FEDERAL COURT OF AUSTRALIA

Chhua v Commissioner of Taxation [2018] FCAFC 86

ORDERS

THE COURT ORDERS THAT:

1.    The application for an extension of time for the filing of a notice of appeal be granted.

2.    The application for leave to appeal be granted.

3.    The appeal be dismissed with costs, as agreed or as assessed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

INTRODUCTION

1    Before the Court are two applications, one for an extension of time for the filing of a notice of appeal from a decision of this Court given on 22 September 2017, and another for leave to appeal from that decision, which was said to be interlocutory and not final in nature. The applications were accompanied by a draft notice of appeal and supported by three affidavits.

2    The proceeding below sought relief pursuant to s 39B of the Judiciary Act 1903 (Cth) alleging jurisdictional error in the formation by the respondent (the “Commissioner”) of an opinion that there had been fraud or evasion for the purposes of item 5 of s 170(1) of the Income Tax Assessment Act 1936 (Cth) (the “1936 Act”). The applicant sought orders below quashing the opinion and the amended assessments that were the product of it. Critically, the applicant has also challenged the excessiveness of those assessments in the Administrative Appeals Tribunal (the “Tribunal”) pursuant to Pt IVC of the Taxation Administration Act 1953 (Cth) (the “TAA”). In those proceedings, it is open for the applicant to show, on the balance of probabilities, that the Tribunal should decide that, in its opinion, there was no fraud or evasion.

3    The Commissioner, below, demurred to the applicant’s entire statement of claim on the basis that the facts alleged did not provide any basis for the grant of relief sought. The primary judge ordered that the following question be heard and determined separately:

Does the demurrer to the [applicant’s] statement of claim, pleaded by [the Commissioner] in paragraph 1 of his defence dated 10 April 2017, provide a complete answer to the claims for relief made in the [applicant’s] statement of claim dated 22 February 2017?

4    Her Honour’s answer to that question was “yes”. For the reasons which follow, the primary judge was undoubtedly correct to decide that question as a preliminary matter, especially having regard to s 37M of the Federal Court of Australia Act 1976 (Cth), and we also agree with her Honour’s answer to it for the reasons she gave.

LEAVE

5    The Commissioner opposed both applications on the basis that any appeal from the proceeding below would be hopeless in all respects. In relation to the first application, for an extension of time, the Commissioner did not otherwise contend that he was prejudiced by the applicant’s very short delay (four days) in seeking to appeal.

6    As to the second application, for leave to appeal, judgment on a demurrer may be either final or interlocutory: Hope v R.C.A Photophone of Australia Pty Ltd (1937) 59 CLR 348 at 352 - 353. If the judgment on the demurrer finally disposes of the dispute between the parties it is not interlocutory. Here, the question posed raised for determination whether the demurrer was a “complete answer” to the pleaded case. Thus, and on one view, the answer given by the primary judge finally disposed of the dispute between the parties. However, no final orders have been made below dismissing the proceedings. It follows that the decision remains interlocutory in nature and leave is required. In that respect we observe what the High Court said in Ex parte Bucknell (1936) 56 CLR 221 at 225 - 226:

If the interlocutory order, being an order of the character specified in sub-pars. 1, 2, or 3 of sec. 35 (a), has the practical effect of finally determining the rights of the parties, though it is interlocutory in form, a prima facie case exists for granting leave to appeal. For example, a judgment for either party on a demurrer might, in effect, be decisive of the whole litigation. Although such a judgment would often be interlocutory, it might be final in determining the issue between the parties, and, in such a case, leave would be granted almost as of course.

THE DECISION BELOW

7    Before the primary judge, the applicant sought to contend that the decision of the High Court in Federal Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146 (“Futuris”) did not confine a taxpayer’s ability to challenge the validity of an assessment to either the presence of bad faith or tentativeness. Rather, it was contended that the validity of an assessment may be challenged where the Commissioner had erred in law in the way in which he had exercised a power which was a precondition to the issue of that assessment. For example, in the applicant’s statement of claim, which was grossly prolix, it was alleged that the Commissioner in forming his purported opinion that there was fraud or evasion had failed to take into account certain relevant matters and had also taken into account irrelevant considerations. These were said to be jurisdictional errors.

