Taylor, J. v Commissioner of Taxation
[1987] FCA 232
•20 MAY 1987
Re: JOSEPH TAYLOR
And: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
No. V G231 of 1986
Administrative Law
COURT
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Woodward J.
Northrop J.
Jenkinson J.
CATCHWORDS
Administrative Law - review of decision to issue income tax assessment - taxpayer a bankrupt - assessment of income earned before date of bankruptcy - notice of assessment issued during bankruptcy - whether bankrupt subject to tax liability by reason of an obligation incurred before date of bankruptcy - whether income tax liability before bankruptcy is a provable debt - whether the provisions of s.221H of the Income Tax Act constitute a code paramount to the provisions of the Bankruptcy Act.
Administrative Decisions (Judicial Review) Act 1977
Income Tax Assessment Act 1936, ss.17,221A,221H(2)
Bankruptcy Act 1966, ss.58,82
Re Mendonca; Ex Parte Commissioner of Taxation (1969) 15 FLR 256
Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1
Federal Commissioner of Taxation v Official Receiver (1956) 95 CLR 300
Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589
HEARING
MELBOURNE
#DATE 20:5:1987
Solicitor for applicant: Mr G.T. Bigmore
Counsel for respondent: Mr J.M. Batt Q.C. and Mr R.R. Boaden
Solicitors for the respondent: Australian Government Solicitors
ORDER
The questions in the case stated be answered as follows:
1. Is the respondent bound to pay to the applicant the sum of $2,224.39?
Answer. No.
2. What orders, including orders as to costs, shoul d be made in respect of the application?
No answer is given.
The respondent pay the applicant's taxed costs of the
case stated.
(NOTE: Settlement and entry of orders is dealt with in O.36 of the Federal Court Rules.)
JUDGE1
The questions before the Court arose in proceedings brought by the applicant against the respondent under the Administrative Decisions (Judicial Review) Act 1977 ("the Judicial Review Act") seeking an order of review of a decision of the respondent made under paragraph 221H(2)(b) of the Income Tax Assessment Act 1936 ("the Income Tax Act"). During the hearing of those proceedings, the Court, pursuant to s.26 of the Federal Court of Australia Act 1976, stated a case for the consideration of a Full Court. The facts stated can be summarised. On 30 June 1980, the applicant became bankrupt. On 30 June 1985, he was discharged from bankruptcy by effluxion of time; see s.149 of the Bankruptcy Act 1966 ("the Bankruptcy Act"). During periods of his bankruptcy, the applicant was employed under circumstances where his employer, under the provisions of Division 2 of Part VI of the Income Tax Act, was required to deduct instalments of tax from his wages.
On 28 June 1985, the respondent, in the exercise of his powers under the Income Tax Act, did a number of things with respect to the applicant. First, the respondent issued an amended Notice of Assessment in substitution for an earlier assessment. The amended assessment showed that for the year ended 30 June 1982, the applicant was entitled to a net credit of $598.10 in respect of tax deductions remitted to the respondent in that year. Secondly, the respondent issued a Notice of Assessment which showed that for the year ended 30 June 1983, the applicant was entitled to a net credit of $1,626.29 in respect of tax instalments remitted to the respondent in that year. Thirdly, the respondent issued a Notice of Assessment under s.167 of the Income Tax Act which showed that for the year ended 30 June 1980, income tax amounting to $2,224.39 was payable by the applicant and that payment was due on 31 July 1985. This last assessment is of a type commonly known as a default assessment. Under s.167, the Commissioner of Taxation, where a person makes default in furnishing a return, may make an assessment of the amount upon which in his judgment income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of s.166 of the Income Tax Act. In the present case, it is clearly no coincidence that the respondent made an assessment of the amount upon which income tax ought to be paid by the applicant for the year ended 30 June 1980 which resulted in an assessment of tax which equalled exactly the sum of the credits due to the applicant under the assessments for the years ended 30 June 1982 and 30 June 1983. The applicant, in these proceedings, has not challenged the assessment for the year ended 30 June 1980 and so for present purposes, the Court proceeds on the basis that the assessment made by the respondent for the year ended 30 June 1980 was the result of a bona fide exercise of powers under the Income Tax Act; cf. Deputy Commissioner of Taxation (W.A.); Ex parte Peter Briggs, unreported decision of Sheppard J., 8 April 1987.
