiciary Act to the various Attorneys General of his challenge to section 177. The notice given in that respect did not actually stand on all fours with the way in which the

purposes, to accept that the notice sufficiently clearly raised	argument was developed here, but I am willing, for present
at least one or more aspects of the attack made on that section. However, no notices under the Judiciary Act were given in respect of the challenges to sections 166 and 175 of the Act, and were I minded to consider favourably the constitutional attack on those sections, I would have to adjourn these proceedings in order to enable notices to be given in those respects.
But I do not see that there is any constitutional argument arising at all in this case on any of the three sections. Section 166 was attacked on the basis that it permits the Commissioner to consider matters which have nothing to do with the assessment of income tax. On its face, I suppose it must be conceded that that is correct, for the section is in the broadest possible terms and would permit the Commissioner to have regard to what is described as:

any other information in his possession .....

and some other similarly broad words. The applicant argued that this would permit the Commissioner to consider such matters as the colour of his eyes in determining what tax should be assessed. Obviously if there was the slightest evidence that any matter of irrelevance to the assessment of tax had been taken into consideration in this case, it would take no time at all to

reject the assessments so made. This argument does not raise, as I see it, a constitutional matter at all, but would merely

must take into account - or may take into account - only matters	have the section construed and read to mean that the Commissioner
which are relevant to the assessment of income tax.
The attack on section 175 which was raised by the applicant in argument, more or less as an afterthought, seems to me to be also without any merit. Its provisions do not, as it seems to me, infringe any part of the Constitution at all. In fact, the section merely provides that an assessment cannot be invalidated because some other provision of the Act has not been complied with. That provision does not, of course, prevent anyone from appealing or challenging a particular assessment on the grounds that the overlooking or failure to comply with another section adversely affected the matter and provided an assessment that was either inaccurate or inappropriate or contrary to the available material.
The major constitutional attack was reserved for section 177. My first impression of this argument was that it is also not a constitutional matter at all. Indeed, I would myself have been inclined to hold that this section, especially subsection (1) which is the substantive provision, does not provide this Court with any opportunity to consider the types of arguments raised, at least so far as there is a challenge to the appropriateness of the assessment in any particular case. However, I am bound by a majority decision of a Full Court of this Court in David Jones Finance and Investments Ptv Limited and Anor v the Commissioner for Taxation [l9911 28 FCR 484 to hold that the
Court has jurisdiction to consider such a matter, and in particular to inquire into and consider whether the assessment
process and the Commissioner's exercise of his statutory powers were conducted in bad faith. I am informed that the correctness of that decision is presently awaiting a decision of the High Court, but for the present at least, as a single judge sitting at first instance, I must apply it. However, in my opinion, it does not arise for consideration in this particular case because there is no evidence to suggest that any of the assessments in
this case were not duly made or made in accordance with the statutory powers and their reasonable exercise.
It does not appear to me at a superficial glance that any of the sections impugned are unconstitutional, but for present purposes it is not necessary o decide the issue because it is my view that the constitutio ality of the sections has not in truth been raised. What is real y being argued here is that due process for considering income t X returns, making assessments and issuing notices was improper1 carried out in these particular instances. That must be proved b evidence, that is, the facts must be found
first before any question of constitutionality can even be 1
properly understood and expressed.
As requested by the applicant, I have therefore given consideration, in accordance with the requirement of David Jones Finance, to the documentary evidence. I should observe that in the course of argument the applicant did not draw my attention to any particular entry or any particular reference in any
merely asked me to consider the documentary material as a whole particular document or even any series of such entries, but
and to draw the inference or make the implication that the Commissioner acted in accordance with the assertions made in paragraphs 8 and 9 of the statement of claim and was driven by the motives therein stated.
Having done as asked and given careful attention to the submissions made by the applicant on the matter, I am unable to
draw the inference or make the implication sought. To my way of thinking, the documentary material, like the affidavit, provides no evidence at all to support the assertions made in paragraphs
7, 8 and 9 of the amended statement of claim. Assuming in
accordance with David Jones Finance that the Court has jurisdiction to consider this type of argument, it is my opinion that the allegations made to undermine and destroy the apparent validity of all the notices and the assessments are unsupported by any evidence at all or any reasonable inference from the evidence.
In my opinion there is no evidence that the assessments and the notices do not reasonably arise from the material submitted prior to their compilation. There is no basis for suggesting that the Commissioner has acted arbitrarily or unlawfully and has failed to give due attention both to his statutory charter and to the facts of the particular case or cases. In my opinion, the assessments which he has made and the notices which he has issued are assessments and notices which were reasonably open to him
Act. by the procedure and mechanism of section 39B of the Judiciary fromthe material submitted and therefore they cannot be impugned I dismiss the application and order that the applicant pay the respondent's costs of the application. h

preceding pages	I certify that this and the m
Reasons for Jud