Trevaskis, R.P. v Deputy Commissioner of Taxation
[1993] FCA 872
•01 DECEMBER 1993
RAYMOND P. TREVASKIS
Ex parte: DEPUTY COMMISSIONER OF TAXATION
Petition No. 1491 of 1993
FED No. 872
Number of pages - 6
Bankruptcy
(1993) 93 ATC 5037
(1993) 27 ATR 102
COURT
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND
GENERAL DIVISION
COOPER J
CATCHWORDS
Bankruptcy - contested creditor's petition - non-compliance with a bankruptcy notice - judgment for income tax and provisional tax - AAT determination - refusal of amendment wrong in law - no appeal lodged - whether ought to go behind the judgment - whether in truth and reality a debt due - notices of assessment conclusive under section 177(1) Income Tax Assessment Act - whether sufficient evidence to satisfy the court that the debtor is solvent.
Income Tax Assessment Act Section 170(3) and (4)
Income Tax Assessment Act Section 177(1)
Bankruptcy Act Section 52(1), 52(2)(a) and (b)
Lighthouse Philatelics Pty. Ltd. v. Federal Commissioner of Taxation (1991) 91 ATC 4942
Corney v. Brien (1951) 84 CLR 343
Wren v. Mahoney (1972) 126 CLR 212
Clyne v. Deputy Federal Commissioner of Taxation (1983) 83 ATC 4532
Re Baker Ex parte Deputy Commissioner of Taxation (1989) 89 ATC 4652
Re Burton (Unreported, Federal Court, Brisbane - 1 June, 1993, Cooper J., Petition 2498 of 1992)
Re Noye Ex parte Deputy Federal Commissioner of Taxation (1956) 18 ABC 77
HEARING
BRISBANE, 30 August 1993
#DATE 1:12:1993
Counsel for the Petitioning Creditor: Mr. Logan
Solicitors for the Applicant: Australian Government Solicitor
Counsel for the Debtor: Mr. Goodwin
Solicitors for the Respondent: Watling Roche and Assoc.
ORDER
THE COURT ORDERS:-
1. That the estate of Raymond P. Trevaskis be sequestrated.
2. That the petitioning creditor's costs of and incidental to the proceedings in bankruptcy (including reserved costs) be taxed and paid in accordance with the Bankruptcy Act 1966.
3. That Orders 1 and 2 above be stayed for twenty-one (21) days from today to enable the debtor to pay the judgment debt due to the petitioning creditor.
4. In the event that the debtor pays to the petitioning creditor the judgment debt THE COURT FURTHER ORDERS:-
(a) Orders 1 and 2 above shall stand vacated;
(b) The petition filed on 13 July, 1993 shall stand dismissed;
(c) The debtor pay to the petitioning creditor its costs of and incidental to the proceedings in bankruptcy, including reserved costs, to be agreed or in default of agreement to be taxed.
Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
JUDGE1
COOPER J On 9 July, 1993 the Deputy Commissioner of Taxation presented a creditor's petition seeking sequestration of the estate of the debtor. The ground relied upon is non-compliance with a bankruptcy notice served upon the debtor on 29 May, 1993. The creditor obtained judgment against the debtor in the District Court at Brisbane on 18 May, 1993 for $46,710.01 for income tax and provisional tax and $614.00 for costs.
On 12 August, 1993 the debtor filed a notice of intention to oppose the petition on the following grounds:-
"1. The underlying debt is in dispute, particulars of which in part are as follows:
(a) On the 12th July 1991 the Administrative Appeals Tribunal disallowed the Applicant's application to widen its ground of objection;
(b) It was common ground between the Debtor and the Creditor that, were the grounds of objection widened, the tax payer would have succeeded on his objection;
(c) The tax payer thereby would not have been indebted to the petitioning Creditor;
(d) The Full Court of the Federal Court has since held that the reasoning upon which the Administrative Appeals Tribunal based its decision was wrong (Lighthouse Philatelics Pty Ltd v Federal Commissioner of Taxation 1991 ATC 4942);
(d) The petitioning Creditor has refused to amend the assessment of the Debtor notwithstanding the decision in Lighthouse Philatelics Pty Ltd v Federal Commissioner of Taxation.
