Verma, Virendra Kumar v Deputy Commissioner of Taxation

[1983] FCA 388

I N THE FEDERAL CO'JRT OF AUSTRALIA 1

)

GENERAL DIVISION	1
1
BANKRUPTCY DISTRICT OF T I E STATE	) No. B4803 of 1983
1
O F NEV SOUTH WALES AND THE	1 )

AUSTRALIAN CAF'ITAL TERRITORY 1

- R e : VIRENDR4 1UJK4R VEREIA

A p p l i c a n t -

E x p a r t e : DEPUTY COFDIISSIONER OF TAXATION

Respondent

O R D E R

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JUDGE PIAKING ORDER:	Neaves J .
DATE OF ORDEP,:	22 Decenber- 1983
IJHERE MADE:	Sydney

THE COURT OPXERS THAT:

1. The t i m e f o r c o m p l i a n c e r r i t h the Bankruptcy

Notice dated 17 Octobe r 1983 be extended up

t o and i n c l u d i n g 13 J a n u a r y 1 9 8 4 .

2. Otherwise the a p p l i c a t i o n be r e f u s e d .

3. T h e a p p l i c a n t p a y the r e s p o n d e n t ' s costs of

the a p p l i c a t i o n .

- IN THE FEDERAL COURT OF AUSTRALIA )

)

GENERAL	D I V I S I O N	)
1

BANKRUl'TCY DISTRICT OF THE STATE ) No. B 4803 of 1983

)

OF NEW SOUTH WALES AND THE	) )
AUSTRALIAN CAPITAL TERRITORY	)

- Re : VIRENDRA K W A R VEF3L4

Applicant ^ .

Ex p a r t e . DEPUTY CONNISSIONER OF TAXATION

Respordent

COP*I.	Peaves J.
__	DATE :	22 December 1983

PJZASONS FOR JUDGIEENT

This mat ter comes before the Court by way of

an appl icat ion dated 7 November 1983 f l lec! on behalf of

Virendra €:mar Verma (" the appl icant" ) . A s f i l e d t h e

application sought the following orders -

"1. That he Bankruptcy Notlce dated 1 7 October,

1983 be s e t a s i d e .

2. That he time for compliance with the s a i d

Bankruptcy Notice	be extended to 7th
November.

1.

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3. Fur the r o r o the r o rde r s . "

Upon t h e f l l i n g of the appl ica t ion a Deputy

Reg i s t r a r in Bankruptcy, pursuant to sub-section 41(GB) of

the Bankruptcy Act 1 9 6 6 , extended the t i m e for compliance

with the requirements of the not ice	up	t o	and	including
1 2 December 1983.

When tke appl ica t ion came on fo r hea r ing on t h a t

day the appl icant d id not seek an order that the bankruptcy

n o t i c e be sec aside but an o rde r t ha t t he t ime fo r compliance

wi th the no t i ce be ex tended un t i l fu r the r o rde r . Having

heard argument I reserved my dec is ion and , in order to

preserve the p o s i t i o n , I extended the t i m e f o r compliance

unEil furcher order of the Court intending thereby unt i l I

gave judgnent on the application.

In suppor t o f the appl ica t ion an a f f idavi t was

sworn by William Paul O 'Br ien , the so l ic i tor for the appl icant ,

on 7 Xovember 1983. Paragraphs 2 and 3 and so much of para-

graph 4 as ~7as admitted in evidence read as follows -

"2 . On 3rd June 1983 the Respondent assessed

income tax payable by the Applicant for the

f inancial year 30th June 1982 a t $321,817.88.

Subsequently the Respondent obtained judgment

f o r t h a t amount i n t h e Supreme Court of New

South Wales. I am informed by the Appl icant ' s

Accountant J . E . Cains of Nominee Bosco Account-

ing Company F t y . Limited and be l i eve tha t a

Notice of Objection has been lodged against

that assessment and t h a t i f the objec t ion

succeeds the Appl icant ' s l i ab i l i ty for income

t a x f o r t h e f i n a n c i a l y e a r ended 30th June 1982

will be reduced to n i l .

2 .

3 . I am informed by the Applicant and be i ieve

that on 35th Ortoher 1 0 8 3 he receivecl a rlocu-

ment pu rpor t ing to be a 14 day Bankryptcy

Notice claiming the sum of $331,793.67.

The v a l i d i t y of t h a t document i s not admit ted.

4 . On t h e 1 s t November the Applicant appl ied t o

t h e Respondent f o r r e l e a s e lrom income t a x

l i a b i l i t y on the ground that the exact ion of

t h e f u l l amount of tax sought will e n t a i l

ser ious hardship tc the Applicant .”

I t soon transpired that paragraph 2 o f t he a f€ i -

dav i t r.ras not an accurate s ta tement of the facts except i n .

so f a r as it r e f e r r e d t o a j u d p e n t having been obtained in

t h e Supreme Court of New South Wales by the Deputy Commissioner

of Taxation ( “ the respondent“) against the applicant. There

was thus d isc losed a iamentable lack of care and attention

t o de ta i i v h i c h r e f l e c t s no c r e d i t on the deponent.

