The Taxpayer and Commissioner of Taxation

[2006] AATA 598

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2006] AATA 598

ADMINISTRATIVE APPEALS TRIBUNAL      )

)       No AT2005/99-101

TAXATION APPEALS DIVISION		)
Re		THE TAXPAYER

Applicant

And COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal Mr S. Webb, Member

Date5 July 2006

PlaceCanberra

Decision The Taxpayer’s request for an order requiring the Respondent to provide an additional statement containing further and better particulars of the reasons for the objection decision pursuant to section 38 of the Administrative Appeals Tribunal Act 1975 is rejected.

..............................................

Mr S. Webb, Member

CATCHWORDS

TAXATION - practice and procedure - statement of reasons - request for additional statement containing further and better particulars - content and adequacy - statement of reasons deficient but not inadequate – effect of modifications on ss37 and 38 of the AAT Act – power to require further and better particulars – discretion – no orders

Administrative Appeals Tribunal Act 1975 ss 37, 38, 39, 43

Taxation Administration Act 1953 ss, 14ZZF, 14ZZG, 14ZZJ, 14ZZK

Acts Interpretation Act 1901 s 25

Hui v Minister for Immigration and Multicultural Affairs [2000] FCA 1194

Isaacs v Commissioner of Taxation [2006] FCAFC 105

Re Palmer and Minister of the Capital Territory (1978) 1 ALD 183

Brandy v Human Rights and Equal Opportunity Commission (1995) 183 CLR 245

Drake V Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60

Fletcher v Federal Commissioner of Taxation (1988) 16 ALD 280

Sullivan v Department of Transport (1978) 1 ALD 383

Robertson v Federal Commissioner of Taxation (1937) 57 CLR 147

R v War Pensions Entitlement Appeal Tribunal; Ex Parte Bott (1933) 50 CLR 228

Iveagh v Minister of Housing and Local Government (1964) 1 QB 395

Re Control Investment Pty Ltd and Australian Broadcasting Tribunal (No.2) (1981) 3 ALD 88

Minister for Aboriginal Affairs v Peko Wallsend Ltd (1986) 162 CLR 24

Hospital Benefit Fund of Western Australia v Minister for Health (1992) 111 ALR 1

Mobil Oil Australia Pty Ltd v Commissioner of Taxation (1963) 113 CLR 475

REASONS FOR DECISION

5 July 2006 Mr S. Webb, Member         

1.      The Taxpayer is seeking orders requiring the Respondent Commissioner to file an additional statement of reasons in relation to his decision to disallow the Taxpayer’s objections to taxation assessments for the 2001, 2002 and 2003 tax years.

2.       It is convenient to briefly set out the background to this matter.  The Taxpayer claimed deductions for legal expenses in relation to certain leases.  On assessment, the claimed deductions were denied and penalties were imposed.  The Taxpayer objected to the assessment decisions.  The Respondent Commissioner decided to disallow the objections concerning legal expenses but decided to reduce the penalties imposed.  The Taxpayer applied to the Tribunal for review of that objection decision. 

3.      The Respondent Commissioner filed a statement of reasons and other documents pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 (“the AAT Act”). The Taxpayer sought orders requiring the Commissioner to provide an additional statement containing further and better particulars (see written submissions dated 24 March 2006 and 11 April 2006). I heard the parties on 12 April 2006 and found that the Commissioner’s statement of reasons did not contain adequate particulars and was deficient to the extent that the Commissioner’s reasoning process was not clearly exposed. I directed the Commissioner to file and serve an additional statement setting out further and better particulars concerning findings of fact, the evidence on which those findings were based and the conclusions that were made.

4.      The Commissioner filed an additional statement on 2 May 2006.  On 30 May 2006 the Taxpayer sought orders requiring a further statement by the Commissioner.  I heard the parties on that issue on 8 June 2006 and received written submissions.

5.      Three issues are raised for determination.  Does the Tribunal have power to require the Commissioner to file an additional statement containing further and better particulars in relation to factual findings, evidence and conclusions reached?  Are the Commissioner’s statement of reasons and his additional statement adequate?  If so, is it appropriate in the circumstances to exercise the Tribunal’s discretion to require the Commissioner to provide a further statement?

does the tribunal have power to require additional statements containing further and better particulars in relation to factual findings, evidence and conclusions reached by the commissioner?