8    The primary judge reviewed the decision in Futuris, and other authorities, and reached the decisive conclusion that the proposition contended for by the applicant was misconceived and should be rejected. At par [12] her Honour concluded:

The taxpayer’s contention that the material facts pleaded (and which are deemed to be established for the purposes of the demurrer) do not establish that the Commissioner had formed an opinion there had been fraud or evasion or was of that opinion at the time of making the assessments, is based on the misconception that the errors identified in forming the requisite opinion would have the effect of nullifying the assessment by reason that the power to issue the amendment assessments was conditioned upon the Commissioner forming the requisite opinion before amending the assessment. Futuris however, is authority that errors in the bona fide exercise of the assessment power are protected by s 175 from challenge for jurisdictional error under s 39B. To put it another way, such errors by the Commissioner in the exercise of his power of amendment conferred under the 1936 Act are within the scope and operation of s 175 with the consequence that such errors do not found a complaint for jurisdictional error and do not render the amended assessment invalid. The taxpayer’s right of challenge to the Commissioner’s power to make the amended assessment is through the Part IVC process, not by way of the s 39B proceedings.

9    With respect, that conclusion is entirely correct. It necessarily follows from the conferral by s 175 of the 1936 Act of a broad “jurisdiction” (see Futuris at 164) on the Commissioner, which includes the making of mistakes and errors that do not justify relief under s 75(v) of the Constitution, or here, s 39B of the Judiciary Act. Section 175 provides:

The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.

10    Errors of law which constitute non-compliance with the provisions of the 1936 Act or the Income Tax Assessment Act 1997 (Cth) (the “1997 Act”), including s 170, are errors within jurisdiction. In contrast, relief will only be available under s 75(v) or s 39B if a so-called assessment is no assessment at all because it was issued tentatively or was infused with bad faith. So much so was made clear by the plurality in Futuris at pars [24]-[25]:

Section 175 must be read with ss 175A and 177(1). If that be done, the result is that the validity of an assessment is not affected by failure to comply with any provision of the [1936 Act], but a dissatisfied taxpayer may object to the assessment in the manner set out in Pt IVC of the [TAA]; in review or appeal proceedings under Pt IVC the amount and all the particulars of the assessment may be challenged by the taxpayer but with the burden of proof provided in ss 14ZZK and 14ZZO of the [TAA]. Where s 175 applies, errors in the process of assessment do not go to jurisdiction and so do not attract the remedy of a constitutional writ under s 75(v) of the Constitution or under s 39B of the Judiciary Act.

But what are the limits beyond which s 175 does not reach? The section operates only where there has been what answers the statutory description of an “assessment”. Reference is made later in these reasons to so-called tentative or provisional assessments which for that reason do not answer the statutory description in s 175 and which may attract a remedy for jurisdictional error. Further, conscious maladministration of the assessment process may be said also not to produce an “assessment” to which s 175 applies.

At par [45] the plurality said:

In the process of the making of the second amended assessment errors by the Commissioner of this nature (if indeed there were errors) fell within the scope of s 175 as explained earlier in these reasons. They could not found a complaint of jurisdictional error attracting the exercise of jurisdiction to issue constitutional writs which is conferred by s 75(v) of the Constitution on this Court and by s 39B of the Judiciary Act upon the Federal Court. If there were errors they occurred within, not beyond, the exercise of the powers of assessment given by the [1936 Act] to the Commissioner and would be for consideration in the Pt IVC proceedings.

11    In that respect, it is well to remember that s 350-10 of Sch 1 to the TAA (formerly s 177 of the 1936 Act) is not a privative clause. It is relevantly a provision that gives evidentiary effect to s 175. As the plurality in Futuris said at par [67]:

It follows from what has been said respecting s 177(1) that not only is it not a privative clause, but there is not the conflict or inconsistency between s 177(1), s 175 and the requirements of the [1936 Act] governing assessment which calls for reconciliation of the nature identified in Plaintiff S157/2002 v The Commonwealth [(2003) 211 CLR 476]. The point sought to be made here respecting the relationship between ss 175 and 177(1) and those requirements was expressed in Deputy Commissioner of Taxation v Richard Walter Pty Ltd [(1995) 183 CLR 168], by Dawson J as follows:

The requirements of the [1936 Act] which govern the making of an assessment do not produce any inconsistency with the provision that a notice of assessment constitutes conclusive evidence in recovery proceedings. That is because s 175 provides that the validity of any assessment shall not be affected by reason of the fact that any of the provisions of the [1936 Act] have not been complied with. ... Having regard to s 175, there is no inconsistency, apparent or otherwise, between the requirements of the Act relating to the making of an assessment and s 177(1), and no reconciliation is called for. Indeed, as I have said, s 177(1) does no more than give evidentiary effect to s 175.