By letter dated 28 June 1985, the respondent wrote to the applicant as follows:-
"Dear Sir
INCOME TAX
BANKRUPT ESTATE
You are advised that assessment of your return of income for the year ended 30 June 1983 has resulted in a credit of $1,626.29 and amendment of your return of income for the year ended 30 June 1982 has resulted in a credit of $598.10, which represents a total credit of $2,224.39.
The amount of tax payable on the notice of assessment for the year ended 30 June 1980 viz $2,224.39 has been raised in accordance with the provisions of Section 167 of the Income Tax Assessment Act 1936, as amended.
Accordingly the total credit has been set off against arrears of income tax owed in respect of periods prior to the date of your bankruptcy.
Enclosed is notice of amended assessment in respect of the year ended 30 June 1982 together with notices of assessment for the years ended 30 June 1980 and 30 June 1983, as well as information in relation to Section 167 of the Income Tax Assessment Act 1936, as amended."
The decision evidenced by the penultimate paragraph of that letter is the decision which the applicant seeks to review. In the application the decision is described as the "decision that the said sum of $2,224.39 was" other tax payable "within the meaning of paragraph 221H(2)(b)" of the Income Tax Act.
The substantive question stated for the consideration of the Full Court is:-
"Is the respondent bound to pay to the applicant the sum of $2,224.39?".
Section 221H of the Income Tax Act is within Division 2 of Part VI of that Act. It is a long and complex section specifying what is to be done by the respondent after making an assessment of tax with respect to a taxpayer who has had instalments of tax deducted by his employer. At present it is sufficient to set out sub-section 221H(2) only:-
"(2) Where the Commissioner receives from an employee a tax stamps sheet or a group certificate, or both, in respect of deductions made in any year of income from his salary or wages, and the tax payable by the employee in respect of that year of income has been assessed, the Commissioner shall -
(a) if the sum of the amount represented by the face value of the tax stamps duly affixed to any such tax stamps sheet and the amount of the deductions shown in any such group certificate does not exceed the tax payable by the employee in respect of that year of income - credit that sum in payment or part payment of that tax;
(b) if that sum exceeds that tax - credit so much of that sum as is required in payment of that tax and any other tax payable by the employee, and pay to the employee an amount equal to any excess; or
(c) if he is satisfied that there is no tax payable by the employee - pay to the employee an amount equal to that sum."
In that sub-section, the phrase "tax payable by the employee" is used three times. Under sub-section 221A(1), that phrase, for present purposes, means:-
"income tax ... that is or may become due and payable by an employee under an assessment ... made or to be made on a return that he has furnished ... or under an assessment ... made or to be made in default of any such return;".
It follows that in the present case, the income tax payable by the applicant under the default assessment for the year ended 30 June 1980, is tax payable by the employee within paragraph 221H(2)(b) of the Income Tax Act.
Further, the use of the word "shall" immediately before paragraph (a) of sub-section 221H(2) suggests that the respondent has a duty to do what is prescribed by each of paragraphs (a), (b) and (c) and thus has no discretion to do anything else. Thus in the present case, it appears that the respondent was under a duty to credit the amounts of credit contained in the assessments for the years ending 30 June 1982 and 30 June 1983 respectively in payment of the tax payable by the applicant under the assessment for the year ended 30 June 1980. That is what the respondent did. In those circumstances, a question arises whether proceedings under the Judicial Review Act are appropriate, but having regard to the whole of the circumstances of this case, this question need not be pursued further.
The applicant's contention was that on 28 June 1985 there was no tax payable by the applicant and therefore the respondent had no duty cast upon him by paragraph 221H(2)(b). Implicit in that contention is a further contention that the respondent should have been satisfied that on 28 June 1985 there was no tax payable by the applicant and thus, under paragraph 221H(2)(c) the respondent was under a duty to pay to the applicant the amount of $2,224.39 being the sum of the credits for the years ended 30 June 1982 and 30 June 1983 respectively.
The applicant's contentions were based on the Bankruptcy Act. Under that Act, upon a debtor becoming a bankrupt, the property of the bankrupt vests in the Official Trustee, or, in the appropriate case, a registered trustee, and thereupon a creditor's right to sue the bankrupt for the recovery of a debt is, subject to some exceptions not presently relevant, converted into a right to share in the distribution of the estate of the bankrupt which has vested in the trustee. His right to share depends upon the creditor having a debt provable in bankruptcy and proving that debt in conformity with the provisions of the Bankruptcy Act. Thus, sub-section 58(3) provides:-
"58(3) Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor -
(a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or
(b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding."
