Commissioner of Taxation v Ryan M32/1998 [1998] HCATrans 466 (11 December 1998)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Melbourne No M32 of 1998

B e t w e e n -

COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

and

GWENDA BLANCHE RYAN

Respondent

Application for special leave to appeal

GUMMOW J

CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 11 DECEMBER 1998, AT 12.33 PM

Copyright in the High Court of Australia

MR G.A.A. NETTLE, QC: May it please the Court, I appear with my learned friend, MR T.P. MURPHY, for the Commissioner applicant. (instructed by the Australian Government Solicitor)

MR D.G. RUSSELL, QC: May it please the Court, I appear with my learned friend, MS J.J. BATROUNEY, for the respondent. (instructed by Hall & Wilcox)

GUMMOW J: We would be assisted by hearing from you in the first instance, Mr Russell.

MR RUSSELL: Certainly, your Honour. If the Court pleases, absent what we would call the Batagol point, there would simply be no special leave issue in these proceedings. The amount of money involved so far as the taxpayer is concerned is insignificant.

Our learned friends, we apprehend, propose to seek leave to file and read an affidavit saying that there are significant sums at stake in these proceedings because of the affairs of other taxpayers. We seek, in response to that, to seek leave to file and read in Court two affidavits, one by Anthony Ewen Macvean and the other by Keith William James, which simply exhibit correspondence which - - -

GUMMOW J: What will this show?

MR RUSSELL: Essentially, your Honour, that the Commissioner's statement that there is a very large sum of money - $1.2 billion in fact - at risk is not adequately established on the material to the satisfaction of the Court. The Commissioner's material says that there have been a series of notifications to taxpayers in various forms which disclose that no tax is payable. Our response to that is to say that may well be so but the Court would not be assisted by or persuaded by that material unless the Court were aware of what was contained in each such notice. They could range from what seems to have been little more than a "with compliments" slip attached to a refund cheque which was the document in issue in the third of the year in issue - - -

GUMMOW J: Am I right in thinking that in Batagol's Case the Commissioner's activity involved notations on taxpayers' files?

MR RUSSELL: For the first two years of three years, yes, your Honour. For the third year the Commissioner sent what appears - although the text of it is not set out in the judgment - to have been little more than a "with compliments" slip attached to a refund cheque.

GUMMOW J: And in this case there is some document that has gone of much more substance, on the face of it.

MR RUSSELL: Yes. It appears on pages 34 and 35 of the application book which describes the document as an assessment on 14 separate occasions. Effectively, all we are saying and all the Full Federal Court said was that, indeed, it was.

The point is very aptly taken by the judgment of Justice Merkel and the other members of the court agreed, at page 68 of the application book, line 14:

Indeed the distinguishing feature between that determination -

this is referring to the earlier document -

and the notice in Batagol is that the Commissioner, in his printed form, made it plain to the taxpayer that the determination is a refund notice on the basis of the assessment of the Commissioner set out in the notice.

GUMMOW J: Yes. Of course, the Commissioner founds on the text of section 170(3), does he not, at page 82?

MR RUSSELL: Yes, your Honour.

GUMMOW J: Which talks about "tax becoming due and payable".

MR RUSSELL: Yes. Your Honour, the answer to that, in our respectful submission, is the point that is taken in the reasons for judgment that section 204 of the Act provides for a deeming provision when - - -

GUMMOW J: The question is what does it deem, I suppose.

MR RUSSELL: Yes. We say that because of the operation of section 204, tax was due and payable for the purposes of section 170(3) 30 days after the issue of the notice of assessment. Indeed, if one goes to two things: first, the second reading speech of Sir Arthur Fadden, in introducing that amendment, that was explicitly what was intended but, perhaps more clearly, if one goes to the explanatory memorandum which accompanied the Act when it was initially introduced, the text of which we have set out at page 98 of the application book, paragraph 22 of our outline:

In practice, the Department concentrates on the examination and assessment of returns which disclose a taxable income, and the revision of non-taxable returns is, in many cases, deferred. As a result, assessments are at times issued in respect of these returns at a much later date.

I mean, there has never been any doubt about this, we would submit, in terms of the parliamentary materials. It is what was intended. It was always understood that what the Commissioner does, even in the case of circumstances in which there is no tax ultimately found to be payable, if the Commissioner does three things: he goes through the process of determining the amount of taxable income; he then determines the amount of tax payable in respect of that income, and he notifies the taxpayer, that he has done precisely what the Act requires him to do in each year which is to make an assessment and it is clear - - -

GUMMOW J: Now, the deeming point about section 204, Mr Russell, is that covered in Batagol?