2. The Debtor is solvent.
3. On discretionary grounds this Honourable Court ought not make such an order as sought by the petitioning Creditor".
The debtor is a chartered accountant who has carried on practice as such since 1976. On 19 June and 20 July, 1981 the debtor lodged objections to the assessments issued to him for the financial years ended 30 June, 1980 and 30 June, 1981 respectively. The objections were disallowed by the Deputy Commissioner on 27 March, 1985. The objections were referred to a Board of Review.
On 22 December, 1989 the debtor lodged amended income tax returns for the financial years ended 30 June, 1978 and 30 June, 1980-30 June, 1988 seeking to be assessed for income tax on a cash receipts basis rather than on an accrual basis, the latter being the basis upon which the returns were lodged. The amendments were accepted and amended assessments issued for all years after the 1980 and 1981 financial years. The amendment for the 1980 and 1981 years was refused as being out of time, having regard to the provisions of sub-sections 170(3) and (4) of the Income Tax Assessment Act.
The debtor sought to amend his notice of objection so as to enable the 1980 return to be dealt with on a cash receipts basis rather than an accrual basis. On 23 April, 1991 as a preliminary point for determination Dr. P. Gerber (Deputy President) of the Administrative Appeals Tribunal in a written decision, refused any amendment on the basis that he was "unable to find any principle of law or practice which would enable me to permit the taxpayer to raise, at this late stage, that the 1980 assessment should be treated on a `cash receipts' basis".
On 12 July, 1991 Dr. Gerber affirmed the tax assessment for the 1980 year. In his reasons he repeated his earlier decision on the preliminary point and thence determined the claim for a loss under a share trading scheme on its merits. The debtor did not appear before the Administrative Appeals Tribunal having advised it that he was prepared for the matter to proceed on the basis of a document headed "Statement of Agreed Facts". This the Deputy President did. The dismissal of the objection by the Administrative Appeals Tribunal did not turn on whether the debtor was assessed on an accrual or a cash basis.
The judgment of a Full Court of this Court in Lighthouse Philatelics Pty. Ltd. v. Federal Commissioner of Taxation (1991) 91 ATC 4942 was delivered on 30 October, 1991. The Court said (at 4949):-
"It follows that the Tribunal or the Court has power to permit a taxpayer to argue that the taxable income and tax payable are incorrect and 'excessive' for reasons not initially advanced, even if those reasons involve, as in the present case, entirely fresh grounds in substitution for the original grounds, or even if they require consideration of matters not considered by the Commissioner in the original assessment process. The decision whether to allow an amendment ought to be made on the same considerations of justice upon which such decisions are regularly made in litigation. It was in the past a reproach to the law that the real issues in taxation appeals could be refused a hearing for a defective objection, and Parliament has legislated to remove that reproach; an amendment under s. 190 should not be considered with reluctance, but on its merits".
It is submitted that in consequence of the decision of the Full Court the reasoning of Dr. Gerber in his decisions refusing amendment was wrong in law.
The decision of the Administrative Appeals Tribunal was not appealed. On 30 October, 1991 the debtor telephoned the office of the petitioning creditor and the gist of the conversation with Ms. Brady, a taxation officer, was that an appeal had been or was to be filed against the Administrative Appeals Tribunal's decision. On 5 February, 1992 the petitioning creditor wrote advising that the decision of Dr. Gerber had not been appealed and demanded payment of the outstanding income tax for the 1980 income year plus additional tax for late payment within seven days. The letter included an up-to-date statement of account.
On 19 March, 1992 the debtor's solicitor advised the petitioning creditor's office that he had received instructions to apply for leave to appeal out of time from the Administrative Appeals Tribunal decisions. He was advised by the taxation office that legal action would be withheld if payment, or a satisfactory arrangement, was made in relation to the outstanding amounts of tax, including additional tax owing under assessments for the years ended June, 1983 and June, 1989 and that copies of the appeal documentation were served on the office. No appeal was lodged.
On 17 September, 1992 the petitioning creditor gave instructions to the Australian Government Solicitor's Office to institute recovery proceedings for $46,710.01 for income tax, including additional tax for late payment. On 30 September, 1992 a plaint was filed in the District Court at Brisbane and the plaint was served on the debtor on 8 October, 1992. As appears from the particulars pleaded in the plaint and the certified notices of assessment for the financial years ended June, 1980, 1981, 1983 and 1989 in evidence before me, the sum of $46,710.01 is the balance due as at 30 September, 1992 after bringing into account all additional tax for late payment and crediting payments made by the debtor.