The solicitor for the applicant submitted that the liability of the applicant to pay income tax for the year ended 30 June 1980 arose on 30 June 1980, see s.17 of the Income Tax Act, even though the amount of that tax could not be ascertained until much later. The applicant became bankrupt on 30 June 1980 and thus the respondent was bound by the provisions of the Bankruptcy Act with respect to that liability. He contended that the liability became provable in the bankruptcy of the applicant pursuant to s.82 of the Bankruptcy Act.
Under the Income Tax Act, tax imposed by s.17 does not become due and payable until the date specified in the notice of assessment or, if no date is specified, on the thirtieth day after service of the notice on the taxpayer; see s.204. When the tax becomes due and payable, it is a debt due to the Commonwealth and payable to the Commissioner; see s.208. Generally see Clyne v. Deputy Commissioner of Taxation (1981) 150 CLR 1 per Gibbs C.J. at pp 8-10 and Mason J. at pp 16-17. Thus, in the present case, the tax assessed for the year ended 30 June 1980 did not become due and payable until 31 July 1985 being a date after the applicant had been discharged from his bankruptcy.
Despite what has been said, for some purposes a liability to tax may arise before it becomes due and payable. In Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256 the Federal Court of Bankruptcy constituted by Gibbs J. held that income tax in respect of which a notice of assessment had been issued but at a time before that tax was payable constituted a liquidated sum payable at a certain future time sufficient to support a petition for bankruptcy under paragraph 44(1)(b) of the Bankruptcy Act. His Honour held that the Income Tax Act imposed the liability to pay tax and that that liability arose with respect to each financial year commencing on 1 July of that year. Implicit in that conclusion was the principle that income tax owing but in respect of which no notice of assessment had been issued, was not sufficient to satisfy s.44(1)(b). At pp.259-260 Gibbs J. said:-
"The question in the present case is whether the debts for tax were in existence at the dates of the acts of bankruptcy, and were then liquidated sums, payable immediately or at a certain future time, notwithstanding that the dates specified in the notices of assessment as those on which the tax was due and payable had not then arrived.
Section 17 of the Income Tax Assessment Act 1936-1968 provides: 'Subject to this Act, income tax at the rates declared by the Parliament is levied, and shall be paid, for the financial year that commenced on the first day of July, One thousand nine hundred and sixty-five, and for each succeeding financial year, upon the taxable income derived during the year of income by any person ....' By s.204 it is provided that, subject to the provisions of Pt. VI, 'any income tax assessed shall be due and payable by the person liable to pay the tax on the date specified in the notice as the date upon which the tax is due and payable, not being less than thirty days after the service of the notice, or, if no date is so specified, on the thirtieth day after the service of the notice'. By s.208, income tax, when it becomes due and payable, shall be a debt due to the King on behalf of the Commonwealth and payable to the Commissioner in the manner and at the place prescribed, and by s.209 any unpaid tax may be sued for and recovered in any court of competent jurisdiction by the Commissioner or a Deputy Commissioner suing in his official name. It is now settled that the effect of these and similar provisions is that the liability to income tax is imposed by the statute itself and that assessment is only a method of ascertaining the extent of the liability, so that the tax is a debt due and owing, although not payable, notwithstanding that no assessment has been made (Commissioner of Stamps (W.A.) v. West Australian Trustee, Executor and Agency Co. Ltd. (1925) 36 CLR 98, at pp 105, 116, 118; Aitken v. Federal Commissioner of Taxation (1936) 56 CLR 491, at p 497; In re Brown (1950) 15 ABC 74, at pp 80-84; cf. Deputy Federal Commissioner of Taxation v. Brown (1958) 100 CLR 32, at pp 58, 63). At the dates of the acts of bankruptcy in the present case the tax in respect of the years 1962 to 1967 was therefore due and owing, and since, at those dates, the notices of assessments had been issued, fixing both the time for payment and the amount payable, the debt was for a liquidated sum payable at a certain future time. The tax was not payable at the dates of the acts of bankruptcy, but as I have said, that is immaterial. The amount owing in respect of this tax substantially exceeded $500. The Commissioner was therefore entitled to present the present petition."
Before turning to the main issue raised by this reference, consideration should be given to a subsidiary question which must be resolved before the main issue arises. In the present case, it is purely coincidental that the bankruptcy and the end of a financial year under the Income Tax Act occurred on the same day. Similar considerations arise where they do not coincide. The question is whether a liability to pay tax before an assessment is issued constitutes a debt provable in bankruptcy. Sub-section 82(1) of the Bankruptcy Act provides:-
"82(1) Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he may become subject before his discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his bankruptcy."
