Edward Geoffrey Stuart v Deputy Commissioner of Taxation of the Commonwealth of Australia Edward Geoffrey Stuart v Maloney, Francis James [1996] FCA 574

C A T C H W O R D S

TAXATION - income tax - application by Commissioner to strike out applicant's appeal against decision of AAT - whether "nil tax advice" notices are assessments - whether taxpayer has right of objection against a nil tax advice - whether "an appealable objection decision" - whether appeal is a competent taxation appeal - whether claims disclose reasonable cause of action are frivolous or vexatious or an abuse of process of the Court.

Taxation Administration Act 1953 (Cth)

Administrative Decisions (Judicial Review) Act 1977 (Cth)

Income Tax Assessment Act 1936 (Cth)

Webb v. Deputy Federal Commissioner of Taxation No. 2 (1993) 93 ATC 5,123

Dey v. Victorian Railways Commissioners (1949) 78 CLR 62

General Steel Industries Inc v. Commissioner for Railways NSW (1964) 112 CLR 125

Batagol v. Federal Commissioner of Taxation (1963) 109 CLR 243

Deputy Federal Commissioner of Taxation v. Sheehan (1986) 86 ATC 4718

EDWARD GEOFFREY STUART v. DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

No. WAG 8 of 1996

EDWARD GEOFFREY STUART v. FRANCIS JAMES MALONEY and DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

No. WAG 9 of 1996

CARR J.

PERTH

15 MARCH 1996

IN THE FEDERAL COURT )

OF AUSTRALIA )

WESTERN AUSTRALIA )

DISTRICT REGISTRY ) No. WAG 8 of 1996

GENERAL DIVISION )

BETWEEN : EDWARD GEOFFREY STUART

Applicant

AND : DEPUTY COMMISSIONER OF

TAXATION OF THE

COMMONWEALTH OF AUSTRALIA

Respondent

No. WAG 9 of 1996

BETWEEN : EDWARD GEOFFREY STUART

Applicant

AND: FRANCIS JAMES MALONEY

First Respondent

DEPUTY COMMISSIONER OF

TAXATION OF THE

COMMONWEALTH OF AUSTRALIA

Second Respondent

CORAM: CARR J.

PLACE: PERTH

DATE: 15 MARCH 1996

MINUTE OF ORDERS

THE COURT ORDERS THAT:

1. The applications be dismissed.

2. The applicant pay the repondents' costs of the applications, including these motions, to be taxed.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT )

OF AUSTRALIA )

WESTERN AUSTRALIA )

DISTRICT REGISTRY ) No. WAG 8 of 1996

GENERAL DIVISION )

BETWEEN : EDWARD GEOFFREY STUART

Applicant

AND : DEPUTY COMMISSIONER OF

TAXATION OF THE

COMMONWEALTH OF AUSTRALIA

Respondent

No. WAG 9 of 1996

BETWEEN : EDWARD GEOFFREY STUART

Applicant

AND: FRANCIS JAMES MALONEY

First Respondent

DEPUTY COMMISSIONER OF

TAXATION OF THE

COMMONWEALTH OF AUSTRALIA

Second Respondent

CORAM: CARR J.

PLACE: PERTH

DATE: 15 MARCH 1996

EX TEMPORE REASONS FOR JUDGMENT

Introduction

The Court has before it two notices of motion in application WAG 8 of 1996 and application WAG 9 of 1996, in both of which applications Mr Edward Geoffrey Stuart is applicant. In application number WAG 8 of 1996 the Deputy Commissioner of Taxation is respondent and in application WAG 9 of 1996 the Deputy Commissioner is
also a respondent together with Mr Francis James Maloney who is named as first respondent to that application.

In each motion the respondent Commissioner seeks orders that the applicant's application be dismissed or set aside for various reasons. In relation to application WAG 8 of 1996 the grounds of the motion are that the appeal is not a competent taxation appeal, and alternatively under Order 20 rule 2(1) of the Federal Court Rules that "no reasonable cause of action is disclosed, the claims are frivolous or vexatious or that the claims are an abuse of the process of the Court."

In application WAG 9 of 1996 the motion is put on a slightly different basis. It is common ground between the parties today that if in respect of application WAG 8 of 1996 I were to hold that the application was a competent taxation appeal, then the alternative submissions are that the application in WAG 9 of 1996 is not competent. The submissions in respect of application WAG 9 of 1996, with a couple of exceptions, follow a similar line to the submissions put in application WAG 8 of 1996.

