Tanumihardjo v Federal Commissioner of Taxation

[1998] FCA 366

FEDERAL COURT OF AUSTRALIA

TAXATION - INCOME TAX - whether one half of interest on moneys in joint account emanating from taxpayer’s mother was income of taxpayer - whether taxpayer a resident of Australia - impact of migration law on this question - whether notices of assessment protected from invalidity where they issued almost eight years after a calculation of taxable income was made.

ADMINISTRATIVE LAW - Appeal from Administrative Appeals Tribunal - whether evidence of foreign law not adduced at Tribunal hearing admissible.

STATUTORY INTERPRETATION - Construction of section requiring notice of assessment to be issued as soon as conveniently may be after assessment - relevance of inconvenience to issue of statutory construction - whether non compliance leads to invalidity.

WORDS AND PHRASES

resident
resides
assessment

Income Tax Assessment Act 1936 (Cth) ss 6(1), 170, 174, 175
Acts Interpretation Act 1901 (Cth) s 15AB
Administrative Appeals Tribunal Act 1975 (Cth) ss 44(1)

Batagol v Federal Commissioner of Taxation (1963) 109 CLR 243 - cited
McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263 - cited
Hunter Resources Limited v Melville (1988) 164 CLR 234 - followed
Montreal Street Railway Co v Normandin [1917] AC 170 - cited
Evans v Crichton-Browne (1980) 147 CLR 169 - cited
Clayton v Heffron (1960) 105 CLR 214 - cited

TRISNAWATI TANUMIHARDJO v
COMMISSIONER OF TAXATION

VG 501 of 1997

HILL, TAMBERLIN AND FINKELSTEIN JJ
MELBOURNE
24 MARCH 1998

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 501  of   1997

BETWEEN:	TRISNAWATI TANUMIHARDJO APPELLANT
AND:	COMMISSIONER OF TAXATION RESPONDENT
JUDGE(S):		HILL, TAMBERLIN, FINKELSTEIN JJ
DATE OF ORDER:		24 MARCH 1998
WHERE MADE:		MELBOURNE

THE COURT ORDERS THAT:

1. Appeal be dismissed.

1. Appellant to pay the Respondent’s costs

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 501 of 1997

BETWEEN:	TRISNAWATI TANUMIHARDJO APPELLANT
AND:	COMMISSIONER OF TAXATION RESPONDENT

JUDGE(S):	HILL, TAMBERLIN AND FINKELSTEIN JJ
DATE:	24 MARCH 1998
PLACE:	MELBOURNE

EX TEMPORE REASONS FOR JUDGMENT

HILL J:  This is an appeal from a judge of this Court, Heerey J, who dismissed the appellant's appeal from a decision of the Administrative Appeals Tribunal constituted by a member of that Tribunal, Mr Pascoe. 

Before the Tribunal were objections to assessments made in respect of four income tax years, being the years of income ended 30 June 1984 to 30 June 1987 inclusive. In the assessments the Commissioner treated as income and therefore assessable income under section 25(1) of the Income Tax Assessment Act 1936, as amended (“the Act”), half the interest on deposits with financial institutions in Australia in respect of money emanating from the appellant's mother, a citizen and resident of Indonesia, invested in the joint names of the appellant and her mother.

The facts found by the Tribunal are set out in summary form in the judgment appealed from and need not be repeated.  The Tribunal found that the appellant was a resident of Australia and had not satisfied the onus of showing that the presumption of advancement, now applicable as between mother and child and not limited to father and child, the result of a decision of the High Court in Nelson v Nelson (1995) 184 CLR 538, had not been rebutted.

At the outset of the appeal, the appellant sought to adduce evidence not before the Tribunal to the effect that Indonesian law did not recognise a trust, as that is known in Anglo‑Australian law.  The tender of that evidence was opposed by the respondent.

The jurisdiction of this Court in an appeal “on”, is limited to a question of law, s 44(1) of the Administrative Appeals Tribunal Act 1975. An appellant will succeed if he or she shows that the Tibunal has made an error of law, assuming that error to be material to its decision. It is difficult to see how the Tribunal could err in failing to consider evidence that was not before it.