As has been said earlier in these reasons, s.17 of the Income Tax Act imposes a liability on persons to pay income tax. That section is within Part III of that Act and that Part is headed "LIABILITY TO TAXATION." That section is set out:-
"17. Subject to this Act, income tax at the rates declared by the Parliament is levied, and shall be paid, for the financial year that commenced on 1 July 1965 and for each succeeding financial year, upon the taxable income derived during the year of income by any person, whether a resident or a non-resident."
A consideration of decisions by the High Court shows that income tax does not become due until it is assessed and notice of the assessment is served. This is made clear by what was said in Clyne's Case (above). In that case, the High Court had to consider the meaning of s.218 of the Income Tax Act and in particular, the meaning to be given to the word "due" where it appeared in that section. The Court held that the word "due" in its primary sense when used in relation to debts and in the absence of anything in the context in which it is used to suggest otherwise, has the meaning of "sums certain which any person is legally liable to pay, whether such sums had become actually payable or not." In their reasons for judgment, members of the High Court considered the meaning of the words "due and payable" when used in other sections of the Income Tax Act and in particular, sections 204, 205, 206, 207 and 208, being the sections relevant for present purposes. In this respect, Gibbs C.J. at pp.7-10 considered what appear to be conflicting opinions expressed in earlier authorities. After referring to s.17 of the Income Tax Act, His Honour said at p.9:-
"These provisions suggest that the tax is due, in the sense of owing, once the taxable income during a year of income has been derived because there then arises a legal liability to pay it, notwithstanding that the extent of the liability remains to be ascertained and that payment is to be made in the future. That this is so, at least for certain purposes, is shown by ... ."
His Honour then referred to a number of authorities of the High Court and to Re Mendonca, above. He then continued at pp 9-10:-
"This may be the correct view for most practical purposes. Certainly a notice under s.218 could not be given before the taxpayer had been assessed, for until that time 'the amount due by the taxpayer' could not be ascertained. However, all the authorities to which I have referred are opposed to the view which Williams J. expressed in Gordon Edgell and Sons Pty. Ltd. v. Federal Commissioner of Taxation (1949) 9 ATD 43, at p 46 and seems to have repeated in Deputy Federal Commissioner of Taxation v. Brown (1958) 100 CLR at p 50, that tax becomes due only when it is payable. At the latest when tax is assessed it becomes a debt due to the Crown although it is not payable until the later date specified in the notice of assessment. For these reasons when the word 'due' is used in the Act, without the accompanying words 'and payable', it will prima facie mean simply owing."
At pp.16-17 Mason J., with whose reasons Aickin and Wilson JJ. agreed, considered the same question. The following quotation is taken from part of that consideration:-
"However the correct view in my opinion is that income tax is due when it is assessed and notice is served of that assessment and that the tax does not become payable before the date fixed by s.204. Dixon C.J., McTiernan, Williams, Webb and Fullagar JJ. in George v. Federal Commissioner of Taxation (1952) 86 CLR 183, at p 207 said that 'tax is only due after it is "assessed" (see, for example, s.204)'. I recognize that on other occasions members of this Court have said that 'tax is a debt due and owing, although not payable, notwithstanding that no assessment has been made', in the words of Gibbs J. in Re Mendonca; Ex parte Federal Commissioner of Taxation (1969) 15 FLR 256, at p 259. This approach can be traced back to the majority decision of this Court in Commissioner of Stamps (W.A.) v. West Australian Trustee, Executor and Agency Co. Ltd. (Mortimer Kelly's Case) (1925) 36 CLR 98, esp. at pp 105,116 and
118. I think that the decision is to be explained on the footing that it was held that a debt for income tax not assessed until after the deceased's death was a 'debt due by the deceased' for the purposes of Acts imposing death and probate duties. The decision was so explained by Taylor J.
(dissenting) in Deputy Federal Commissioner of Taxation v. Brown (1958) 100 CLR 32, at pp 63-64 and this explanation derives support from the judgments of Higgins and Starke JJ., if not from the judgment of the third member of the majority, Knox C.J., in Mortimer Kelly's Case."