(Footnotes omitted)

12    In recent times, a number of attempts have been made to expand the grounds upon which a taxpayer may challenge the validity of an assessment and obtain relief under s 39B. Attempts of this kind are sometimes the product of surprising ingenuity and have a long history: cf David Jones Finance & Investments Pty Ltd v Federal Commissioner of Taxation (1991) 28 FCR 484. But they cannot overcome what the High Court has said in Futuris.

13    In Featherby v Federal Commissioner of Taxation (No.2) (2016) 240 FCR 149, Gilmour J said at pars [38]-[39]:

There is one Tasmanian Supreme Court decision which held that it is arguable that Futuris does not provide for a definitive limiting of the categories of cases in which income tax assessments are capable of being reviewed for jurisdictional error: Woods v Deputy Commissioner of Taxation [2011] TASSC 68 at [50].

However, there are decisions of this Court, including Full Courts, which are either authoritative on this question and therefore binding on me, or, in obiter, are persuasive:

•    Commissioner of Taxation v Administrative Appeals Tribunal [2011] FCAFC 37; (2011) 191 FCR 400 at [23] (Keane CJ; Downes & Gordon JJ).

•    Mount Pritchard & District Community Club Ltd v Federal Commissioner of Taxation [2011] FCAFC 129; (2011) 196 FCR 549 at [47] & [52] (Edmonds, Middleton & Jagot JJ).

•    Roberts v Deputy Commissioner of Taxation [2013] FCA 1108; (2013) 228 FCR 280 at [19] & [36]-[42] (Besanko J).

•    Roberts v Deputy Commissioner of Taxation [2015] FCA 238 at [10] and [32] (Mansfield J).

•    Gashi v Commissioner of Taxation [2013] FCAFC 30; (2013) 209 FCR 301 at [43] (Bennett, Edmonds & Gordon JJ).

•    Hii v Commissioner of Taxation (2015) 230 FCR 385 at [90] (Collier J).

•    Allan J Heasman Pty Ltd v Commissioner of Taxation [2015] FCAFC 119.

•    Commissioner of Taxation v Donoghue [2015] FCAFC 183.

•    Pratten v Federal Commissioner of Taxation [2015] FCA 1357.

14    Save for the Tasmanian decision in Woods v Deputy Commissioner of Taxation [2011] TASSC 68; 86 ATR 620 (“Woods”), each of the foregoing decisions confirm or support the correctness of the primary judge’s analysis of Futuris. In Roberts v Deputy Commissioner of Taxation (2013) 228 FCR 280, Besanko J at pars [36] to [40] explained why it was that Futuris had exhaustively defined the two jurisdictional errors against which s 175 offers no protection, in language which we respectfully adopt:

I think that the joint reasons in Futuris do limit the grounds of challenge to the two categories identified. I take that view for the following reasons.

First, their Honours state (at 157 [25]):

[par [25] supra, is set out at par [10] above]

Secondly, when considering how s 177(1) of the ITAA 1936 operated in the context of the evidence which may be received on an application for judicial review, their Honours said (at [66]):

... What will be an issue here, as explained earlier in these reasons, are allegations of corruption and other deliberate maladministration. The attribution “correct” given by the concluding word of s 177(1) is inapt to describe this situation which would arise were such allegations (properly pleaded) made good in the judicial review proceeding. Considerations applied above in the construction of s 175 apply here also. The result is that, on its proper construction and its application to the present s 39B case, s 177(1) did not conclude against Futuris curial consideration of alleged deliberate maladministration of the Act with respect to the second amended assessment.

As I read this passage their Honours were saying that s 177(1) will not limit the evidence which may be received on a judicial review application because the terms of s 177(1) are not apt to protect the type of allegations, that is, corruption and other deliberate maladministration made in such proceedings.

Thirdly, their Honours made it clear that there was no scope for the operation of the so-called Hickman principle in considering the relationship between ss 175 and 177(1) of the ITAA 1936.

