Manawatu Taxis Ltd v Commissioner of Inland Revenue HC Palmerston North CIV-2007-454-163

[2007] NZHC 1949

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

CIV-2007-454-163

BETWEEN  MANAWATU TAXIS LIMITED Applicant

ANDCOMMISSIONER OF INLAND REVENUE

Respondent

Hearing:         17 July 2007

Appearances: F Hill for Applicant

M Ross & K A Doherty for Respondent

Judgment:      17 July 2007

ORAL JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

[1]      Before me is an application by the applicant to set aside a statutory demand.

[2]      The  statutory  demand  issued  by  the  respondent  claimed  the  sum  of

$13,318.33 for income tax and goods and services tax claimed to be outstanding from the applicant.

[3]      Under  s  290  Companies  Act  1993  the  Court  has  jurisdiction  on  the application of an applicant company to set aside a statutory demand so long as:

a)        The application is made and served on the creditor within 10 working days of the date of service of the demand; and either

b)There is a substantial dispute as to whether or not the debt is owing or due; or

MANAWATU TAXIS LIMITED V COMMISSIONER OF INLAND REVENUE HC PMN CIV-2007-454-163

17 July 2007

c)       The company appears to have a counter-claim set off or cross demand and the amount specified in the demand (less the amount of the counter-claim set off cross demand) is less than the prescribed amount of $1,000; or

d)       The demand ought to be set aside on other grounds.

[4]      Before me today Mr Hill appeared  as  authorised  agent  for  the  applicant company.   He indicated that he is a director of the applicant.   Ms Ross for the respondent noted that the Commissioner did not oppose Mr Hill appearing today as agent for the applicant.  Matters proceeded on that basis.

[5]      Also before me today Ms Ross for the respondent confirmed that certain monies have been paid or credited by the applicant towards the amount claimed in the statutory demand.  That said as I understand the position, the amount now due according to the respondent is the sum of $10,905.18.

[6]      So far as the amount claimed in the statutory demand is concerned, as I understand the position, it reflected Income Tax and GST for two defined periods. The first of these related to actual returns for Income Tax and GST electronically filed on behalf of the applicant company for the periods (in the case of Income Tax)

31/3/2003  to  31/3/2005  and  (with  respect  to  GST)  the  period  31/5/2003  to

30/9/2005.

[7]      The second period in question related to GST for the period 31 May 2006 to

30 November 2006.  For this period no GST returns were apparently filed and the amounts in question represented default assessments issued by the respondent.

[8]      Before me today Mr Hill for the applicant company indicated that actual GST returns for the period 31 May 2006 to 30 November 2006 have now been filed electronically, this occuring only yesterday.  Ms Ross for the respondent confirmed that she was not aware that this had occurred.

[9]      As I understand the grounds advanced by the applicant to support the present application, broadly speaking they are that the amount claimed by the respondent in the statutory demand is not due as, according to Mr Hill for the applicant, the recent returns filed would seem to indicate that no tax is outstanding.

[10]     In response Ms Ross for the respondent made two major submissions.  The first of these was that the amount claimed in the statutory demand was calculated upon the basis of actual electronic returns filed by the company itself together with the default assessments noted above.  So far as amended assessments are concerned, Ms Ross referred me to s 113 Tax Administration Act which provides the Commissioner of Inland Revenue with a discretion to accept amended returns and to issue amended assessments.   Ms Ross confirmed that the  applicant  company is presently under an audit by the Commissioner of Inland Revue and in addition various amended returns in the past have been rejected by the Commissioner in exercise of this s 113 discretion.

[11]     Secondly, Ms Ross noted that the GST returns for the previously defaulted period of 31 May 2006 to 30 November 2006 similarly might be rejected by the Commissioner in exercise of his discretion under s 113.

[12]     That  said,  as  I  understand  the  submission  advanced  on  behalf  of  the respondent, the only evidence before the Court with respect to the amounts claimed in the statutory demand are the unopposed statements made in support of the respondent’s opposition.

[13]     Ms Ross contended therefore that there can be no question here that the applicant’s  claim  that  the debt  claimed  in  the  statutory demand  is  subject  to  a substantial dispute or some counter-claim set off or a cross demand is unsupportable.