In the light of these expressions of opinion, it is necessary to consider whether the provisions of s.82 of the Bankruptcy Act apply where an assessment has not been issued and served at the time of the bankruptcy. It should be emphasised that this question arises from the application of an Act other than the Income Tax Act; cf. what Mason J. said in Clyne's Case (above). On a literal application, the liability imposed by s.17 of the Income Tax Act would seem to be a liability within s.82 of the Bankruptcy Act. In the absence of an assessment, the tax is not due, in the sense of owing, and is certainly not payable. It is a liability contingent on an assessment being issued and served. If an assessment is issued and served before the discharge of the bankrupt, does the bankrupt become subject to that liability "by reason of an obligation incurred before the date of the bankruptcy"?
In the Income Tax Act, "assessment" means the ascertainment of the amount of taxable income and of the tax payable thereon; see sub-section 6(1). In some respects, an assessment means a calculation but it also means the result of the calculation which is reduced to writing, issued and served on the taxpayer. The assessment therefore constitutes the formal statement of the amount of tax that a taxpayer is liable to pay under s.17.
In the present case, the default assessment for the financial year ending 30 June 1980 was issued to the applicant before he was discharged from his bankruptcy. In those circumstances, it is not necessary to consider the application of the other provisions of s.82 of the Bankruptcy Act and in particular sub-section 82(4), which permits the estimation of a contingent liability. Nor is it necessary to consider what the legal position is when the assessment is made with respect to a financial year part of which coincides with a period of bankruptcy. In such circumstances, the provisions of s.168 of the Income Tax Act may enable two assessments to issue with respect to any one year commencing on 1 July. One special assessment would be with respect to the period from 1 July to the date of bankruptcy and the second special assessment from the date of the bankruptcy to 30 June. The first assessment would be a provable debt in the bankruptcy and the second would not.
It follows from what has been said that, in the present case, apart from s.221H of the Income Tax Act, the assessment issued for the year ending 30 June 1980 would be a provable debt in the applicant's bankruptcy.
The main issue debated before the Full Court was whether the provisions of s.221H of the Income Tax Act should be regarded as a complete code paramount to the provisions of the Bankruptcy Act. Put more specifically, the issue is whether the phrase "tax payable by the employee" appearing in paragraph 221H(2)(b) of the Income Tax Act comprehends the tax due and payable by the applicant pursuant to the assessment for the year ended 30 June 1980. Put another way, did the liability of the applicant for income tax for the financial year commencing 1 July 1979 become a provable debt in his bankruptcy and do the provisions of sub-section 58(3) of the Bankruptcy Act prevent that liability, upon the assessment being issued and served, from becoming "tax payable by the employee" within the meaning of s.221H(2)(b)?
On this issue, we agree with the reasons expressed by Jenkinson J. and accordingly would answer the first question of the case stated "Is the respondent bound to pay to the applicant the sum of $2,224.39?" in the negative.
The second question of the case stated is "What orders, including orders as to costs, should be made in respect of the application?" The Full Court should decline to answer this question. The substantive issue raised concerned the first question. Having answered that question, the matter should be referred back to the Court constituted by a single Judge to determine the application in accordance with the answer given to the first question.
The case was stated to the Full Court by the Court constituted by a single Judge on its own motion. In those circumstances, having regard to the amount at issue, and the importance of the question to the respondent, the respondent should pay the applicant's costs of the case stated.
JUDGE2
Case stated pursuant to s.25(6) of the Federal Court of Australia Act 1976.
On 30 June 1980 the applicant became a bankrupt and on 30 June 1985 he was discharged from that bankruptcy. Assessment was made by the respondent of the taxable income derived by the applicant in the year ended 30 June 1980 and of the tax payable thereon. The latter sum was $2,224.39. Notice of the assessment dated 28 June 1985 specified 31 July 1985 as the date upon which the tax should be due and payable. At about the same time assessment was made by the respondent of the taxable income derived by the applicant in the year ended 30 June 1982 and in the year ended 30 June 1983 and, in each case, of the tax payable thereon. (The assessment in respect of the year ended 30 June 1982 was an amended assessment.) In each case notice of the assessment was dated 28 June 1985 and 31 July 1985 was the date specified in the notice as that upon which the tax should be due and payable. But no tax was payable, because in each case the respondent had received from the applicant, pursuant to the provisions of Division 2 of Part VI of the Income Tax Assessment Act 1936, tax stamps sheets or group certificates representing deductions, made in that year of income, from the applicant's salary or wages, which exceeded in amount the tax payable. In each case the respondent credited, in obedience to the command expressed in s.221H(2)(b) of that Act, so much of the amount represented as having been deducted as was required in payment of the tax. What then remained of those amounts represented as having been deducted - $598.10 in the case of the year of income ended 30 June 1982 and $1,626.29 in the case of the year ended 30 June 1983 - the respondent credited in payment of the tax which in the respondent's opinion was payable by the applicant in respect of the year of income ended 30 June 1980. The tax assessed to be payable in respect of the latter year ($2,224.39) was upon a taxable income assessed in exercise of the power conferred by s.167 of the Income Tax Assessment Act 1936 and was exactly equal in amount to the aggregate of the two amounts of $598.10 and $1,626.29. Section 167 provides:
"If -
(a) any person makes default in furnishing a return; or
(b) the Commissioner is not satisfied with the return furnished by any person; or
(c) the Commissioner has reason to believe that any person who has not furnished a return has derived taxable income,
the Commissioner may make an assessment of the amount upon which in his judgment income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166."