15    Woods was a case in which amended assessments were alleged to have been invalid as part of a defence in debt recovery proceedings in the Supreme Court of Tasmania. An Associate Justice struck out the claim and entered judgment for the Commissioner and Porter J subsequently allowed an appeal against the entry of judgment. The basis for alleged invalidity was similar to that raised here, namely whether the formation of an opinion concerning fraud or evasion had miscarried “and hence there was no power to issue the amended assessments” (Woods at par [4]). For the purpose of seeking leave to appeal, the taxpayer contended, as here, that Futuris had not foreclosed the categories of jurisdictional error to tentativeness and bad faith. She relied upon the separate judgment of Kirby J in Futuris for that purpose, and, in particular, upon the following passage at pars [133]-[134] of his Honour’s reasons:

For decades, taxation decisions arising in judicial review proceedings have typically concerned the suggested tentative or provisional character of such decisions or their lack of good faith. This does not justify treating these two categories as covering the entire field of disqualifying legal (or “jurisdictional”) error for s 39B purposes. As the two nominated categories of invalidity have arisen in taxation cases for at least eighty years, there is a risk that specialists in taxation law will overlook, or ignore, the considerable subsequent advances in administrative law, in particular within judicial review. Specialist disciplines, including in law, can occasionally be myopic and inward-looking. In commenting on the advances in administrative law, Lord Diplock declared that they had been the “greatest achievement of the English courts in [his] judicial lifetime”. The same is at least partly true in Australia. ... .

The recognised “jurisdictional error” categories in Australia are not closed. Least of all are they confined to the two classifications beloved by tax lawyers. ...

(Footnotes omitted)

16    Porter J decided that the taxpayer’s point was sufficiently arguable to warrant leave being granted to defend. His Honour said at [50]:

Focussing for the moment on the joint judgment in Futuris, I do not see that a fair reading of all relevant passages produces the result that there has been a definitive limiting of the categories of case available to be reviewed for jurisdictional error. Their Honours said that the significance of s175 for the operation of the [1936 Act] and for judicial review outside Part IVC was to be assessed in the manner indicated in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 390 - 391 [93]. The question for the case was put as being one of legislative purpose, with regard being had to the language of the provisions and scope and purpose of the statute. In answer to the further question of the limits beyond which s175 did not reach, their Honours said the section operates only where there has been what answers the statutory description of an “assessment.” Two instances of that were given. It is at least arguable, being the view adopted by Kirby J, that there was no intention to limit the categories to those two instances.

17    No first instance decision of this Court has followed Woods. Nor has its correctness, until now, been considered by the Full Court of this Court, although Futuris has otherwise been considered by the Full Court. In Gashi v Federal Commissioner of Taxation (2013) 209 FCR 301, for example, the Full Court said at par [41]:

…in proceedings under Pt IVC of the TAA, the Court does not have jurisdiction to determine if assessments are “invalid” because they are tentative, provisional or made in bad faith or conscious maladministration resulting in jurisdictional error on the part of the Commissioner: Commissioner of Taxation v Futuris Corporation Limited (2008) 237 CLR 146 at [25].

18    In argument before us, counsel for the applicant adopted the reasoning of Porter J. He also contended that there is a distinction between errors going to the manner in which a power is exercised, and cases where the power had not been exercised at all. He argued that Futuris was a case going only to the manner of exercising power, and that it did not address a case where an assessment had simply been issued without power. For that purpose, he relied upon par [5] in Futuris which states:

In Parisienne Basket Shoes Pty Ltd v Whyte [(1938) 59 CLR 369] Dixon J referred to the maintenance of “the clear distinction ... between want of jurisdiction and the manner of its exercise”. His Honour in this context also used the phrase “excess of jurisdiction” and, with respect to relief under s 75(v) of the Constitution, the same idea had been conveyed as early as 1914 in The Tramways Case [No 1] [(1914) 18 CLR 54], by such expressions as “usurp jurisdiction”, “wrongful assumption of jurisdiction” and “proceeding without or in excess of jurisdiction”. Thereafter, in his submissions in R v Kirby and Ors; Ex parte The Transport Workers’ Union of Australia [(1954) 91 CLR 159], Dr Coppel QC is reported as using the term “jurisdictional error”.

(Footnotes omitted)

19    With respect, the distinction sought to be made by counsel for the applicant is misconceived. The reference made in par [5] to want of jurisdiction and the manner of its exercise is a reference to the distinction between jurisdictional error (want of jurisdiction) and error within jurisdiction (manner of its exercise). The observations of the High Court in Futuris that we have set out above concerned the interaction and operation of the relevant provisions of the 1936 Act and the TAA. Those observations were not confined to matters pertaining to the manner of exercise of jurisdiction, but were expressed more generally.