[14]     Mr Hill for the company as best I can tell disputed this.  He endeavoured to argue that when the complex  of returns  and assessments over what has been a reasonably lengthy period are finally resolved this should show that the company is not  indebted  to  the  Commissioner.    Regrettably  there  was  no  evidence  of  any

significant kind placed before the Court to support those submissions made by Mr

Hill.

[15]     Notwithstanding that, during the course of the hearing today I discussed with Mr Hill as counsel for the applicant and Ms Ross as counsel for the respondent whether there was some pragmatic basis upon which a payment might be made into Court to provide the respondent with some assurance of the applicant’s solvency until initial issues regarding the statutory demand debt are resolved.

[16]     In response Mr Hill for the applicant company after discussion with another shareholder/director of the company, indicated that within a period of 14 days from today the company should be in a position to organise funds to pay into Court the

$10,905.18 claimed balance in the statutory demand.

[17]     In  turn  Ms  Ross  for  the  respondent  also  indicated  to  me  today that  the respondent would accept a resolution of this matter on the basis of this payment being made into Court provided that a finite period was allowed first to enable the Commissioner to process the amended electronic GST returns Mr Hill states were filed yesterday and secondly to clarify the final amounts due under the statutory demand.

[18]     It is clear on the authorities that an applicant is required to show a fairly arguable basis for setting aside a statutory demand – Queen City Residential Ltd v Patterson Co-Partners Architects Ltd (Number 2) (1995) 7 NZCLC 260, 396.

[19]     It  is  also  clear  that  the  Court  is  entitled  to  impose  conditions  when considering an application to set aside a statutory demand when a setting aside order is made – s 290(7) Companies Act 1993.  As  Morrisons Companies and Securities

Law Vol II at para 56.3 states:

….if the Court is satisfied that there is a debt due that is not the subject of a substantial dispute or is not subject to a counter-claim set off for or cross- demand, the Court may either order the company to pay the debt within a specified period specifying that in default of payment the creditor may make an application to put the company into liquidation; or may dismiss the application  and  make  an  order  for  liquidation  on  the  grounds  that  the company is unable to pay its debts.  If the Court imposes a requirement to

pay the debt within a specified period and that requirement is not complied with, that failure will be prima facie evidence that the company is unable to pay debts. – Section 291(2) Companies Act 1993

[20]     In the present case considerable material has been filed in Court both on behalf of the respondent particularly but also by the applicant with regard to the company’s GST and income tax returns and assessments over a reasonably lengthy period of time.

[21]     In my view an appropriate course of action in this case is for payment of the balance amount claimed in the statutory demand to be required to be paid into Court and then to be held until a reasonable period of time is given to clarify the amounts properly due under the statutory demand.

[22]     In  return  I  am  satisfied  that  the  present  statutory demand  issued  by the respondent may be set aside subject to appropriate conditions for the payment to be made into Court.

[23]     That said, the following orders are now made:

a)       The  statutory  demand  issued  by  the  respondent  is  now  set  aside subject to the conditions which follow;

b)       The applicant company Manawatu Taxis Ltd is by 5 pm on 31 July

2007 to pay into this Court the sum of $10,905.18.   This sum once paid is to be held on interest bearing deposit subject to the conditions following.

c)       If the applicant Manawatu Taxis Ltd defaults in making payment of this $10,905.18 into Court by 5 pm on 31 July 2007 then the Respondent Commissioner may immediately bring an application to this Court to place the applicant Manawatu Taxis Ltd into liquidation.

d)It is envisaged that this $10,905.18 will be retained in Court for a period of no more than four months from today.  These monies are to

be retained however pending final resolution of the amount due to the

Respondent Commissioner as claimed in the statutory demand.

e)       Leave is therefore reserved for either party at any time on five days notice to  apply to  the  Court  for  further  orders  or  directions  with respect to the $10,905.18 amount retained.

[24]     With regard to the issue of costs, no submissions were made to me today on this issue.  If the parties are unable to reach agreement on this question of costs and the matter is in issue between them then in this event memoranda may be filed and I will decide the issue of costs based upon the material which is before the Court.  So far as the respondent is concerned, I certify for one counsel only.

‘Associate Judge D I Gendall’