Between October, 1992 and April, 1993 negotiations were held between the petitioning creditor and the debtor's solicitors. Those negotiations did not lead to the matter being resolved. On 18 May, 1993 the debtor, having failed to file any entry of appearance and defence, judgment by default was entered in the sum of $46,710.01 for debt and $614.00 for costs.
The debtor, by his Counsel, submits that the court ought to go behind the District Court judgment because there are substantial reasons for questioning whether there is in truth and reality a debt due by the debtor to the petitioning creditor (Corney v. Brien (1951) 84 CLR 343 at 358; Wren v. Mahoney (1972) 126 CLR 212 at 224 - 225). The basis that the court would be so satisfied, it is submitted, is that the decision in the Full Court in Lighthouse Philatelics Pty. Ltd. demonstrates an error in law in the reasoning of the Administrative Appeals Tribunal in refusing to allow amendment to contend that the 1980 assessment ought to have been assessed on a cash receipts basis.
The difficulty with that submission is that when one goes behind the District Court judgment the Court is left with the notices of assessment which are conclusive by virtue of section 177(1) of the Income Tax Assessment Act. The position was stated by Gibbs CJ (with whom Murphy, Wilson, Brennan and Deane JJ agreed) in Clyne v. Deputy Federal Commissioner of Taxation (1983) 83 ATC 4532 at 4533:-
"The rule that a court of bankruptcy may, in certain cases, go behind a judgment to determine whether it is founded on a real debt can have no application in the present case. If the Court were to go behind the judgment it would be faced with the notice of assessment which, under sec. 177(1) of the Income Tax Assessment Act, is conclusive and with the provisions of sec. 201 of that Act which permit the recovery of tax as if no appeal were pending. Of course, the Court which gives judgment has a discretion to stay execution in appropriate circumstances but a stay of execution was refused in the present case. The argument that if an assessment to tax is disputed no bankruptcy notice can be founded upon the judgment in respect of the tax until the dispute is resolved by the ultimate court of appeal cannot possibly be accepted".
The effect of section 177(1) of the Income Tax Assessment Act is that the assessments are conclusive evidence of the due making of the assessments and that the amount and all the particulars of assessment are correct and recoverable as a debt due.
There is in the present case no pending appeal against the assessments or the decision of the Administrative Appeals Tribunal. Therefore the case does not fall into that category of cases where the court has a discretion to adjourn or stay the proceedings pending determination of the appeal (See Re Baker Ex parte Deputy Commissioner of Taxation (1989) 89 ATC 4652 and the cases cited therein).
Counsel for the debtor submitted that I ought to dismiss the petition or stay it to allow the debtor to apply for an extension of time to appeal the decisions of Dr. Gerber given in April and October, 1991. There are two difficulties with the submission.
The first is the history of the matter. There has been substantial unexplained delay. The debtor has failed to make such an application in the past when the petitioning creditor has been advised that such an application would be made. The reasonable inference to be drawn is that an appeal and an application to extend the time to appeal have been threatened from time to time in order to induce the petitioning creditor to hold its hand from instituting recovery action. I can see no basis on the evidence before me upon which a proper exercise of discretion could lead to an extension of time being granted.
The second is that although it may be common ground that if the debtor had been dealt with on a cash basis in the financial year ended 30 June, 1980, there would have been no assessable income for that year, it is not common ground that the debtor ought to have been dealt with on a cash basis in that year, or that the petitioning creditor had power to amend the assessment issued, having regard to the time which had expired between the date of the assessment and the request to amend. That is, it has not been shown that the petitioning creditor's refusal, based on its interpretation of section 170(3) and (4) of the Income Tax Assessment Act is wrong. Additionally, the debt claimed is not limited to the income tax assessed under the 1980 notice of assessment. The particulars set out in the District Court plaint show that the amount due is a balance due as at 30 September, 1992 which deals with income tax assessed for the years ended 30 June, 1980, 1981, 1983 and 1989 and additional tax for late payment. There is no evidence to show that if the income tax assessed for the year ended 30 June, 1990 was ultimately held to be not payable that there would not remain a debt due over the statutory limit needed to ground a bankruptcy petition.