6. The Respondent submitted that in taxation cases the Tribunal does not have power to order the Commissioner to lodge an additional statement in the terms contemplated by s37 of the AAT Act.

7.      Section 37 of the AAT Act is modified by section 14ZZF of the Taxation Administration Act 1953 (“the Tax Act”). Relevantly, the modification requires the Commissioner to provide “a statement giving reasons for the decision” (s14ZZF(1)(a)(i)). Unmodified s37(1)(a) of the AAT Act requires the decision maker to lodge “a statement setting out the findings on material questions of fact, referring to the evidence or other material on which those findings were based and giving reasons for the decision”. Section 38 of the AAT is the source of Tribunal power to order a decision maker to lodge an additional statement in certain circumstances:

“38(1) Where the Tribunal considers that a statement referred to in paragraph 37(1)(a) that is lodged by a person with the Tribunal does not contain adequate particulars of findings on material questions of fact, an adequate reference to the evidence or other material on which those findings were based or adequate particulars of the reasons for a decision, the Tribunal may order that person to lodge with the Tribunal, within a time specified in the order, an additional statement or additional statements containing further and better particulars in relation to matters specified in the order with respect to those findings, that evidence or other material or those reasons.

…”

The section is modified by section 14ZZG of the Tax Act, in the following terms:

“Section 38 of the AAT Act applies in relation to an application for a review of a reviewable objection decision as if the reference to paragraph 37(1)(a) of that Act were instead a reference to subparagraph 14ZZF(1)(a)(i) of this Act.”

8. In effect the modification confers the power to order an additional statement if the original statement of reasons lodged pursuant to modified s37(1)(a) does not contain adequate particulars. As can be seen the power to order an additional statement is discretionary (“…the Tribunal may order…”) and not mandatory if the essential precondition of inadequacy is found to exist. 

9.      The Commissioner submitted that the modified s37 imposed a considerably less onerous obligation on the Commissioner in taxation appeals that would otherwise apply under s37. In the Commissioner’s submission s38 is directed at ensuring compliance with s37 and no more. Authority for that proposition was purportedly Hill J’s statement in Hui v Minister for Immigration and Multicultural Affairs [2000] FCA 1194 at paragraph 36:

“Section 38 … is concerned with ensuring that the particulars required in the s37 statement to be given to the Tribunal are complete.”

Hui’s case was not a taxation appeal and the modifications to ss37 and 38 did not apply. Nevertheless, the principle underlying Hill J’s observation is germane to the interpretation of the sections as modified.

10. What are the particulars required in a modified s37 statement of reasons? Modified ss 37 and 38 must be considered in their terms and in their proper legislative context. The terms of the sections are plain enough. The discretionary power conferred by the modified s38 is only enlivened if the specified particulars are considered to be inadequate and it is appropriate in all the circumstances, with an eye to the rules of procedural fairness, to exercise the discretion. The position contended for by the Commissioner would require the modified section to be read down on the basis of modified s37 to the extent that no particulars concerning findings of fact or the evidence on which those findings are based are required. It would follow, in the Commissioner’s submission, that the only particulars to which the Tribunal must turn its mind when considering the adequacy of a modified s37 statement of reasons is the adequacy of the statement of reasons in general terms. However, that construction and the Commissioner’s submissions do not address the central purpose of s38 as identified by Hill J and I do not accept them in that regard.

11.     How is the adequacy of a statement of reasons to be assessed? Essentially a modified s37 statement of reasons must contain the actual reasons for the decision. Those reasons must be set out in a manner that renders them intelligible to a reasonable lay person. For that purpose it is necessary to expose the reasoning process in relation to each of the substantive issues. The reasoning process will be exposed if, in relation to each issue, the applicable law or standard is identified, any relevant findings of fact are set out with reference to the material on which those findings are made, and the conclusions reached are explained by applying the facts to the relevant law or standard. This construction is consistent with s25 of the Acts Interpretation Act 1901. If it is not possible to understand the reasons for a decision without particulars of the factual findings and the evidence being set out, or without the particulars of the reasons for the decision being clearly explicated, then the reasons may be found inadequate in those particulars and an order for further and better particulars pursuant to modified s38 may be justified. Those are the particulars to which modified s38 refers.