20    There was some discussion before us about the cases concerning jurisdictional error in relation to the Migration Act 1958 (Cth) (the “Migration Act”). The decision of the High Court in Plaintiff S157/2002 v Commonwealth of Australia (2003) 211 CLR 476, and the cases which apply that decision, do not assist the applicant here. In the case of decisions made under the Migration Act, jurisdictional error of law may exist where, for example, there has been a breach of the rules of procedural fairness or because relevant considerations have not been taken into account, or irrelevant considerations have been relied upon by the decision maker. Errors of these types go to the “jurisdiction” of the decision maker in such cases, precisely because Parliament intended that the rules and procedures set out in the Migration Act must be complied with. As Gummow and Hayne JJ said in Minister for Immigration and Multicultural and Indigenous Affairs v SGLB (2004) 78 ALD 224 (“SGLB”) at par [51]:

However, in the light of the detailed specification of the criteria for the grant of the various classes of visa, including protection visas, it is impossible to treat the consideration by the Minister’s delegate (and hence the Tribunal) of what are the relevant criteria (the issue in Applicants S134 [(2003) 211 CLR 441]), and the satisfaction thereof, as other than conditions precedent to the making of a valid decision to grant or refuse to grant a visa under s 65. Further, certain observations by Gaudron and Kirby JJ in Applicants S134 (not on an issue upon which the division in the Court turned) are, with respect, compelling. Their Honours said:

“The detailed specification of matters bearing upon the grant of a protection visa inserted into the Act at the same time as was s 474 makes it clear that the Parliament was not enacting provisions to the effect that decision-makers could validly grant or refuse to grant protection visas on the basis of a bona fide attempt to determine whether the criteria for the grant of a protection visa have been satisfied, as distinct from the decision-maker’s actual satisfaction or lack of satisfaction as to those criteria. And as already pointed out, a decision-maker cannot be said to be satisfied or not satisfied if effect is not given to those criteria because, for example, they have been misconstrued or overlooked.”

(Footnotes omitted)

21    In contrast, in the case of the 1936 and the 1997 Acts, the opposite is true. Section 175 makes clear that compliance with the provisions of those Acts is not a “condition precedent” to the making of an efficacious assessment of tax. The difference between the migration cases concerning jurisdictional error and Futuris, accordingly turns on the scope of the “jurisdiction” conferred. As Gummow and Hayne JJ also observed in SGLB at [50]: “…the nature of the alleged error will turn upon the meaning of the legislative criterion of jurisdiction, making the construction of the legislation the primary and essential task.”

22    Another difference between the migration cases and the present is the presence of Pt IVC of the TAA. As the plurality in Futuris emphasise by reference to earlier authority, at par [9] and at fn 37, the alternative of recourse to this Court and, by special leave, to the High Court for which Pt IVC provides is constitutionally necessary in relation to a taxation liability determined by the assessing decision of an officer of the Executive (the Commissioner). Section 175 of the 1936 Act, and the exception in respect of proceedings under Pt IVC of the TAA for which s 350-10 of Sch 1 to the TAA provides, form part of a scheme, one feature of which is to create this constitutionally necessary alternative of recourse to judicial power.

23    Materially, and for reasons set out below, the conferral of judicial power in respect of “appeals” against taxation objection decisions allows this Court, in the exercise of original jurisdiction, to examine whether the conditions for which s 170 of the 1936 Act provides in relation to the making of an amended assessment are met. Proving that they are not met is one way in which a taxpayer can discharge the onus for which s 14ZZO of the TAA provides of proving that the assessment concerned is excessive. That is but an example of the point made by the plurality in Futuris, at par [10], in observing that “the contestability of assessments made by the Commissioner is not confined to that measure of review for jurisdictional error which is provided by s 75(v) of the Constitution and s 39B of the Judiciary Act”.

24    Part IVC of the TAA also provides for an alternative to judicial power in the form of a review on the merits of an objection decision by the Tribunal. In that review also, again for reasons set out below, one way in which, materially, the onus under s 14ZZK of the TAA of proving the assessment to be excessive may be discharged is by proving that a condition for amendment specified in s 170 of the 1936 Act did not in fact exist.