I will give some factual background to the matter. The applicant, Mr Stuart, furnished income tax returns for the income years ended 30 June 1983 to 1988, inclusive, and was advised by the Commissioner in respect of each of those years, initially, that no tax was payable based on the income shown in his returns. The evidence is that there then followed an audit of the applicant's income tax returns for those years followed by an assessment and the issuing and services of notices of assessment on 30 October 1991, each of which notices of assessments are exhibited to Mr Maloney's affidavit.

Mr Stuart objected to those assessments and it is common ground that the objections were disallowed and thereafter Mr Stuart applied to the Administrative Appeals Tribunal requesting a review of the Commissioner's decision to disallow his objections. That application for review was heard by the Administrative Appeals Tribunal on 25 May 1995. On 2 August 1995 the Tribunal published its reasons for confirming the objection decision.

Mr Stuart did not file an appeal against that decision of the Administrative Appeals Tribunal within time but late last year applied to this Court and was granted an extension of time in which to appeal against that decision. In essence, Mr Stuart's appeal is based upon a claim that he was denied natural justice and there thus occurred an error of law in the decision-making process of the Administrative Appeals Tribunal. That error of law is said to be that the Tribunal should have accorded him an adjournment in the circumstances that his barrister outlined to the Tribunal at the commencement of the hearing.

In the reasons published by the Tribunal there is reference to the directions given in the time leading up to the hearing of the appeal in that Tribunal. These are the relevant passages:

"3. In preliminary proceedings of the Tribunal pursuant to s.33 of the AAT Act, the Tribunal, on 10 November 1994, directed the applicant to file, within twenty one days, a detailed statement of grounds upon which he relies. Although out of time the applicant wrote to the Tribunal on 25 January 1995 setting out the grounds upon which he relies. There being no objection by the respondent, the Tribunal accepts this document as a circumscription of the grounds upon which the applicant relies. It is by reference to that letter that at the hearing, and by
consent of the parties, the Tribunal settled the scope of the grounds which are set out in detail below. If the Tribunal needs authority for this concession favouring the applicant then it relies on the joint judgment of Lockhart, Burchett and Hill JJ in Lighthouse Philatelics Pty Ltd v. FCT 91 ATC 4942, which, although concerned with s.190(a) of the Act, would be equally applicable to s.14ZZK of the TAA Act, the current provision, and which, in the present context, is couched in the same terms as the previous provision.

4. At the hearing the applicant was initially represented by Mr Ross, a barrister and the respondent by Mr Maloney, a departmental advocate.

5. At the commencement, Mr Ross requested an adjournment of proceedings, submitting that as he had only been instructed some two weeks previously he has not had sufficient time to prepare. Mr Maloney objected in the strongest terms to an adjournment. The Tribunal decided that no adjournment should be given. Its reasons for this are that the applicant had more than reasonable time and opportunity to prepare for the hearing. Also, he has experience and qualifications which ought to equip him to deal properly with the matter. He is a graduate in Commerce and was, before, during and after the income years in question, either practising as a registered tax agent or working on commission preparing income tax returns for a registered tax agent. The applicant has had specific and extensive experience preparing returns for persons and partnerships practicing professions and in attending to their income taxation affairs generally. This experience, on his own admission (letter of 25 January 1995) included the preparation of over a hundred objections and pursuit of those with the respondent. The T documents reveal that the applicant has been provided with timely and sufficient information to be fully apprised of the basis for the assessments to which he has objected. All requests (whether objectively viewed as reasonable) for information from the respondent have been responded to giving the applicant plenty of time to prepare for the presentation of his case. Finally, the T documents reveal a pattern of behaviour by the applicant consistent with thwarting the proper administration of the respondent's statutory obligation under s.8 of the Act. The Tribunal is sympathetic to the submission made by Mr Maloney that this rather late request for an adjournment was but another "antic" engaged in by the applicant to delay the due process of this matter."

The point which I wish to make at this stage is that that decision of the Tribunal is now before the Court by way of appeal on a question of law in application WAG 117
of 1995.

