Commissioner of Inland Revenue v Faghriyar
[2020] NZHC 1256
•8 June 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-000189
[2020] NZHC 1256
BETWEEN COMMISSIONER OF INLAND REVENUE
Applicant
AND
WAHEEDULLAH FAGHRIYAR
First Respondent
ATTORNEY-GENERAL on behalf of REGISTRAR OF COMPANIES
Second Respondent
Hearing: On the papers Counsel:
A B Goosen for Applicant
Judgment:
8 June 2020
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by Associate Judge Andrew on 8 June 2020 at 3.30 pm
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar Date………………………
COMMISSIONER OF INLAND REVENUE v FAGHRIYAR & OR [2020] NZHC 1256 [8 June 2020]
Introduction
[1] The applicant, the Commissioner of Inland Revenue (Commissioner), seeks orders restoring the company, Discount Tyres and Mechanical Ltd (struck off) (company No. 1882536), to the New Zealand Companies Register. She also seeks leave under r 19.5 of the High Court Rules to commence an originating application under s 89L(1B) of the Tax and Administration Act 1994 (TAA), to extend the time for issuing a challenge notice to the first respondent and to the company in respect of various tax disputes. She seeks a further order that in accordance with s 89L(2B) of the TAA that the time for issuing a challenge notice under s 89P(1) in respect of the first respondent’s tax dispute be extended by 12 months.
[2] The Commissioner says that she seeks these orders so that the tax position of the first respondent and the company can be correctly determined according to law, and payment of the resulting tax debts can be claimed. It is said that the correct determination of the company’s and the first respondent’s tax positions is also necessary to determine the first respondent’s challenge to restraining orders (and applications for forfeiture) that the New Zealand Police have obtained over property situated in Auckland.
[3] The Commissioner contends that the company should be restored to the Register under s 329(1)(a)(iv) of the Companies Act 1993 because she has an undischarged claim against the company for unpaid income tax and GST. Alternatively, it is contended that it would be just and equitable for the company to be restored to the Register, and the Court should grant leave for the Commissioner to bring her application (s 329(1)(b) read with s 329(2)(c) of the 1993 Act).
[4] The Commissioner says that the Court should allow more time, under s 89L(2B) of the TAA to issue challenge notices because the tax disputes procedure contained in Part 4A TAA was interrupted and held in abeyance from May 2016 to December 2018 while criminal charges were brought against the first respondent and finalised. That is claimed to be an “exceptional circumstance” that prevented the Commissioner from issuing challenges to the company and the first respondent within the four-year time limit in s 89P(1).
[5] The first and second respondents have been served with the Commissioner’s applications but neither respondent has opposed them. The Registrar of Companies, the second respondent, has indicated that he will not appear and will abide the Court’s decision.
Background
[6] The company was incorporated on 6 November 2006. The first respondent, Mr Waheedullah Faghriyar, was sole shareholder and director.
[7] From November 2006, the company conducted the business of a retail tyre shop at 98 Great South Road, Otahuhu, and exported second-hand motor vehicle parts to the United Arab Emirates.
[8] After the company failed to file income tax returns for the 2009 – 2013 years, between 13 October 2015 and 18 October 2015, the Commissioner issued default income tax assessments for the income earned by the company in those years.
[9] After the company failed to file GST returns for the two-monthly periods ended 30 April 2008 to 31 December 2012, between 13 October 2015 and 18 October 2015, the Commissioner issued default GST assessments for GST output tax in those periods.
[10] After the first respondent failed to file income tax returns for the 2009 – 2013 years, between 13 October 2015 and 18 October 2015, the Commissioner issued default income tax assessments for income earned by the first respondent in those years.
[11] In October 2015, in a proceeding instituted against the first respondent, the New Zealand Police obtained a High Court restraining order over three Auckland properties. Two of those properties had previously been owned by the company before being transferred to a company owned by the first respondent’s brother.
[12] On 12 February 2016, the company and the first respondent disputed the Commissioner’s assessments by issuing Notices of Proposed Adjustment, under s 89D
of the TAA, which commenced the disputes procedure contained in Part 4A. That was followed by the Commissioner issuing Notices of Response under s 89G on 8 April 2016.
[13] On 20 May 2016, the company and the first respondent rejected the Commissioner’s Notice of Response.
[14] On 8 July 2016, at a time when the disputes procedure in Part 4A of the TAA was under way but had not been completed, and after the company had failed to file its annual returns, the company was removed from the Register.
[15] For the period from 24 May 2016 to 14 December 2018, the disputes procedure in Part 4A of the TAA, for both the company and the first respondent, was held in abeyance while criminal charges were brought against the first respondent and finalised in order to protect the fair trial rights of the first respondent.
