Verma, V.K v Deputy Commissioner of Taxation

[1985] FCA 78

IN THE FEDERAL COURT OF F.USTF.fiI,IA )

)

NEW SOUTH WALES DISTRICT REGISTRY No. G420 of 1984

O?I P-PPEAL from a Sinqle Jlldge

of the Federal Court cf

Australia

E m E N :

IIIRENDRA KTJMRS VEi?YJ.

Appellant

MID

-:

DEPUTY COMMISSIONER OF TXXATIOM

Respondent

O R D E R

..

FOX, McGREGOR knd L41LCOX JJ.

22nd February 1985

EX TEMPORE

Sydney.

COmT ORDERS THAT:

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L T k appea l be dismissed.

2- The appellant pay the respondent's costs of the appeal.

IN THE F m E R A L COUPT OF ArJSTR>LIA

N E 3 1 SOUTH hJ3LES DISTRICT PEGETRY

GENERAL D I V ~ S I O P T

ON APPEAL from a Slngle Judge

of the Federal Court	of
Australia
BETWZZN :
VIRENDF!A XUM&R VERMA

/

Appellant

m:

DEPUTY COMMISSIONEX OF TFXATIOM

Respondent

FEZSONS FOR JUDGMENT

(EX TEMPORE)

FOX J.

Tne courc will deliver its decision now. What I am

. . -

about to say is the judgment of the Court.

This is an appeal from a decision of a judge of this

Court sitting in bankruptcy, in which he made an order for the sequestration of the estate of the present appellant, on the

petition of the respondent the Deputy Commissioner of Taxation.

His Honour refused applicatlons by the appellant to

dismiss the petitlon in reliance upon s.52(2)(b) of the

Bankruptcv Fct 1966 an.', sltermtxvely, to adjourn the hearlnq of

the petition, but granted a stay of proceedings on the

sequestration order for twenty-one days. This stay, we are

informed, was subsequently extended until the determination	of
this appeal.

I

The situation was, in its elements. common enough. The

Deputy Commissioner of Taxation had issued to the appellant a

number of. assessments for income tax. He had disallowed large

claims for deductions. The petition was based on the

assessments, the amount of Indebtedness claimed being

. $632.693-23. In August 1983 judgment had been signed by default

in the Supreme Court f o r two of the assessments, totalling

I . $331,793.67. At the time of the hearing of the petition and,

indeed before judgment was signed, t'ne assessments had been

referrea to a Board of Review, but the Board had not then heard

1 .

. L them. snd it was not expected that it would be able to do so

.. -

. . . - . I _ It is the refusal of his Honour to dismiss the petition

o r t m grant the adjournment which is in substance the subject of

this appeal - It is acknowledged that in eithPr event the

exercise of a discretion was involved. It is not claimed that,

having refused the adjournment, his Honour did nqt have the

material before him on which he could properly make a

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sequestratlon order

We have been lnfcrrmed by counsel that smce the tlme of

the hearing before his Honour, the Board of Review has heard and

decided a reference OK references with respect to the amount of

$331,793.67. This amount comprised almost entirely a claim for a

deduction made by the appellant purportedly mder Dlvision 10B of

Part 111 of the Income Tax Assessment Act 1936 ("the Act"), in

respect of two taxation years, in connection wich the production I

of a film. The assessments were upheld, except as to an amount

of something over $2000. The Board's decisions were delivered on

6 February this year, and there are, we	are told, instructions
for an appeal.

A clalm WEE also made for $an income tax deduction of

$500,000, in part in reliance upon section 26A9(2) of the Act,

which relates to annuities, and in part on s.51 of the Act, for interest paid on money borrowed to purchase the annuities.

I. L

His Honour was of the view that there could possibly be

- . .

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a bona fide dispute about this amount. There was no evidence

either way concerning the merits of the matter, and His Honour

expressed the view that the deduction as claimed would at the

least be extremely difficult to sustain.

Although counsel has invited us to make a close analysis

of what his Honour said in his fully stated reasons Concerning

4 .

his refusal of the applications, we are quite 1,nable to discern

any valid basls f o r Interfering with his decisions. We have no

reason to doubt that what his Honour did was entirsly correct.

The position of the appellant has of course been weakened

somewhat in the meantlme by reason of the decision of the Board

of Review to which we have referred.

Counsel for the appellant submitted at the outset that

no attempt should be made to lay down rigid rules concerning what	I
should, and what should not, be taken into account, and how it

.. should be weighed, in applications such as those TJhlch were made

.. ..

-..

in the present case. We agree that, within wide limlts, this 1s

5 0 . Thke cases show that in different circumstances part,icular

matters are given different weignt.

Some things are apparent in a case such as the present.

In the first place, it is qulte proper, given appropriate

circumstances, that an adjournment for some period be allowed on

the fcsotfng that an assessment; 1 s under challenge. In

considering the situation, the policy and purpose of 5.201 of the

Act are important factors. At the same time a court sitting in

bankruptcy cannot esplore the merits of ths reference or appeal,

except on the widest footing, to see on the one hand if a

challenge to the assessment is plainly without merit, or on the

l

other hand if assessment I s manifestly erroneous. Oppressiveness

in proceeding with the hearing of the petition is always a

consideration, but this consideration has to be balanced against

5.

the intended operatlon of s.201.

Counsel submltted in the presert case that an 1r .qulry

should be made as to the amount likely to be recovered in a

bankruptcy, and if It ~ 7 a s nil, or small; that thls was a telllnq

factor in favour of an ad~ournment, if not a disrissai.

The bankruptcy court considerlng a petition for a

I

sequestration order does not usually explore the matter of the

debtor‘s assets, and what can be brought lnto his estate, or what

might be done in connection with accepting or rejecting the

claims of other crnditors. bJhether and to wh3.t extent it is

appropriate to carry out an investigation of these matters does

not arise for decislon In the present case. It would certainly

seem very unusual to carry out such	an	investiqation on	an
application for an adjournment.

In the present case, his Honour commented in another

context that the taxpayer (a medical practitioner) seemed to have

little in the way of assets, but that was not, a ground for

allowing an adjournment or a dismissal.

What we have said deals sufficiently, we believe, with

the submissions that have been put. In our	vi?-	the apFeal
should be dismissed with costs.

I certify that this and the four preceding pages are a true copy of the

Reasons for Judgment herein of their Honours I4r.Justice Fox, Mr. Justice McGregor

and Efr:.Justice Wilcax.	&	Associate
Dated: 22 February,l985

3.

4 .

5 .

L .he int,end~ed operation of 5 .201 .

5-?I..11-1 5- 4.1 ~n:s.;*.< r,r, 'h ,:,rte.

I c e r t i f y t h a t t h i s and the four precedlng pages are a t rue copy of the

Reasons for Judment herein	of t h e i r Honours >lr..Justice Fox, Irlr.Justice Vdregor
Dated: 2 February,1955