The next factual background that I should refer to is that Mr Stuart lodged his income tax returns for the years ending 30 June 1989 to 30 June 1994 inclusive on various dates, starting with 5 August 1993 and running through to 17 March 1995. On 13 September 1995 the Commissioner issued what has been described as "nil tax advices". Those documents form a series exhibited to and identified by the letter "E" to Mr Maloney's affidavit. The first of those documents is headed: "Nil Tax Advice", and, as Hill J did in Webb v. Deputy Federal Commissioner of Taxation No. 2 (1993) 93 ATC s.123 I incorporate here the text of the nil tax advice for the year ended 30 June 1989 (copy attached to these reasons) and each of the subsequent documents through to and including the year ended 30 June 1994. Turning to the first of those documents, it reads:

"Your tax on taxable income is shown as nil, tax on taxable income is then shown as zero dollars and zero cents."

Next follows a credit for the 1989 provisional tax of $13,722 and the calculations flowing from that show a figure of $81,133.53 from which has been deducted the sum of $13,722 credit resulting in an amount shown as being owing of $67,411.53. That figure of $67,411.53 flows unchanged through the balance of the documents to which I have just referred as nil tax advices.

Mr Stuart then lodged or purported to lodge notices of objection dated 10 November 1995 in which he states that he objects to the other amounts payable on all six assessments and says that there is no basis for these amounts.

By letter dated 20 November 1995, the Commissioner wrote to Mr Stuart expressing the view that as the notices which had been issued to him (which I have described as the nil tax advice notices) were not assessments, Mr Stuart then did not have any right of objection against them. Mr Stuart responded by letter dated 6 December 1995 requesting a review of that decision and setting out again the particulars of his objection - and I refer to folio 56 of Mr Maloney's affidavit, where the objection is stated in these terms:

"In particular taxpayer objects to "the other amounts payable" on all six assessments ... Other amounts payable on all six assessment notices 1989 to 1994 inclusive should correctly be zero ... Other amounts payable are amounts outstanding from prior year assessments ... There are no amounts outstanding from prior year assessments."

The two applications, WAG 9 of 1996 and WAG 8 of 1996 seek to challenge what are said to be the decisions to refuse to treat those objections as objections, and a subsequent decision said to be evidenced by a letter dated 8 December 1994 from the Commissioner to Mr Stuart in which the Commissioner said that he considered that his letter of 20 November 1995 explained that Mr Stuart had no right of objection against a nil tax advice and told Mr Stuart that no further action was contemplated.

As I mentioned a moment ago, each of the two applications seek to challenge what is said to be that decision, in one matter by way of an appeal under the Taxation Administration Act, and in the other matter by way of an application for an order of review under the Administrative Decisions (Judicial Review) Act ("the ADJR Act").

I should make this point very clear, that in the course of argument I asked Mr Sanders,
who appeared for Mr Stuart, whether Mr Stuart contended that his taxable income for each of the years ended 30 June 1989, 1990, 1991, 1992, 1993 or 1994 was anything other than "nil" and I was assured that the answer to that was "no". Then I asked whether Mr Stuart contended that his taxable income in any other year has been wrongly assessed and if so are those the years ended 30 June 1985, 1986, 1987 and 1988 and the answer I was given to that question was "yes". So it is abundantly clear that the complaint which Mr Stuart has with the Commissioner of Taxation relates to the assessments for the years ended 30 June 1985, 1986, 1987 and 1988. On further development it appears that in particular, the complaint relates to the matter of the $13,722 which was the subject of initially a provisional tax charge and a subsequent credit in the identical amount coupled with, as Mr Sanders explained to me, the possibility that there may be penalty tax assessed against Mr Stuart for non-payment of the provisional tax in accordance with the relevant provisions.

So much for the facts. The law to be applied in the disposition of motions of this type is well-established and I refer to the case of Dey v. Victorian Railways Commissioners (1949) 78 CLR 62 and in particular the passage in the reasons for judgment of Sir Owen Dixon, at page 91. I do not propose to burden those present in Court today by reading the well-cited passage but it suffices to say that the case must be very clear, that is the respondent must make a very clear case to deny the applicant his day in Court. Similar principles emerge from cases such as General Steel Industries Inc v. Commissioner for Railways (NSW) (1964) 112 CLR 125. The principles, I think, are common ground between the parties, that the Court has to be very clearly satisfied and it must be a very clear case before a striking-out application is acceded to.