12.     The Commissioner submitted that s14ZZK of the Tax Act obviates the requirement for detailed statements of reasons or additional statements by order of the Tribunal. I do not agree. The legislative context of modified ss37 and 38 of the AAT Act must be considered. The relevant modifying provisions of the Tax Act (ss14ZZF and 14ZZG) must be interpreted purposively in the context of that Act and especially in relation to Part IVC, Division 4. The statutory framework was discussed by the Full Federal Court in Isaacs v Commissioner of Taxation [2006] FCAFC 105 at paragraphs 13 to 18. Under s14ZZK an applicant is limited to the grounds set out in the objection and bears the onus of proving, relevantly, that the assessment is excessive. The existence of such an onus on the applicant does not, however, displace or diminish the Commissioner’s responsibility to lodge an adequate statement of reasons for his decision, and it does not limit the power of the Tribunal to order the Commissioner to lodge an additional statement setting out further and better particulars of the kind specified in modified s38 if the reasons are found to be inadequate.

13.     It follows that the modified s38 confers power on the Tribunal to order an additional statement setting out further and better particulars of the kind specified in the section if the essential precondition of inadequacy exists.

are the commissioner’s statements of reasons adequate?

14. The Taxpayer submitted that the Commissioner’s s37 statement of reasons and his additional s38 statement failed to address a fundamental point raised in the objection, failed to set out findings of fact with reference to the evidence on which they were based and failed to set out the conclusions and the reasoning process therefore. Furthermore, it is submitted that the Commissioner misstated certain evidence and has attempted to “circumvent/thwart” the Tribunal’s 12 April 2006 orders.

15.     A person who is dissatisfied with an administrative decision is entitled to be informed of the reasons for the decision so that he or she has a reasonable opportunity to present his or her case (see Re Palmer and Minister of the Capital Territory (1978) 1 ALD 183 at 194). If a statement of reasons for a decision that is before the Tribunal is considered to be inadequate then an additional statement containing further and better particulars may be required (s38, AAT Act).

16.     It is to be noted that the function of the Tribunal is one of administrative review on the merits.  The Tribunal does not exercise judicial power (Brandy v Human Rights and Equal Opportunity Commission (1995) 183 CLR 245). The task of the Tribunal is not to determine whether the Commissioner made the correct or preferable decision on the materials that were before him. The task of the Tribunal is to make the correct or preferable decision on the materials that are placed before it (see Drake V Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60 at 68). When performing that task the Tribunal may exercise all of the powers and discretions conferred on the person who made the decision under review (s43 of the AAT Act as modified by s14ZZJ of the Tax Act) (see Isaacs v Commissioner of Taxation [2006] supra at paragraph 36). The Tribunal must ensure that each party in proceedings before it has a reasonable opportunity to present his or her case and to make submissions having regard to documents and other materials that are germane to the Tribunal’s decision making (s39, AAT Act). The Tribunal is obliged to observe the rules of procedural fairness (see Fletcher v Federal Commissioner of Taxation (1988) 16 ALD 280 at 284-285).

17.     There are two powerful reasons why modified s37 statements of reasons must adequately explicate the decision under review and the reasons for it. Firstly, it is an important principle of natural justice that an applicant taxpayer is adequately informed of the matters that gave rise to the Commissioner’s decision when preparing his or her case (see  Sullivan v Department of Transport (1978) 1 ALD 383 at 402 per Deane J). That is especially so because under the Tax Act the applicant taxpayer bears the burden of proof set out at s14ZZK. Secondly, it is important that the Tribunal properly apprehends the issues for determination and the matters about which it is to be satisfied, including all the relevant factors, when making a decision: relevant considerations must be dealt with and irrelevant considerations dispensed with (see Robertson v Federal Commissioner of Taxation (1937) 57 CLR 147 at 169; R v War Pensions Entitlement Appeal Tribunal; Ex Parte Bott (1933) 50 CLR 228 at 242-243). An adequate statement of reasons for the objection decision may assist the Tribunal in that regard. The words of Lord Denning in Iveagh v Minister of Housing and Local Government (1964) 1 QB 395 at 410 are apposite here:

“The whole purpose of the enactment is to enable the parties and the courts to see what matters he (the Minister) has taken into consideration and what view he has reached on the points of fact and law which arise.  If he does not deal with the points that arise, he fails in his duty and the court can order him to make good the omission.”