[16] The criminal prosecution concluded on 14 December 2018, when the respondent was sentenced and the disputes procedure in Part 4A of the TAA was re- commenced.
[17] As part of the disputes process, non-statutory facilitated conferences were held on 19 May 2019 and 16 August 2019. The conference stage has not been concluded.
Relevant legal principles
[18] Under r 19.2(c) of the High Court Rules 2016, an application to the Court under s 329 of the 1993 Act must be made by an originating application.
[19]Section 329(1) of the 1993 Act reads:
329 Court may restore company to New Zealand register
(1)The Court may, on the application of a person referred to in subsection
(2) of this section, order that a company that has been removed from the New Zealand register be restored to the register if it is satisfied that, –
(a)at the time the company was removed from the register, –
(i)the company was … carrying on business or [a proper] reason existed for the company to continue in existence; or
(ii)the company was a party to legal proceedings; or
(iii)the company was in receivership, or liquidation, or both; or
(iv)the applicant was a creditor, or a shareholder, or a person who had an undischarged claim against the company; or
(v)the applicant believed that a right of action existed, or intended to pursue a right of action, on behalf of the company under Part 9 of this Act; or
(b)for any other reason it is just and equitable to restore the company to the New Zealand register.
[20] If one of the grounds in s 329(1)(a) of the 1993 Act is proved, the Court has a discretion whether to restore the company. However, if one of the s 329(1)(a) grounds are established, restoration should follow unless some factor telling against restoration applies.1 In those circumstances, the respondent has the onus to make out its case for any discretionary factors against restoration.
[21] The “just and equitable” ground under s 329(1)(b) does not require consideration if the Commissioner can satisfy the Court of one of the grounds in s 329(1)(a). The more general “just and equitable” basis allows discretionary factors going both ways to be considered.2 An evaluative judgment is required.3
[22] Where an applicant wishes to have a company restored to the Register for the purpose of stating or continuing a legal proceeding against the company, the Court is not required to conduct an in-depth assessment of the merits of the applicant’s claim.4 As long as the applicant appears to have a genuine case (which is not statute-barred), the courts do not require an applicant to prove more.
Analysis and decision
[23] I find that the Commissioner has an undischarged claim against the company for unpaid income tax and GST as a result of her issuing default assessments. The
1 Wellington City Council v Registrar of Companies [2015] NZHC 572, [2015] 3 NZLR 411 at [97].
2 Wellington City Council v Registrar of Companies, above n 1, at [97].
3 Commissioner of Inland Revenue v Commercial Management Ltd [2019] NZCA 479 at [32].
4 Commissioner of Inland Revenue v Commercial Management Ltd, above n 3, at [67].
company, before it was struck off, commenced the disputes procedure in Part 4A of the TAA disputing the correctness of those default assessments. That the Commissioner is unable to immediately claim payment through court proceedings instituted against the company until the disputes procedure in Part 4A and any challenge under Part 8A (any subsequent appeals) have been determined,5 does not have the effect that the Commissioner does not have a claim against the company. Unless the Commissioner’s assessments are set aside under the challenge procedures, she will have the right to recover unpaid tax by suit in her own name.6
[24] A person who has a contestable claim against a company who has not yet started proceedings has standing and a ground to apply for restoration on the basis that they have an undischarged claim against the company.7
[25] I accordingly find that the Commissioner has standing to bring the application and that she has established, because she is a person who had an undischarged claim against the company (s 329(2)(a)(iv)), the necessary ground to have the company restored to the Register. I find therefore that the company should be restored to the Register.
[26] In the circumstances, it is not necessary to determine the alternative ground for restoration, namely the “just and equitable” ground. However, were it necessary to decide the point, I would accept the Commissioner’s submission that in the circumstances here it would be equally “just and equitable” to grant the restoration order sought.
[27] I now turn to consider the application under s 89L(1B) of the TAA to extend time to issue challenge notices.
[28] I find that it is appropriate that this application be brought by way of originating application:8
5 Tax and Administration Act 1994, s 138L.
6 Tax and Administration Act 1994, s 156.
7 Wellington City Council v Registrar of Companies, above n 1, at [85].
8 Commissioner of Inland Revenue v McIlriath (2003) 21 NZTC 18,112 at [15]–[17]; Hong Kong and Shanghai Banking Corporation Ltd v Erceg (2010) 20 PRNZ 652 (HC) at [25]–[26].
(a)The application concerns a confined matter;
(b)Particularised pleadings are not required;
(c)Discovery is not necessary in order to progress the matter;
(d)Evidence can be dealt with by way of affidavit and oral evidence is not required;
(e)Commencing the proceeding by way of originating application will ensure just, speedy and expedient determination of this matter.