25    Certain decisions under the Migration Act may also be reviewed on the merits by the Tribunal. Even in the absence of a provision such as s 175 of the 1936 Act, the existence of a valid decision has never been necessary for the exercise by the Tribunal of its review jurisdiction: Collector of Customs (New South Wales) v Brian Lawlor Automotive Pty Ltd (1979) 2 ALD 1 at 4 – 5 per Bowen CJ and at 20 – 25 per Smithers J; Kennedy v Administrative Appeals Tribunal (2008) 168 FCR 566. One thing which s 175 of the 1936 Act does is to ensure that the position in relation to the alternative of a taxation appeal to this Court is no different to the position which exists in relation to administrative review by the Tribunal. In other words, providing that the assessment meets the requirements specified in Futuris, it is sufficient if there is an assessment in fact for the objection and subsequent appeal or review rights to be engaged.

26    The applicant also relied upon the recent decision of the High Court in Graham v Minister for Immigration and Border Protection (2017) 347 ALR 350 (“Graham”) to contend that Futuris could not have decided that the formation of an opinion under item 5 of s 170(1) was protected from curial investigation by s 175. With respect, Graham concerned the validity of a provision of the Migration Act. It did not address the statutory scheme here.

27    Of course, Futuris was concerned with an attack on the validity of an assessment. Here, the applicant attacks the validity of the formation by the Commissioner of an opinion. He also contends that the issue of an assessment premised upon an exercise of power infected with jurisdictional error, results in no assessment at all; the assessment is also invalid. For that purpose, the applicant relied upon the decision of this Court in Federal Commissioner of Taxation v Administrative Appeals Tribunal (2011) 191 FCR 400. In that case, the Court decided that not all decisions made by the Commissioner under the 1936 Act and 1997 Act can be the subject of review or appeal under Pt IVC. At par [22], Keane CJ (as he then was) and Gordon J thus observed:

Other decisions may affect the liability of a taxpayer but, nevertheless, may not be challenged by proceedings brought under Pt IVC. These include:

1.    A decision not to remit, either in whole or in part, shortfall interest charge or general interest charge pursuant to s 8AAG of the TAA. And that is so even though the amount of the liability often appears on the notice of assessment itself. This sort of decision may, however, be subject to judicial review (where an error of law exists) in proceedings brought in the Federal Court under s 39B of the Judiciary Act 1903 (Cth) or the Administrative Decisions (Judicial Review) Act 1977 (Cth) (the ADJR Act);

2.    a decision infected with jurisdictional error, so that it is not a decision at all. This could include a decision to issue an assessment. Again, such challenges (which are rare) may be made under the Judiciary Act 1903 (Cth) but they may not be pursued under Pt IVC of the TAA: Federal Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146 at [24], [45] and Kennedy v Administrative Appeals Tribunal (2008) 168 FCR 566;

3.    a decision of the Commissioner refusing an extension of time for payment under s 255-B of the TAA. A taxpayer does not have a right under the tax legislation to challenge that decision. But a taxpayer may seek judicial review of the refusal under the ADJR Act;

4.    a decision by the Commissioner to exercise his access powers under s 263 of the 1936 Act or a decision by the Commissioner to issue a notice under s 264 of the 1936 Act;

5.    a decision by the Commissioner under s 161 of the 1936 Act not to grant an extension of time to a taxpayer to lodge a return; and

6.    a decision by the Commissioner to decline to transfer certain withholding payments to the taxpayer’s running account balance: Re Command Recruitment Group (Qld) Pty Ltd (2008) 108 ALD 177.

28    In that case, the relevant power was one exercisable under s 292-265 of the 1997 Act following the issue of an excess contributions tax assessment. It thus post-dated the assessment process. The applicant contended that the case was the “mirror-image” of the circumstances here. The formation of the impugned opinion was an anterior step which did not form part of the “process of assessment” protected by s 175 and was not challengeable in Pt IVC proceedings.

29    Is the attack on the opinion, as distinct from the resulting assessment, beyond the reach of ss 175 of the 1936 Act and 350-10 of Sch 1 to the TAA? There are two answers to that question. First, even if ss 175 and 350-10 did not extend to the formation of an opinion about fraud or evasion, that would be of no moment, as the validity of the resulting assessment would remain protected by those provisions, save for the two jurisdictional errors identified in Futuris. Secondly, and more importantly, the conditions upon which s 170 of the 1936 Act turns, are matters going to the criteria for substantive liability which are capable of being challenged in a tax appeal under Pt IVC of the TAA: Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 621 – 622. The existence or non-existence of those conditions is a matter going to the excessiveness of an assessment. As Dixon CJ, McTiernan and Webb JJ said in McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263 at 271:

The clear policy of s. 177 is to distinguish between the procedure or mechanism by which the taxable income and tax is ascertained or assessed on the one hand and on the other hand the substantive liability of the taxpayer. The former involves the due making of the assessment.” Section 177(2) and (3) impose certain conditional time bars which in this dichotomy seem evidently to belong to substantive liability. From this it follows that fulfilment of the conditions which bring a case within s. 170(2) is part of the matter governed by the words of exception in s. 177(1), viz. “except in proceedings on appeal against the assessment”.