MR RUSSELL: No, your Honour, it was not referred to.

GUMMOW J: That is what I thought.

MR RUSSELL: In fact, the legislation had been introduced and enacted a couple of months before Batagol's Case was determined and it plainly did not apply to that case because there had not been anything approaching a notice of assessment that had gone to the taxpayer. So, it could not have been relevant on any view of the facts, but it was not raised or referred to.

Your Honours, the other thing I should say in terms of our outline, because it is - - -

GUMMOW J: I suppose if leave were granted, you would be urging some special position as to costs?

MR RUSSELL: Yes, your Honour. There is, in fact, an understanding as between the parties in relation to costs anyway, your Honour. This is covered by the - - -

GUMMOW J: Would that need to be implemented by a Court order?

MR RUSSELL: It does not need to, no, your Honour.

GUMMOW J: Thank you.

MR RUSSELL: Your Honour, I should say that paragraph 22 of our outline, which I have referred to, because of a statement made in the applicant's reply, should have had the words after the word "Batagol" - this is on page 98 of the application book, line 15 - the word should be "if correctly regarded as having the effect for which the applicant contends". We do not need, on our submission, to contend that Batagol was wrongly decided in order to win but if the Court were minded to adopt - - -

GUMMOW J: I should tell you what is going through my mind. There just is going through my mind the idea that there is some question here as to what Batagol, in fact, decided and what these sections, in truth, mean. You may ultimately be right.

MR RUSSELL: Yes. Your Honour, we would say that whilst there - we certainly could not contend that there has not been a divergence of view, both within the Federal Court and between - - -

GUMMOW J: In the profession for some time at least.

MR RUSSELL: It certainly has been a matter of argument, your Honour, but we would say if one looks to the scheme of the Act, the plain words of the section and the logic, the conclusion which the Full Federal Court ultimately reached cannot be avoided. This result has been said in literature within the profession to be a sensible outcome. We would say if we had to put it at its highest - and we quote the decision in the context of the New Zealand Act in our outline - the question, really, is if the Commissioner.....and what was his statutory warrant for doing so. It is a proposition that appears in Lloyds Bank, at the top of page 100 of the application book: if he had not assessed us; if he did not issue an assessment as he said, and what had he been doing, because his only warrant for authority under the Act is assessment; and what was his authority for doing so.

GUMMOW J: Yes. Lloyds is an appeal from which jurisdiction?

MR RUSSELL: New Zealand, your Honour.

GUMMOW J: New Zealand?

MR RUSSELL: Yes. It was certainly said in the Privy Council that the wording of the Act was significantly different, which enabled them to avoid Batagol. The Full Federal Court, in our respectful submission, more correctly analysed it as saying there was no significant difference in the meaning of the Act and that the Lloyds Bank principle was self-evidently correct.

It is only if one goes to section 170(3) and asks whether the word "assessment" there must have a special meaning, it seems to us, that one can really avoid the fact that what the Commissioner did was precisely what section 6(1) of the Act says "assessment" is, namely, the ascertainment of the amount of taxable income of a taxpayer and the amount of tax payable thereon, and what Batagol added, and added clearly, was the point that because it is a process of ascertainment as defined in section 6(1), it means definitively fixing the amount of the liability and that requires service.

The other point, perhaps, that we would make in relation to Batagol is the point again made by Justice Merkel in the Federal Court. If it was simply a question of saying a nil assessment is a logical impossibility, as the applicant here contends, Batagol needed to be a paragraph long. I mean, in fact, there is a great deal of time and effort spent analysing why it must be that in that context "ascertainment" means the service of a notice to fix the liability, and all of that would be pointless if Batagol decided what is contended by our learned friends.

So, in our respectful submission, on the material but for the Batagol point, there would be no issue at all. The decision itself is consistent with the explicit intent of the Act as disclosed in the explanatory memorandum to which I have referred the Court, and the overall scheme of the Act.

Our learned friends, as we apprehend it, will put the Batagol issue in two ways: the first, on their list of authorities, is the decision of the Court in Garcia is that in some way the Federal Court has disobeyed the command of this Court, that only this Court may reconsider or depart from its earlier decisions. We cannot see any other reason why Garcia would be on the list of authorities but I am handicapped in the sense that I have to summarise the point that they may make. If that is the point that they are making, it would seem to us clearly to be an unfair criticism of the Federal Court. Whatever else may be said of the judgment, his Honour Justice Merkel, at page 57 of the application book makes it clear that the court saw that its responsibility was to ascertain what Batagol truly decided and to apply it. If the Federal Court has fallen into error, it is not because it is in, as it were, contumelious disregard of this Court but because it has simply misconstrued what was said in Batagol.