It was, no doubt, open to the appellant to lead evidence of foreign law.  In the absence of that evidence being led, the Tribunal was bound to assume that Indonesian law was the same as Australian law and recognised both the law of trusts and the presumption of advancement.  It is unnecessary for the Court to consider whether the evidence was material to the issue before the Tribunal, had it been advanced at the hearing before it.  Compare Nygh, PE, “Conflict of Laws in Australia”, 6th ed, ch 33 dealing with the proper law applicable to trusts and dicta to be found in Chellaram v Chellaram [1985] 1 Ch 409 at 426, and the other cases referred to by Professor Nygh.

Before his Honour and before us, three submissions were advanced.  In summary these were:

1. That it was not open to the Tribunal to find that the presumption of advancement had not been rebutted;

1. That the Tribunal and his Honour had erred in construing the word "resident" as defined in s 6(1) of the Act, and, in the result, erred in holding that the appellant was a resident of Australia;

1. That the assessment was invalid because notice of it issued almost eight years after the making of calculations of taxable income and perhaps tax payable thereon in November 1986, and so was not issued as conveniently may be after this calculation as required by s 174 of the Act. This being so, it was submitted, a matter not protected by s 175 of the Act, which section provides:

   “The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.”

In my view, none of these submissions avails the appellant.

The Presumption of Advancement

The Tribunal's reasons proceed simply on the basis of onus of proof.  No suggestion of error of principle in relation to the law of trusts has been suggested.  The Tribunal placed some weight on a letter written by a solicitor which stated that the joint accounts were owned by the mother and the appellant jointly.  No evidence was called from the solicitor.  It also pointed to the equivocal nature of the evidence, paucity of detail and indeed did not accept, at least in whole, the evidence of the appellant and her mother. 

The letter, written by the solicitor, was open to the conclusion, despite a submission to the contrary, that it spoke of equitable as well as legal ownership.  The Tribunal was entitled, despite criticism advanced on behalf of the appellant, to treat with some caution the self­‑serving evidence of the mother and the appellant and to conclude as it did.  Despite the attempts of counsel for the appellant to suggest otherwise, no error of law appears either in the reasoning of the Tribunal or, for that matter, that of the learned primary judge.

Residence

The submission was that the appellant could not be regarded as a “resident” of Australia because she was here on a restricted student visa which required her to return to her home country.  The Tribunal found that she intended to stay in Australia and pursue a career;  that intended stay being indefinite apart from holidays and the requirements of the visa no doubt and that she was, in the ordinary sense of the word, a “resident” of Australia. The appellant's argument sought to rely on the inclusory words of the definition in s 6(1) of the Act. That definition reads as follows:

“ ‘Resident’ or ‘resident of Australia’ means:

(a)a person, other than a company, who resides in Australia and includes a person:

(i)whose domicile is in Australia, unless the Commissioner is satisfied that his permanent place of abode is outside Australia;

(ii)who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that his usual place of abode is outside Australia and that he does not intend to take up residence in Australia.”

Other paragraphs of the definition are not presently relevant.

Both the Tribunal and the learned primary judge took the view that the word “resides” in the opening words of paragraph (a) had its ordinary English meaning and that as a matter of fact the appellant had, in each year of income, resided in Australia in the sense that she had lived here.  The fact of the visa restrictions was not regarded either by the Tribunal or the learned primary judge as of any significance.  We were referred to the provisions in the Immigration Act 1930 in support of a submission. With respect, I find no assistance to be gained from the words used in that legislation.

The inclusory words of the definition clearly in paragraph one extend the ordinary meaning of the word resident to persons domiciled in Australia but subject to the exclusion if the Commissioner is satisfied that the person has a permanent place of abode outside Australia.  The second paragraph may or may not relate to persons who, in the ordinary sense of the words, reside in Australia in the year of income.  It is arguable that they extend the definition only to persons who do not so reside despite a presence in Australia for the statutory period of more than one half of a year.  The alternative view is that the language of (ii) may be intended more to subtract from the ordinary case of a resident, the special case described in (a)(ii) but subject to the exclusory words and thus apply to a person who in the ordinary sense is a resident of Australia.