18.     The Commissioner’s additional statement dated 2 May 2006 sets out particulars concerning evidence, findings of fact and reasons for the decision under separate headings.  The additional statement includes discussion of “issues and other factual matters”.  From these elements it is possible to discern the evidence to which the Commissioner had regard, the factual findings that he made and the conclusions that were reached.  Nevertheless, the recitation of evidence in general terms does not clearly explicate the Commissioner’s fact finding process, especially in relation to facts that are germane to significant issues.  The Commissioner’s statements are deficient in that regard.  However, it does not necessarily follow that the statements are inadequate.  The statements will be inadequate if the reasons set out, including the facts found and the evidence had regard to, are not intelligible to a reasonable lay person. 

19.     In this case, despite the aforementioned deficiencies, I am satisfied that the Commissioner’s additional statement contains further and better particulars that are sufficient to convey the reasons for the objection decision.  I accept that the statements, and the reasons, contain deficiencies to the extent that the statements could have been improved by specifying the evidence on which particular factual findings were based in relation to each of the issues dealt with therein. However, the deficiencies do not render the reasons unintelligible.

20. The Taxpayer asserts that the Commissioner failed to address a ‘fundamental point’ (concerning a purported ‘back-up intention’ of the Taxpayer to conduct a supermarket) and did not have regard to or verify certain evidence allegedly provided by the Taxpayer. If that is so, it is properly a matter for evidence at the substantive hearing of the matter before the Tribunal. The adequacy of a s37 statement of reasons is not measured by any flaws or omissions or errors of the Commissioner when making an objection decision; those are matters properly to be dealt with on review. If the Commissioner’s statement reveals flaws, omissions or errors in the objection decision making process, such as not having regard to relevant matters or having regard to irrelevant matters, or not addressing issues in the Taxpayer’s objection, those are matters that are not amenable to correction by requiring further and better particulars from the Commissioner in an additional statement. No amount of further and better particulars is going to rectify any such deficiency. They are matters for evidence to be addressed on review. The Taxpayer’s present concerns are, I am satisfied, directed to understanding the case to be met at hearing and may be appropriately dealt with by directions in relation to the future procedure of the review (see Re Control Investment Pty Ltd and Australian Broadcasting Tribunal (No.2) (1981) 3 ALD 88 at 94-95).

21.     The Taxpayer asserts that the Commissioner’s “contention regarding the lack of evidence is an ingenuous façade to avoid addressing the substantive issues in compliance with the [Tribunal’s] April order”.  The Taxpayer’s submission appears directed, in part at least, to what the Commissioner allegedly ‘should have’ done, by way of notifying the Taxpayer, or seeking further information in a manner consistent with applicable service standards when making the objection decision.  Those are not matters that require further explanation in an additional statement by the Commissioner for present purposes.  They may be matters for the Taxpayer to take up with the Commissioner by way of complaint, or they may be matters of relevance for evidence and consideration on review.  If that is so, then the Taxpayer’s concerns may be addressed by directions concerning the future conduct of the review. 

22. The Taxpayer also asserts that the Commissioner’s additional statement refers to an absence of evidence in relation to matters not previously understood to be in dispute. The additional statement and the original s37 statement of reasons are statements concerning the objection decision of the Commissioner setting out the evidence, facts and reasons for that decision at the time. An additional statement under s38 is purely to obtain further and better particulars in relation to the objection decision in issue. If the statement deals with evidence, facts or reasons that have subsequently come to light, it must clearly state those particulars separately. The Taxpayer’s assertion does not warrant an additional statement of further and better particulars in relation to the objection decision. The Taxpayer’s concerns in relation to this point may readily be addressed by procedural directions, if necessary, in due course.

is it appropriate to exercise the tribunal’s discretion to require an additional statement?

23.     The Taxpayer submits that it is appropriate and desirable for the Tribunal to exercise its discretion to require the Commissioner to lodge an additional statement setting out further and better particulars.  Failure to do so will mean that the Taxpayer is prevented from understanding the objection decision.  It is submitted that, in those circumstances, the Taxpayer will be prevented from determining appropriate future action in relation to the objection and will be prevented from directing attention to matters that will be relevant at the hearing, the cost of preparing for which will be greatly increased.

24.     The Tribunal must ensure that each party is given a reasonable opportunity to present their case in proceedings before it and to inspect and make submissions in relation to documents of relevance to the Tribunal’s decision. Knowing the reasons that prompted an adverse objection decision is a matter of right for a taxpayer. Nevertheless the Tribunal must pursue the objective of providing a mechanism for review that is fair, just economical and quick (s2, AAT Act). Proceedings before the Tribunal are to be conducted with as little formality and technicality, and with as much expedition, as the statutory requirements and a proper consideration of the issues permit (s33, AAT Act).