Sub-sections 221H(1), (2), (3), (4) and (5) provided, at relevant times, as follows:
"(1) An employee shall forward any tax stamps sheet and any group certificate issued to him in respect of deductions made in any year of income from his salary or wages to the Commissioner with the return which he is required under section 161 to furnish in respect of that year of income.
(2) Where the Commissioner receives from an employee a tax stamps sheet or a group certificate, or both, in respect of deductions made in any year of income from his salary or wages, and the tax payable by the employee in respect of that year of income has been assessed, the Commissioner shall -
(a) if the sum of the amount represented by the face value of the tax stamps duly affixed to any such tax stamps sheet and the amount of the deductions shown in any such group certificate does not exceed the tax payable by the employee in respect of that year of income - credit that sum in payment or part payment of that tax;
(b) if that sum exceeds that tax - credit so much of that sum as is required in payment of that tax and any other tax payable by the employee, and pay to the employee an amount equal to any excess; or
(c) if he is satisfied that there is no tax payable by the employee - pay to the employee an amount equal to that sum.
(3) If the amount credited by the Commissioner in pursuance of the foregoing provisions of this section is less than the amount of tax payable by the employee, the Commissioner may credit in payment or part payment of that tax an amount equal to the face value of any tax stamps duly affixed to any other tax stamps sheet received by him from the employee or an amount equal to the amount of any deductions shown in any other group certificate received by him from the employee if he is satisfied that it is desirable to do so by reason of special circumstances and that the amounts of the deductions, not so credited, which have been, or will have been, made from the salary or wages of the employee prior to the close of the year of income to which that other tax stamps sheet or group certificate relates will be sufficient to pay the tax payable by the employee in respect of that year of income.
(4) If the amount credited by the Commissioner in pursuance of the foregoing provisions of this section is less than the amount of tax payable by the employee -
(a) the Commissioner shall apply the amount so credited in payment, so far as that amount extends, of such tax payable by the employee as the Commissioner determines and that amount shall be deemed to have been paid by the employee in satisfaction, to that extent, of that tax, and not otherwise; and
(b) the employee shall be liable or continue to be liable (as the case may be) to pay the remainder of the tax payable by the employee on the date or dates specified in the notice or notices of assessment.
(5) Where in pursuance of sub-section (3), the commissioner credits in payment or part payment of any tax payable by the employee part only of the amount represented by the face value of the tax stamps affixed to a tax stamps sheet or of the amount of any deductions shown in a group certificate, he shall pay to the employee an amount equal to so much of the face value of the tax stamps or of the amount shown in the certificate, as the case may be, as is not so credited."
Sub-section 221A(1) provided that, unless the contrary intention appeared, the expression "tax payable by the employee" should mean in the said Division 2 of Part VI, wherein s.221H is found, "income tax (including tax under a State income tax law) that is or may become due and payable by an employee under an assessment (including an assessment under a State income tax law) made or to be made on a return that he has furnished, or has been or may be required to furnish, or under an assessment (including an assessment under a State income tax law) made or to be made in default of any such return". The respondent carried out the function, which he thought was ordained by s.221H(2)(b), of crediting so much of the "sum of the amount represented by the face value of the tax stamps ... and the amount of the deductions shown in any ....group certificate" as was required in payment of the income tax assessed in respect of the year ended 30 June 1980, on or, perhaps, before 28 June 1985. That was the date on which notices of the relevant assessments were said in the case to have been issued. There is no reference in the case to service of any notice of assessment. Having regard to the terms of ss.174(1) and 204, it is only by recourse to the extended meaning of the expression "tax payable by the employee", as defined in s.221A(1), that the income tax assessed in respect of the year ended 30 June 1980 - the sum of $2,224.39 - could have been regarded on 28 June 1985 as "any other tax payable by the employee", for the purposes of s.221H(2)(b). Section 174(1) 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 204 provides:
"(1) Subject to the provisions of this Part, any income tax assessed shall be due and payable by the person liable to pay the tax on the date specified in the notice as the date upon which tax is due and payable, not being less than 30 days after the service of the notice, or, if no date is so specified, on the thirtieth day after the service of the notice.