Having read Mr. O’Br ien ‘ s a f f idav i t counsel f o r

t h e a p p l i c a n t s t a t e d t h a t t h a t was the only evident iary

ma te r i a l on rrhich he r e l i e d . Upon it being pointed out to

counsel that that aEEidavi t d i d not provide a s u f f i c i e n t

b a s i s f o r t h e making of the order sought , counsel re l ied

upon paragraphs 1 t o 9 inclusive of an aff idavi t sworn on

9 December 1983 by Graeme Bruce Sutton, an officer of t h e

Austral ian Taxat ion Off ice , and f l l e d on behalf o f the

respondent in suppor t o f the not ice of i n t e n t i o n t o oppose

the orders sought by the app l i can t .

The judgment debt on whlch the bankruptcy notice

served on the app l i can t was based comprised income t z x

asses sed to the app l i can t m respec t of income derived

,

during the years ended 30 June 1 9 7 9 and 30 Jum? 1980 dud

a d d i t i o n a l t a x f o r l a t e payment. The n o t i c e of assessment

i n r e s p e c t o f the year ended 30 June 1979 was issued on

2 Ju ly 1980. It tras based on a taxable income of $132,442,

the t ax ( inc luding provis iona l tax) payable b ing assessed . .

a t $181,165.79. The da te on which t h a t amount o f t a x became

due and payable was 4 August 1980 . In r e spec t of the year

ended 30 June 1980 the notice of assessment was issued on

-

3 December 1981. It was based on a taxable income of

$140,531, t h e tax ( inc luding provis iona l tax) payable betng

$82 ,790 .27 . That amount of t a x became due and payable on

4 January 1982.

The appl icant wi th in the prescr ibed time lodged

no t i ces of object ion against each of the above assessments.

The no t i ces a re da t ed r e spec t ive ly 8 August 1980 and

1 9 January 1 9 8 2 . By the no t i ce of ob jec t ion in respec t of

the assessment for the year ended 30 June 1979 the appl icant

a s se r t ed -

(a) tha t t he a s ses sab le income should be

reduced by an amount of $3,265.

(b ) . _ t ha t a deduction of $140.000 should

have been allowed under section 124E.I

of the Income Tax Assessment Act 1936

"for a capi ta l investment i n the copy-

r igh t o f t he	f i l m	'Progress	f o r	Two-.
Nations"'.

( c ) t h a t t h e smn o f $38,068.87 included in

the assessment as addi t ional	tax	should
not have been included therein.

In respect of the year ended 30 June 1980 t h e

objec t ior . asser ted tha t the appl icant was e n t i t l e d t o a

deduction oE $ 1 4 0 , 0 0 0 f o r a capi ta l investment i n t h e

copyright of the f i l m "Progress f o r Two Nations".

The objections were disallowed by the respondent .

Notif icat ion of the disal lowance 1.7a.5 give11 t o t h e a p p l i c a n t

on 3 March 1983. By l e t t e r s d a t e d 2 1 March 1983 t h e

appl icant reques ted tha t each matter be r e f e r r e d t o a

Board of Review. The matters have not as y e t been so

r e f e r r e d .

In Clyne v . Deputy Commissioner of Taxatlon

( 1 9 8 3 ) 57 A . L . J . R . 6 7 3 Gibbs C . J . (with whom the o the r

rnembers of the Court agreed), dealing with an argument that

a bankruptcy notice should have been set aside because the

judgment on which i t was Eounded was based on a tax claim

which vas wholly disputed, said a t p. 674 -

"The r u l e t h a t a court of bankruptcy may,

i n cerEain cases,	go behind a judgment t o
determine whether	i t is founded on a real debt

can have no application i n the present case .

If the Court were to go behind the jud,ment

it would be faced wi th the not ice of assess -

ment which, under S . 1 7 7 (1) of the Income Tax .

Assessment Act, i s conclusive and wi th the

provis ions of S . 201 o f t ha t Act which pe rmi t

the recovery of tax as i f no appeal were

pendlng. O f course, the court which gives

judgment has a d i sc re t ion to s t ay execu t ion

in appropr ia te c i rcumstances but a s t a y of

execution was re fused in the present case .

The argument t h a t i f an assessment t o tax

i s disputed no bankruptcy notice can be

founded upon t h e judgment in r e spec t o f the

t a x u n t i l t h e d i s p u t e i s resolved by the

ult imate court of appeal cannot possibly be

accepted."

5 .

T h e Full Court of t h i s Court i n t h e same mat te r ,

reportpd (1987) 115 A.L.R. 323, s a id a t p . 329 -

“IJhatever t h e e f f e c t on the ind iv idua l

taxpayer It i s c l e a r t h a t by S 201 o f t h e

Assessment Act t h e l e g i s l a t u r e a u t h o r i z e s

t h e Commissioner, no doubt i n t h e i n t e r e s t s

of the revenue , to recover income tax not-

wi ths tanding tha t a re ference or appeal i s

pending in respect of the assessments .