As to whether or not it went wrong, we would say there is simply no comparison between a document which 13 or 14 times - the figure may be wrong - says that it is an assessment and which, on the evidence, reflects the Commissioner's actual performance of all of the commands of the statute, and a document which is, well, in two cases, an internal notation of departmental files and, in the third case, something that appears to have been little more than a "with compliments" slip attached to a cheque.

Our learned friends have put in their outline of argument, and perhaps more particularly in the affidavit which we understand they intend to file, that there have been a whole range of documents issued by the applicant which could fall within the description of nil assessments which advise a taxpayer that no tax is payable, and the argument is that the Court really needs to resolve one way or the other whether or not each of those is an assessment. Our response to that - - -

GUMMOW J: We will not be able to do that.

MR RUSSELL: Precisely, your Honour. It would only be in this case, and in this particular case it would seem to us not to be an unreasonable result that the Court would say as, indeed, the applicant repeated at a page of the record to which I had referred the Court that this is, indeed, what it said it was, namely, an assessment. Justice Merkel, in the extract of his judgment which we have excerpted at page 93 of the application book, makes it very plain that this is a decision that relates only to this form which one imagines is not a very common form. It would be a matter for some surprise and perhaps even disturbance if it were the regular practice of the applicant to advise taxpayers that something which he now contends as a matter of law could never be an assessment was, indeed, such a thing.

GUMMOW J: The crux is this expression in the form at page 34:

Details of your assessment:

YOUR TAXABLE INCOME IS NIL

That is the nub of it. It flows from that.

MR RUSSELL: It goes on from there, your Honour. It is only said once on that page.

GUMMOW J: It is said over on the other side.

MR RUSSELL: On page 3, yes, on the other side:

Explanatory notes

These notes help to explain your assessment.

"Assessment" is mentioned on the next line. The first line of paragraph 2; the second; fourth; the sixth; the eighth; the ninth - - -

GUMMOW J: "If you disagree with your assessment, do not send your refund cheque back."

MR RUSSELL: Yes. Indeed, your Honour, that makes the point precisely. What the Commissioner is saying is if there is no amount of tax payable, it cannot be an assessment, and his very notice talks about situations in which he is sending a cheque.

CALLINAN J: And, of course, a nil assessment might be very relevant to an averaging situation which is also the subject of a note on the next page.

MR RUSSELL: Yes, indeed. Yes, one could have a situation where, but for the averaging provisions, one would have taxable income. The result of the averaging provisions could well be, in certain circumstances, that there was a refund payable as, indeed, in a group tax situation or a situation in which franked dividends had been inferred on the - - -

CALLINAN J: Relative to next year too, of course.

MR RUSSELL: Yes.

CALLINAN J: Not just in the past year.

MR RUSSELL: This gets back to the proposition that was put in the Federal Court and rejected by it that why should not the taxpayer have to wait until it matters? That is set out at page 61 of the record. It is where his Honour Justice Merkel deals with that specific submission and made the point which your Honour Justice Callinan, as I apprehended, was seeking to draw my submissions on, namely, that it often matters to a taxpayer, notwithstanding that in a particular year there may not be a need to send a cheque. As indeed, in this taxpayer. Her status is disclosed in Justice Spender's judgment as a pensioner and at some stage, people would like to get their affairs put in order. This matter has now dragged on for some time.

Unless there is anything further from the Court, those are the reasons, in our submission, why special leave would not be appropriate.

GUMMOW J: Yes. If we were against you, Mr Russell, and in favour of granting leave, how long would the argument take? Less than a day, I would think.

MR RUSSELL: Yes, although it took, effectively, 3 days in the Federal Court. I am aware of the fact that sometimes - 1 day, my apologies, but I think we sat - we went over time. We sat for a long time. I am conscious of the fact, your Honour, that when one sits - one stands before a large court, matters that interest their Honours - - -

GUMMOW J: I know. We know that.

MR RUSSELL: - - - may be wider in scope than counsel had originally apprehended. We would certainly hope to deal with it in a day, your Honour.

GUMMOW J: I would think one day would be sufficient. Yes, thank you, Mr Russell. The Court does not need to call on you, Mr Nettle.

There will be a grant of special leave in this matter, and I note that there is no need to make any formal order in respect of the cost arrangement between the parties.

MR RUSSELL: That is correct, your Honour. If your Honour pleases.

GUMMOW J: The Court will adjourn until 2 pm.

AT 12.52 PM THE MATTER WAS CONCLUDED