(2) In sub-section (1), 'income tax' includes additional tax under Part VII."
On 28 June 1985, when the respondent may be taken to have credited the $2,224.39 in payment of the tax assessed to be payable on the taxable income derived in the year ended 30 June 1980, that tax fell within the definition of the expression "tax payable by the employee", as "income tax .... that .... may become due and payable by an employee under an .... assessment .... made in default of any such return".
The case stated is intended to secure an answer to the question whether the respondent acted in accordance with law in making that credit or whether the law required that he pay $2,224.39 to the applicant, pursuant to s.221H(2)(b).
The case for the applicant rested on two general grounds. It was submitted by Mr. Bigmore on his behalf that, because the tax assessed in respect of the year ended 30 June 1980 was a debt provable in his bankruptcy, that tax could not be regarded as "payable by" him, for all the rights and remedies which would have been available to his creditor had been taken away by his bankruptcy and the creditor had in lieu thereof only a right of proof against his bankrupt estate, not a right to payment of the tax. It was further submitted that what the respondent had done in purporting to credit $2,224.39 in payment of the tax assessed was to enforce a remedy against the property of the bankrupt in respect of a provable debt, contrary to the provisions of s.58(3)(a) of the Bankruptcy Act 1966.
The first submission amounts to a denial that a debt provable in bankruptcy is subject to the operation of s.221H(2). In my opinion a general consideration of Division 2 of Part VI of the Income Tax Assessment Act 1936, in which that section falls, suggests a legislative intention that the operation of the Division should be independent of the operation of bankruptcy law in relation to those who are within the definition of "employee" for the purposes of Division 2. In the first place, Division 2 is concerned with moneys deducted from personal earnings, which are not as such subject to the operation of bankruptcy law, except by a discretionary order of a court exercising jurisdiction in bankruptcy. (See Bankruptcy Act 1966, s.131 and compare Federal Commissioner of Taxation v. Official Receiver (1956) 95 CLR 300.) Second, the legislative scheme, enacted in order to secure the revenue, is yet framed in such a way as to protect the employee against loss in consequence of misfeasance by the employer. The employee is given a credit measured, not by the amount deducted and actually coming into the Consolidated Revenue Fund, nor by the amounts in respect of which the employer issues a group certificate and delivers a tax stamps sheet, but by the amount actually deducted by the employer : see ss. 221Q and 221H. Thus the crediting in payment of tax may be at the cost of the revenue. Third, there may be a discharge of a liability to pay tax, by the crediting for which s.221H makes provision, before the tax has become due and payable. The facts of this case afford an example of that. These features of Division 2 indicate, in my opinion, a scheme designed to utilise the amounts deducted in a process of precisely prescribed set-off which is to be completed without regard to what might otherwise be the operation of the bankruptcy laws in relation to the employee. Whatever remains unpaid at the conclusion of that process will be the measure of any provable debt, in my opinion. In Federal Commissioner of Taxation v. Official Receiver (1956) 95 CLR 300 at 323 Fullagar J., in whose judgment Dixon C.J. concurred, observed of the scheme ordained by Division 2 of Part VI : "The scheme involves the imposition of duties upon a particular class of taxpayers, upon their employers, and upon the commissioner. The scheme is such that it is inevitable that, at the end of a financial year, it will be found that some taxpayers of that class have paid too much tax, so that a refund to them is necessary. It is prima facie very unlikely that, when such a refund comes to be made, it should be intended that the commissioner should have to concern himself with such things as assignments, charges, bankruptcies or executions, with questions of validity and questions of priority. From the point of view of the legislature it is all a matter between the commissioner and the taxpayer, and the improbability of such an intention is increased by the direction of official secrecy which is contained in s.16 of the Act." Those observations were made in resolution of a case in which there was not any tax in respect of a year of income other than that in which the deductions in question had been made, and a case in which there was an excess of what had been deducted over what was due for tax. But in my opinion it is true to say that, when what is in question is the applicability of that part of paragraph 221H(1)(b) which is addressed to "any other tax payable by the employee", it is again "prima facie very unlikely ..... that it should be intended that the commissioner should have to concern himself with such things as assignments, charges, bankruptcies or executions, with questions of validity and questions of priority".