[29] I now turn to address the merits of the application to extend time under s 89L(2B) of the TAA.
[30] Unless the Court extends the time to issue a challenge notice,9 under s 89P(1) of the TAA, the Commissioner must issue challenge notices to the first respondent and the company within four years of them issuing a Notice of Proposed Adjustment. They both issued their Notices of Proposed Adjustment on 12 February 2016. Accordingly, the four-year period expired on 11 February 2020.
[31] I accept the submission of the Commissioner that she was not in a position to issue challenge notices before the four-year period expired.
[32] Under s 89P(3), the Commissioner may not issue a challenge notice before she issues a statement of position unless one of the exceptions apply.10 No exception applies here. However, the Commissioner was not in a position to issue statements of position before the four-year period in s 89P(1) expired because she is required to issue her statement of position in response to a disputant’s statements of position and those have not yet been issued.11
9 Under s 89L(2B)(a) or s 89J(2) applies (which is not relied upon).
10 Tax and Administration Act 1994, s 89P(3).
11 Tax and Administration Act 1994, s s 89M(6B)(a).
[33] The next step in the disputes procedure under Part 4A is for the Commissioner to issue a disclosure notice to the company and first respondent, which will trigger the requirement for them to each issue their statements of position.12
[34] Accordingly, when the four-year period expired, the dispute had not advanced to the point where the Commissioner was able to issue challenge notices. I accept that the consequence of that is that unless I extend the time to issue challenge notices, the Commissioner will be deemed to accept the adjustments proposed in the disputant’s Notices of Proposed Adjustments.
[35] Under s 89L(1B), the Commissioner may apply to the High Court for an order allowing her to issue a challenge notice after the expiration of four years as provided in s 89P(1) if:
(a)She considers an exceptional circumstance applies or has prevented her from issuing the challenge notice within the four years; and
(b)She applies within the four years.
[36] I accept that the Commissioner filed the application on 10 February 2020 and that is within the four-year time limit in s 89P(1). Therefore, the only issue for my determination is whether an exceptional circumstance has been established.
[37]Section 89L(3) of the TAA defines “exceptional circumstances” as:
… an event or circumstance beyond the control of the Commissioner or officer of the department that provides the Commissioner with the reasonable justification for not rejecting the adjustment proposed by a disputant within the response period.
[38] Accordingly, when faced with an application under s 89L(1B), the Court is required to identify a qualifying event or circumstance, evaluate whether that provides reasonable justification, and exercise a residual discretion.13
12 Tax and Administration Act 1994, s, s 89M(5).
13 See the Court of Appeal’s analysis of a similar provision in Commissioner of Inland Revenue v Fuji Xerox NZ Ltd (2002) 20 NZTC 17,470 (CA) at [13].
[39] I accept the submission of the Commissioner that the disputes procedure being held in abeyance for a period of approximately two-and-a-half years to protect the first respondent’s fair trial rights in criminal proceedings is:
(a)A qualifying exceptional circumstance beyond her control;
(b)That provides reasonable justification for not issuing timely challenge notices; and
(c)That the Court should exercise its residual discretion to grant the extension sought so that the tax positions of the company and the first respondent can be determined according to law.
[40] For all these reasons, I grant all of the orders sought in the Commissioner’s originating application dated 7 February 2020.
Result
[41]I make the following orders:
(a)The company, Discount Tyres and Mechanical Limited (struck off) (company No. 1882536) is restored to the New Zealand Register of Companies pursuant to s 329 of the Companies Act 1993;
(b)I grant leave to the Commissioner under r 19.5 of the High Court Rules, to commence an originating application under s 89L(1B) of the Tax Administration At 1994 to:
(i)extend the time for issuing a challenge notice to the first respondent in respect of the tax dispute commenced by his Notice of Proposed Adjustment dated 12 February 2016; and
(ii)extend the time for issuing a challenge notice to the company, Discount Tyres and Mechanical Ltd, in respect of the tax dispute
commenced by its Notice of Proposed Adjustment date 12 February 2016.
(c)That in accordance with s 89L(2B) of the Tax Administration Act 1994, the time for issuing a challenge notice under s 89P(1), in respect of the first respondent’s tax dispute, is extended by 12 months from the date of these orders.
(d)That in accordance with s 89L(2B), the time for issuing a challenge notice under s 89P(1), in respect of the company’s tax dispute, is extended by 12 months from the date of these orders.
[42]There is no order as to costs.14
Associate Judge P J Andrew
14 I note that the applicant only sought costs in the event that her application was opposed (see paragraph 1.6 of the originating application).
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