This does not mean t h a t where the Commissioner

has become a judgment c r e d i t o r and has i ssued

a bankruptcy notice based on the judgment

the court has no d i s c r e t i o n t o set t h e n o t i c e

aside. However, it is c l e a r t h a t t h e mere

Tendency of a re ference or an appeal in

respec t o f the assessment will n o t o f i t s e l f ,

in the absence of special c i rcumstances,

r eou i r e the exe rc i se of d i s c r e t i o n t o s e t

as ide : Re Roma Indus t r i e s P ty L t d (1976) 76

ATC 4113; Portuna Holdings P t y L t d v. DFC of

-	T (1976) 76 ATC 4312, although Circumstances
may be such tha t the exerc ise of the d i s -
c r e t i o n t o set a s ide a bankruptcy notice,
a bankrup tcy pe t i t i on o r a winding up p e t i t i o n
is c a l l e d f o r : cE Re Norper Investments Pty
- L t d (1977) 15 ALR 6 0 3 ; 77 ATC 4212.“

I n a case such as th i s the cons idera t lons

r e l e v a n t t o the question whether a bankruptcy notice should

be set a s ide a re similar to those re levant to the ques t ion

rvhethcr time f o r compliance with the notice should be

extended until the dispute concerning the assessments to

income t a x i s reso lved . As Lockhart J. s a i d i n Re S te r l ing ;

Ex p a r t e Esanda Ltd. (1980) 30 A.L.R. 77 a t p. 8r1 -

“It i s ne i ther necessary nor d e s i r a b l e f o r

me t o s t a t e e x h a u s t i v e l y t h e m a t t e r s which an appl icant for extension of time must show t o

obta in an o rder for ex tens ion . T h i s w i l l

depend on the facts of each case. Orders f o r

extension of t ime will not be made as of course.

Grounds must be es tab l i shed . It i s as well t o

remember t h a t t h e power t o s e t a s i d e t h e n o t i c e

and t h e por7er to extend t ime for compliance are

necessa r i ly r e l a t ed . Fo r i n s t ance , i f t he

a p p l i c a t i o n t o s e t a s i d c i s made on t h e b a s i s

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t h a t no debt l i e s behind the judgment, the

cour t may conduct a prcllminary cnquiry as I ,

to whether it should go behind the judgment.

H i s Honour went on -

"There a r e sound reasons tghy s u b s t a n t i a l l y

t h e same considerations should apply i n dea l ing

wi th app l i ca t ions to se t a s ide bankrup tcy

no t i ces . I '

Although there i s "no g e n e r a l r u l e t h a t t h e

Court must se t as ide bankruptcy not ices or extend t i m e

fo r t h e i r compliance where there i s a dispute genuinely

based on substantial grounds" (per Lockhart J. i n Clyne

v. Deputy Commissioner of Taxation (1982) 8 2 A.T.C. 4484

a t p . 4 4 8 7 1 , the Court has a d i sc re t ion t o do so i f i t i s

s a t i s f i e d t h a t it i s proper to do so i n all the circumstance

of t he case .

The a p p l i c a n t i n t h e p r e s e n t case has p u t no

mater ia l before the Cour t to show t h a t t h e r e i s a d ispute

"genuinely based on substant ia l giounds." Kor has any

argument been presented identifying t h e i s s u e s t h a t a r e

s a i d t o a r i s e and upon which the Court might Eorm some

impression of the l ikel ihood of the appl icant succeeding

.

before the Board of Review. The app l i can t has r e l i ed

s o l e l y upon the a s se r t ions con ta ined in the not ices of

ob jec t ion and the per iod of delay between the not ices being

lodged and the appl icant being not i f ied that the object ions

had been disallowed. 'Wtde the period oE delay i s sub-

s t a n t i a l it p rov ides , o f i t s e lE , no s u f f i c i e n t b a s i s f o r

/..

concluding tha t there a re ser lous ques t ions based on

substznt ia l grounds for r e s u l u t i o u bcL~reer~ Lhe appl icant

and the respondent.

The appl icant has taken no s t eps to seek a s t a y

of execution of the judgment on which the bankruptcy notice

i s based. It i s , of course, open to him t o do s o . Fur ther ,

he may, without payment of the amount of the judgment debt,

secure payment t h e r e o f t o t h e s a t i s f a c t i o n o f t h i s Couzt o r

.

the respondent . He has taken no s t e p s i n t h a t r e g a r d .

I should a l so add t h a t t h e a p p l i c a n t d i d n o t

seek t o r e l y on the ground of hardship and put no mater ia l

before the Court on t h a t i s s u e .

I n a l l t h e c i r c u m s t a n c e s I am of opinion that

the appl icat ion should be refused and I so order . However,

t o g ive the app l i can t a l a s t o p p o r t v n i t y t o comply wi th

the bankruptcy not ice , I extend the time for compliance

up t o and including 13 January 1984 . The appl icant must

pay the respondent ' s cos ts of the appl ica t ion .

I c e r t i f y t h a t this and the preceding

seven ( 7 ) pages are a true copy of the

Reasons f o r Judgment herein of the

Honourable Mr. J u s t i c e Neaves.

DATED. 22 December 1983

Associate

8.

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