The debtor has failed to show that there are substantial grounds for questioning whether there is in truth and reality a debt due to the petitioning creditor.
The debtor filed no material to establish his solvency. On the hearing of the petition he gave oral evidence that he was in a position to pay his debts as and when they fell due. The petitioning creditor, when confronted with this evidence, was not in a position to seriously challenge it. In Re Burton (Unreported, Brisbane 1 June, 1993 Pet 2498 of 1992), I stated the relevant test as:-
"A debtor is in a position to pay his or her debts within the meaning of the section when he or she can 'Pay immediately in the sense of a reasonable time all the debts which he or she owes' (Re Sarina Ex parte Council of the Shire of Wollondilly (1980) 43 FLR 163 at 165). The inquiry will involve a consideration of the ability of the debtor to 'command' cash resources 'through the use of his assets' (Sandell v. Porter (1966) 115 CLR 666 at 670; cited with approval in a consideration of section 52(2)(a) by the Full Court in Trojan v. Corporation of Hindmarsh (1987) 16 FCR 37 at 47)".
The debtor's conduct since October 1991 in his dealings with the petitioning creditor is a matter of some concern to me. The whole history of the matter is one of simply delaying payment of the tax claimed. The debtor took no steps to seek to extend the time to appeal from the decision of the Administrative Appeals Tribunal. He has been responsive only to court process and then to thereafter seek an extension of time for leave to appeal or to attempt to broker a compromise. The material filed by the petitioning creditor shows that income tax for the 1983 and 1989 income years is outstanding and no explanation as to its non-payment has been given. Either the debtor has the attitude that he will not satisfy his liability to the petitioning creditor for tax unless ultimately forced to do so, or alternatively that he does not have the means to satisfy the debt.
I have no material to make a reasoned decision on the solvency of the debtor. I am not prepared to accept the mere assertion of solvency. I do not accept that if the debtor seriously intended to seek to appeal out of time from the decision of the Administrative Appeals Tribunal he would not have done so by now. Nor do I accept that if the debtor had the funds or access to the funds to discharge the liability to the petitioning creditor he would not have done so by now. I find it hard to accept that in his professional capacity of a practising chartered accountant he would willingly allow bankruptcy proceedings to be taken against him and prosecuted to the present stage of the proceedings with the attendant publicity if he could afford to discharge the debt.
The debtor has failed to satisfy me that he is solvent or make out any other ground justifying the refusal of the relief sought.
The petitioning creditor has established the matters required by section 52(1) of the Bankruptcy Act and thus is prima facie entitled to an order for sequestration. The debtor has failed to establish grounds under section 52(2)(a) or (b) of the Bankruptcy Act to enliven the discretion to dismiss the petition.
I propose to make the sequestration order sought. However, lest I be wrong in my view as to the solvency of the debtor I propose to stay my order for twenty-one (21) days to allow the debtor to pay out the debt of the petitioning creditor. Should the debtor pay out the petitioning creditor within that time then the petition will stand dismissed. However, payment so late would entitle the petitioning creditor to the costs of the bankruptcy proceedings, there being no suggestion on any of the material filed by the debtor that he had the means to pay the debt. (Re Noye Ex parte Deputy Federal Commissioner of Taxation (1956) 18 ABC 77 at 78 - 79).
THE COURT ORDERS:-
1. That the estate of Raymond P. Trevaskis be sequestrated.
2. That the petitioning creditor's costs of and incidental to the proceedings in bankruptcy (including reserved costs) be taxed and paid in accordance with the Bankruptcy Act 1966.
3. That Orders 1 and 2 above be stayed for twenty-one (21) days from today to enable the debtor to pay the judgment debt due to the petitioning creditor.
4. In the event that the debtor pays to the petitioning creditor the judgment debt THE COURT FURTHER ORDERS:-
(a) Orders 1 and 2 above shall stand vacated;
(b) The petition filed on 13 July, 1993 shall stand dismissed;
(c) The debtor pay to the petitioning creditor its costs of and incidental to the proceedings in bankruptcy, including reserved costs, to be agreed or in default of agreement to be taxed.
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