…

“Excessive” is the word chosen to correspond with the word “amount” in s. 177(1). The “amount” no doubt reflects the “particulars”. It is perhaps not a good choice. For the replacement by s. 190(b) of the words which appeared in the corresponding previous legislation in the exception in s. 177(1) has perhaps caused the difficulty. The words of that legislation were “except in proceedings on appeal against the assessment when it shall be prima facie evidence only”. But bearing in mind that the word “excessive” relates to the amount of the substantive liability it is not difficult to see that it will extend over the area in which the conditions mentioned in s. 170(2) find a place. For the fulfilment of those conditions goes to the power of the Commissioner to impose the liability by amendment. If he cannot amend consistently with s. 170(2) and so increase the amount of the assessment then it must be excessive.

(Our emphasis, footnotes omitted)

See also Binetter v Federal Commissioner of Taxation (2016) 249 FCR 534 at pars [91]-[92].

30    The applicability of the foregoing passage has not been diminished by the re-writing of s 170 of the 1936 Act in 2005.

31    In contrast, the lawful existence of the conditions in s 170 is not part of the “procedure or mechanism by which the taxable income and tax is ascertained or assessed” for the purposes of s 350-10 of Sch 1 to the TAA: George v Federal Commissioner of Taxation (1952) 86 CLR 183 at 206. Whether a condition for the exercise of a power under the 1936 or 1997 Acts forms part of the criterion for liability, and is not part of the procedure or mechanism for assessment, will depend upon the language of the provision in question, and statutory context and purpose: W R Carpenter Pty Ltd v Federal Commissioner of Taxation (2006) 234 ALR 451. A recent example of a condition to the exercise of a power which was found to be procedural was the Commissioner’s discretion to make determinations under former s 136AD of the 1936 Act: Chevron Australia Holdings Pty Ltd v Federal Commissioner of Taxation (No.4) [2015] FCA 1092; 102 ATR 13 at [47]; upheld on appeal (2017) 251 FCR 40.

32    When pressed why an attack on the formation of the opinion here fell outside the reach of s 175, the applicant responded with the contention that an assessment issued without power is not an “assessment” for the purposes of s 175. With respect, that cannot be. The word “assessment” is defined in the dictionary contained in s 995-1 of the 1997 Act as “the ascertainment of the assessable amount.” No part of that definition invokes issues of power. In our view, an assessment issued without power would simply be an assessment issued in circumstances of non-compliance with the provisions of the 1936 Act or 1997 Act, here, in particular, s 170. It would nonetheless constitute an assessment for the purposes of s 175, unless there were present either of the jurisdictional errors identified at par [25] of Futuris. Those two errors are not errors of simple non-compliance with provisions of the 1936 and 1997 Acts, but represent fundamental failures to address the basal statutory regime. But non-compliance with conditions upon the exercise of power, for example the current two year time limitation in item 1 of s 170(1), do not preclude any resulting assessment from being an “assessment” for the purposes of s 175. Nor do they preclude the making of an objection under s 175A(1) of the 1936 Act against that assessment upon a ground of non-compliance with a condition upon the exercise of the power to assess. To conclude otherwise, would be to deny to s 175 and s 175A their full and proper reach.

33    The applicant also placed reliance upon the judgments of Mason CJ and of Deane and Gaudron JJ in Deputy Commissioner of Taxation v Richard Walter Pty Limited (1995) 183 CLR 168 (“Richard Walter”). In particular, he relied upon the following passage from the reasons for decision of Mason CJ at 181 - 182:

Section 175 provides that the validity of an assessment “shall not be affected by reason that any of the provisions of this Act have not been complied with”. This section does not relieve the Commissioner from performing his duty to make an assessment. The section does not create a valid assessment where none has been made at all. The section requires an actual assessment as a condition of its operation. But otherwise, the effect of s 175 is that compliance with particular provisions of the [1936 Act] is not essential to the validity of an assessment.