Whatever view of the construction of s 6(a)(ii), the Tribunal found that the appellant fell outside the terms of that subparagraph because she had no usual place of abode outside Australia.  On the evidence, this factual finding was open to it.  Although it was suggested that the words, “usual place of abode”, had a special meaning which might differ from the ordinary meaning, what that special meaning was, was not apparent.  In the circumstances, no error of law was revealed in the Tribunal's decision.

The Failure to Give Notice

The failure to give notice of assessment some eight years from the making of the calculation of assessable income and tax payable is, it is submitted, such as to render invalid the notice of assessment as a result of of s 174 of the Act which provides:

“As soon as conveniently may be after any assessment is made, the Commissioner shall serve notice thereof in writing by post or otherwise upon the person liable to pay the tax.”

Section 174 replaced s 40 of the 1922 Act. That earlier section was divided into two subsections, the first of which equated effectively with s 174. The second subsection provided:

“(2)the omission to give any such notice shall not invalidate the assessment.”

Counsel for the appellant sought to deduce from this legislative history a submission that s 174 should be construed, not merely as setting a mandatory time limit, but also as requiring invalidity of the assessment, an invalidity neither protected by s 175, which section appeared as s 41 in the 1922 Act, nor s 177. In part the submission sought to avoid the language of s 175, construing it as extending only to the calculation (see definition of assessment in s 6(1) operating, but subject to a contrary intention) but not to a notice of that calculation served under s 174.

Mandatory time limits in s 170 and s 171 were referred to in aid of the argument for invalidity. I should mention at this point that, when the High Court came to consider s 170, as it did in McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263, it did not see the time limits in s 170 (the reference to s 177 in the passage quoted below would seem to refer to s 170 and not s 177) as going to matters of validity. Rather it took the view that an assessment was valid and a taxpayer could object on appeal and deal with the failure to comply with these time limits as part of the substantive liability accruing to that taxpayer. So much appears from the joint judgment of Dixon CJ, McTiernan and Webb JJ at 271 where their Honours said:

“Section 177(2) and (3) [sic] impose certain conditional time bars which in this dichotomy seem evidently to belong to substantive liability.”

It must of course be accepted that the precise facts of that case were concerned with another question, namely the compliance with other conditions precedent in s 170 to amending assessments rather than specifically concerned with time limits.

The judgment below was criticised for having taken into account its disruptive consequences to the administration of the Act, if failure to issue notices within a convenient time operated to avoid the assessment.  Reliance was placed upon Evans v Crichton-Browne (1980) 147 CLR 169 as establishing that inconvenience of this kind could only be taken into account in the event of ambiguity.

A number of matters stand in the way of the appellant's submissions. First is the question whether failure to comply with s 174 operates at all to invalidate an assessment. The question whether failure to comply with a statutory requirement operates to invalidate the act done thereafter involves a question of construction. If the provision is imperative, failure to comply with it will no doubt lead to invalidity. If directory and maybe encouraging substantial compliance, failure so to do will ordinarily not. See Hunter Resources Limited v Melville (1988) 164 CLR 234 at 249, per Dawson J citing the majority of the High Court in Clayton v Heffron (1960) 105 CLR 214 at 247 where substantive compliance only was said to be necessary. Not every act in disregard of that compliance will be ineffective. The matter is discussed by Dawson J in Hunter Resources at 250.

Despite the appellant's submission, the question of construction will be assisted by looking at matters such as serious general inconvenience.  That that is the case was said to be so in the Privy Council in Montreal Street Railway Co v Normandin [1917] AC 170 at 175, again quoted by Dawson J in Hunter Resources. To take into account the administrative inconvenience of a construction as a requirement of promoting the object of the legislation and giving effect, as this Court is directed to do by the provisions of s 15AB of the Acts Interpretation Act 1901, requires reference to context. To do so, as his Honour below did, involves no error of law. Indeed, to the contrary. In a case such as the present it will often be a significant matter.