25.     In this case, I have found that the Commissioner’s statement suffers from deficiencies.   However, the deficiencies do not render the statement inadequate for present purposes.  It follows that the discretionary power to order an additional statement is not essentially preconditioned. 

26.     Even if I was wrong in that conclusion and had found differently in favour of the Taxpayer, for example finding that the Commissioner’s additional statement is inadequate, the orders sought would not necessarily follow.  Having regard to the objective of providing a review mechanism that is fair, just, economical and quick, I am of the opinion that requiring an additional statement from the Commissioner setting out further and better particulars in relation to specific issues contended for by the Taxpayer is not likely to advance the fairness or justice of the proceedings, but is likely to be productive of delay and further preliminary disputation in relation to technical points that are more appropriately dealt with by procedural directions or in relation to evidence and submissions at hearing.

27.     It is important to note that the Tribunal is not bound by the factual findings or reasons of the Commissioner at the time the objection decision was made as set out in the stated reasons.  Additional evidence, facts or reasons may subsequently come to light that bear on the issue that was before the Commissioner, and may therefore be relevant for the Tribunal to consider (see Minister for Aboriginal Affairs v Peko Wallsend Ltd (1986) 162 CLR 24 at 44-45). The Tribunal will have regard to all of the evidence before it and is not limited to the evidence that was before the primary decision maker when addressing the issues for determination (see Hospital Benefit Fund of Western Australia v Minister for Health (1992) 111 ALR 1 at par 11). In the words of Kitto J in Mobil Oil Australia Pty Ltd v Commissioner of Taxation (1963) 113 CLR 475 at 502, the function of the Tribunal is “to do over again (within the limits of the Taxpayer’s objection) what the Commissioner did in making his assessment”, “to work out, as a step in administration, what it considers the situation to be”.

28.     The Taxpayer asserts that the additional statement is not compliant with the Tribunal’s order in April 2006.  In part, I agree.  The additional statement contains some further and better particulars in discussion of the facts, the evidence and the reasons.  However, the particulars set out in the additional statement could be improved upon and the reasoning process in relation to particular matters raised in the Taxpayer’s objection could be more clearly exposed, especially in relating the factual findings to the evidence considered and, where there are conflicts in the evidence, setting out reasons why certain evidence is preferred.  For example, the Taxpayer asserts that no adequate reasons are given by the Commissioner in relation to the “back-up intention” of the Taxpayer in relation to a supermarket.  The Commissioner has, however, set out particulars of his reasons concerning the issue of a supermarket.  Those particulars are deficient in some aspects, but not so deficient as to be inadequate.  If particular evidence was disregarded, or other evidence preferred, or subsequent matters of relevance have come to light, those are properly matters for evidence and assessment by the Tribunal on review.

29.     I am satisfied that the deficiencies in the Commissioner’s additional statement do not prevent the Taxpayer from knowing what prompted the objection decision with sufficient detail to permit a reasonable understanding of the reasons.  The Taxpayer’s understanding is exemplified by the detailed submissions he has made in relation to particular issues and in relation to the alleged flaws, omissions and errors he has identified in the objection decision and the decision-making processes of the Commissioner. 

30.     Considering all of the Taxpayer’s submissions on the matter, I am satisfied that the Taxpayer is, in part, attempting to engage the issues and to attack the objection decision, especially in relation to perceived deficiencies in the decision-making process, and, in other part, is motivated by the desire to know the case to be met at hearing rather than understanding the decision made by the Commissioner.   Those are not matters that warrant the order sought.

31. It follows that I am satisfied that it is not appropriate to exercise the discretion conferred by s38 in all the circumstances. The orders sought by the Taxpayer are not warranted.

32. In order to ensure that the Taxpayer has a reasonable opportunity to present his case, and the proceedings progress in a manner that is timely and fair, it may be appropriate to issue directions concerning the future procedure of the review pursuant to s33 of the AAT Act. The parties have liberty to apply in that regard.

I certify that the 32 preceding paragraphs are a true copy of the reasons for the decision herein of Mr S. Webb, Member

Signed:         Peter Edwards                 .....................................................................................
  Associate

Date of Decision  5 July 2006
Representative for the Applicant  Andrew Orange
Solicitor for the Respondent        Damian Ong