(Footnotes omitted)

34    With respect, that passage does not take the applicant’s argument any further. No one doubts that s 175 can only operate to validate an assessment in fact made. In any event, in Futuris, the plurality said of Richard Walter at par [70]:

Various views were expressed in Richard Walter respecting the construction of and relationship between s 175 and s 177(1). Reference was made to the then accepted distinction between mandatory and directory provisions, and to what seems to have been some doctrinal status then afforded to Hickman [(1945) 70 CLR 598]. As to the first matter, Project Blue Sky [(1998) 194 CLR 355] has changed the landscape and as to the second, Plaintiff S157/2002 [(2003) 211 CLR 476] has placed “the Hickman principle” in perspective. Hence this appeal should be decided by the path taken in these reasons and not by any course assumed to be mandated by what was said in any one or more of the several sets of reasons in Richard Walter.

(Footnotes omitted)

NEW CASE?

35    In his written submissions the applicant appeared to rely upon a new argument, namely, that, as a fact, there had been no formation of an opinion at all concerning fraud or evasion. The argument did not appear in the proposed notice of appeal. It was unclear to us if it had been abandoned at the hearing. We consider it briefly for the sake of completeness.

36    Because the separate question was founded upon the Commissioner’s demurrer, it had to be decided on the basis that the facts pleaded by the applicant had been established: Kathleen Investments (Australia) Ltd v Australian Atomic Energy Commission (1977) 139 CLR 117; Wurridjal v Commonwealth (2009) 237 CLR 309 at [120] (Gummow and Hayne JJ). In his written submissions the applicant contended:

The Appellant did not plead that the Respondent was of the opinion that there had been fraud or evasion in any of the 2007, 2008, 2009 with 2010 income years.

37    With respect, a material fact is not pleaded by not pleading it at all. If the applicant had wanted to contend that the Commissioner had, in fact, formed no opinion, that should have been pleaded. Nowhere was this done across the 123 pages of the statement of claim. Rather, that document positively pleaded that the Commissioner had in fact formed an opinion. Thus at par [19] the following is said:

The Commissioner recorded his purported opinion that there had been fraud and evasion in a single document dated variously 20 February, 1 March 2013 and 13 March 2013…

38    If it were the case that no authorised officer of the Commissioner had formed the requisite opinion about fraud or evasion, that of itself is unlikely to ground sufficiently an allegation of tentativeness or bad faith in the sense required by Futuris. It could, however, be a matter which might be raised in a tax appeal instituted under Pt IVC of the TAA. As Perram and Davies JJ observed in Binetter v Federal Commissioner of Taxation (2016) 249 FCR 534 at par [93]:

In cases where the amendment power depends on the formation of an opinion by the Commissioner of fraud or evasion, the difference between merits review by the Tribunal and an appeal to the Court is that the Tribunal re-considers whether, on the evidence before it, there was an avoidance of tax due to fraud or evasion, whereas the Court will only interfere with the Commissioner’s exercise of the amendment power if the Commissioner did not form the requisite opinion or the Commissioner’s opinion that there was fraud or evasion is vitiated by some error of law…

(Citations omitted)

DISPOSITION

39    For the foregoing reasons, we respectfully disagree with the decision of Porter J in Woods.

40    We grant the applicant an extension of time for the filing of his appeal. Given the ongoing uncertainty concerning the authority of Woods in this Court, it was appropriate for this Court to decide that issue authoritatively. For that reason, we also grant leave to appeal. For the reasons set out above, we also agree with the Commissioner that the case put by the applicant is otherwise untenable. Even if we had thought otherwise, we would probably have declined to grant the relief sought in any event. The applicant is already challenging the presence of fraud or evasion in his Pt IVC appeal in the Tribunal. As the plurality said in Futuris (at par [48]):

In the present case, it should be emphasised that the pendency of a proceeding by Futuris under Pt IVC should have led the Full Court to refuse declaratory relief in any event.

41    The appeal is dismissed with costs.

42    We decline to award indemnity costs as sought by the Commissioner, on the basis that the applicant’s case was hopeless: Smolle v Australia and New Zealand Banking Group Limited (No. 2) [2007] FCA 1967. The existence of the decision of the Supreme Court of Tasmania in Woods gave the applicant a historical basis for his claim. We disagree with that authority; but we are the first appellate court to address the correctness of Woods. It follows that it would not be appropriate to award costs on an indemnity basis.

Associate:

Dated:    6 June 2018