The next difficulty is that it has never been suggested that failure to comply with prerequisites or amended assessments, including though not limited to time limits, invalidate the assessment.  As I have already indicated, following McAndrew’s Case, the assessment remains valid, although it may be contested on an appeal under the Taxation Administration Act.  Finally, it is explicit in passages from Batagol v Federal Commissioner of Taxation (1963) 109 CLR 243, a case that has been generally consistently followed in the High Court and in this Court, relied upon both in the Tribunal and before his Honour, that “assessment”, despite its defined meaning, is a process which continues beyond calculation and encompasses the giving of a notice which for the first time fixes a taxpayer's liability to tax.

In a passage cited by the Tribunal from the judgment of Kitto J at 253 appears the following discussion. Referring to s 175, his Honour said:

“The next section, s 175, though doubts have sometimes been expressed as to its application, at least shows that ‘assessment’ is regarded as a process producing a legal effect.”

There is no process in the Act which brings about a legal effect at a stage earlier than the service of the notice of assessment and it is to that that his Honour was referring.  The reference to process appears also in an earlier part of the judgment, in the preceding page where speaking of the word “ascertainment” in the context of the definition of assessment, that is to say ascertainment of taxable income and the tax payable, Kitto J said (at 252):

“The word ‘ascertainment’ being understood in this sense, the definition of ‘assessment’ means, in my opinion, the completion of the process by which the provisions of the Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case.”

If it were the case that failure to serve a notice within a time conveniently appropriate under s 174 operated to invalidate an assessment, which in my view is not the case, the assessment including the process extending to the giving of a notice and the fixing of liability would be protected by the provisions of s 175.

In so deciding, I do not wish it to be thought that it is appropriate that a time lapse of this magnitude, completely unexplained, should occur in the offices of the Australian Taxation Office. But a taxpayer has the right, which in this case the appellant has exercised, to contest his or her substantive liability under the objection and appeal provisions. Sections 175 and 177 ensure that even substantial noncompliance with s 174 will not be justiciable whether outside the objection and appeal procedure or within it. I would accordingly dismiss the appeal and order the appellant to pay the Commissioner's costs.

I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill

Associate:

Dated:            24 March 1998

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 501 of 1997

BETWEEN:	TRISNAWATI TANUMIHARDJO APPELLANT
AND:	COMMISSIONER OF TAXATION RESPONDENT

JUDGE(S):	HILL, TAMBERLIN AND FINKELSTEIN JJ
DATE:	24 MARCH 1998
PLACE:	MELBOURNE

EX TEMPORE REASONS FOR JUDGMENT

TAMBERLIN J:  I also would dismiss the appeal with costs for the reasons given by his Honour, the presiding judge.  I am not satisfied that any error of law has been demonstrated in either the decision of the trial judge or the Tribunal.

I certify that this page is a true copy of
the Reasons for Judgment herein of the Honourable Justice Tamberlin

Associate:

Dated:            24 March 1998

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 501 of 1997

BETWEEN:	TRISNAWATI TANUMIHARDJO APPELLANT
AND:	COMMISSIONER OF TAXATION RESPONDENT

JUDGE(S):	HILL, TAMBERLIN AND FINKELSTEIN JJ
DATE:	24 MARCH 1998
PLACE:	MELBOURNE

EX TEMPORE REASONS FOR JUDGMENT

FINKELSTEIN J:   I agree that the appeal should be dismissed with costs for the reasons given by the learned presiding judge.

I certify that this page is a true copy of
the Reasons for Judgment herein of the Honourable Justice Finkelstein

Associate:

Dated:            24 March 1998

Counsel for the Appellant:	Mr F E Farrow
Solicitors for the Applicant:	Fernandez and Johnson
Counsel for the Respondent:	Ms H Symon
Solicitors for the Respondent:	Australian Government Solicitor
Date of Hearing:	24 March 1998
Date of Judgment:	24 March 1998