The submissions of Mr. Bigmore emphasised the contention that a provable debt could not be described as "payable". As was said in Clyne v. Deputy Commissioner of Taxation (1984) 154 CLR 589 at 594-595, the "effect of the bankruptcy ..... is that the debtor is no longer obliged to pay his creditors; indeed he is disabled from doing so". But in the phrase in paragraph 221H(2)(b), "any other tax payable by the employee", there is not signified only an immediately enforceable obligation to pay. So much is clear in my opinion from the terms of the definition of the phrase "tax payable by the employee", in s.221A(1). The phrase should in my opinion be understood as comprehending an obligation, imposed on an employee by the income tax legislation, which an assessment quantifies, whether or not the obligation has become enforceable in consequence of the arrival of the date specified by s.204(1), and whether or not the obligation has been suspended by the operation of bankruptcy legislation .
The processes ordained by s.221H are not in my opinion comprehended by s.58(3)(a) of the Bankruptcy Act 1966, which provides:
"Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor -
(a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt;"
The money deducted by the employer loses its identity upon payment into the Consolidated Revenue Fund. It was not any property of the applicant bankrupt which was made the subject of the processes carried out by the respondent on 28 June 1985 in obedience to the commands expressed in s.221H(2)(b). If there had remained "any excess", within the meaning of that expression in s.221H(2)(b), the payment to the applicant directed by that paragraph would have been, not of money the property of the applicant before payment, but of money payable out of the Consolidated Revenue Fund under the authority of s.16 of the Taxation Administration Act 1953.
Mr. Bigmore relied upon the reasoning of Smithers J. in Re Mondin (1985) 6 FCR 430; 60 ALR 439 and on observations by Williams J. and Fullagar J. in Federal Commissioner of Taxation v. Official Receiver supra, to some of which Smithers J. referred. It was submitted, by reference to those authorities, that the right of the applicant to receive "an amount equal to any excess", within the meaning of that phrase in s.221H(2)(b), was a chose in action, and so property of the applicant. It is unnecessary to express an opinion on the submission. If its correctness be assumed, yet the processes of crediting which the respondent undertook on 28 June 1985 did not in my opinion amount to the enforcing of a remedy against that property. Those processes were part of the statutorily prescribed steps by which the value of the chose in action was to be ascertained. In this particular case the taking of those steps produced the result that the chose in action was disclosed to be of no value and its existence thereupon terminated.
The case was stated in an application for an order of review in respect of the respondent's decision to credit the amounts aggregating $2,224.39 in payment of the tax assessed in respect of the year ended 30 June 1980. The first question contained in the case is whether the respondent is bound to pay that sum of $2,224.39 to the applicant. Being of the opinion, for the foregoing reasons, that the respondent's decision was in conformity with what the law required, I would order that the first question be answered: "No". The second question is what orders (including orders as to costs) should be made in respect of the application. I would not answer that question. Having only the case stated formally before it, this Court can have no judicial knowledge of the course which the proceeding has taken, or whether questions fall for determination in the proceeding other than that which the statement of facts raises. By a concluding recital of an agreement between the parties an attempt appears to have been made to enable this Court to answer the second question. The draftsman may have had in mind the practice of superior courts of general jurisdiction which found expression in provisions such as Order 34 Rule 6 of the General Rules of Procedure in Civil Proceedings 1985 of the Supreme Court of Victoria :
"The parties to a special case may, if they think fit, enter into an agreement in writing that, upon the judgment of the Court being given in the affirmative or negative of the question or questions of law raised by the special case, a sum of money, fixed by the parties or to be ascertained by the Court or in such manner as the Court may direct, shall be paid by one of the parties to the other of them, either with or without costs of the cause or matter; and the judgment of the Court may be entered for the sum so agreed or ascertained, with or without costs (as the case may be), and execution may issue forthwith upon such judgment unless otherwise agreed or unless stayed on appeal."
But no such a practice has been prescribed for this Court. In any event, the recital is not free of ambiguity, in my opinion, and would not justify our answering the second question.
Nothing has appeared to me to justify departure from an
exercise of the discretion as to the costs of the proceedings before this Full Court in favour of the party which was successful before us : I would order that the respondent's costs of the case stated be paid by the applicant.
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