In this matter the first question to be decided is whether it is sufficiently clear within the meaning of those cases that there was no assessment, as the Commissioner contends, when these nil assessments were issued. In my view, there can be no doubt that it is sufficiently clear that these are not assessments within the meaning of the Act and thereby triggering Mr Stuart's right to object. I consider the High Court decision in Batagol v. Federal Commissioner of Taxation (1963) 109 CLR 243 obliges me to reach that conclusion. Kitto J at pp.251-252 observed that:

"The word "assessment" is defined in s.6 to mean, unless the contrary intention appears, the ascertainment of the amount of taxable income and of the tax payable thereon. There is nothing in s.170 to show the contrary intention. But the definition is not sufficient by itself to answer the question before us, because "ascertainment" is a word the force of which depends upon the context. It is here used in an Act under which the service of a notice of assessment is the levying of the tax. Assessment in the sense of mere calculation produces no legal effect. No step that the Commissioner may take, even to the point of satisfying himself of the amount of the taxable income and of the tax thereon, has under the Act any legal significance. But if the Commissioner, having gone through the process of calculation, serves on the taxpayer a notice that he has assessed the taxable income and the tax at specified amounts, the tax becomes by force of the Act due and payable on the date specified in the notice or (if no date is specified) on the thirtieth day after the service of the notice: s.204. Thus, and thus only, there is brought about an "ascertainment" of the taxable income and of the tax, in the sense that thereafter it is possible to say what could not have been said before: that amounts have been fixed so that they are to be taken for all purposes (except those of appeal: see s.177) to be the result flowing from the application of the Act in the particular case. The respective amounts of the taxable income and the tax have been rendered certain. The word "ascertainment" being understood in this sense, the definition of "assessment" means, in my opinion, the contemplation of the process by which the provisions of the Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case."

Owen J, at pp.256-257 stated:

"These conclusions do not, I think, run counter to the statement of Isaacs J. in The King v. Deputy Federal Commissioner of Taxation (S.A.); Ex parte Hooper (1926) 37 CLR 368 that "An `assessment' is not a piece of paper: it is an official act or operation; it is the Commissioner's ascertainment, on consideration of all relevant circumstances ... of the amount of tax chargeable to a given taxpayer. When he has completed his ascertainment of the amount, he sends by post a notification thereof called `a notice of assessment' ... But neither the paper sent nor the notification it gives is the `assessment'. That is and remains the act or operation of the Commissioner" (1926) 37 CLR at p.373. The distinction which his Honour drew is, of course, a valid one but the present case is concerned with the use of the word `assessment' not in its defined sense but as conveying the meaning that every necessary step has been taken to create a debt due and payable by the taxpayer to the Crown."

A recent decision which follows and applies Batagol was that of Hill J in Webb v. Deputy Federal Commissioner of Taxation No 2 in particular at p.5129.

Common to both of those decisions is the need to have a determination of a taxable income and the calculation of an amount of tax which is to be levied and assessed and which is to create, by the service of such a notice, a debt owing by the taxpayer to the Commonwealth. Another decision which reinforces that conclusion is that of Tadgell J in Deputy Federal Commissioner of Taxation v. Sheehan (1986) 86 ATC 4718, in particular at p.4724. His Honour referred to the document in that matter in which a notice of credit applied which the defendant said was:

"... a notice of assessment because, when read with the adjustment sheet sent with it, it purported to assess a taxable income; ... even though it did not purport to assess a liability for tax..."

His Honour there said that perhaps the argument was that the definition, when
referring "to the tax payable thereon" means the tax payable thereon "if any". His Honour said:

"I think I must hold the argument to be without foundation. It is sufficient to say that, in my opinion, it is foreclosed by the decision of Batagol v. Federal Commissioner of Taxation, some of the salient features of which I have already mentioned. The imposition of a liability is a necessary feature of an assessment under Part IV of the Act, and a nil assessment is an impossibility: see the judgment of Kitto J at p.251 of the report."

So, in my view, it is quite clear as a matter of law that the documents which Mr Stuart, through his counsel, contends are assessments or notices of assessment are not so as a matter of law. That leads to consideration of what rights the applicant might have. Section 175A of the Income Tax Assessment Act 1936 (Cth) provides that:

"A taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953."

But that is the foundation block of the whole of Mr Stuart's cases, that there must be an assessment. In my view, it is quite clear there was not an assessment, therefore whatever he sent to the Commissioner was not an objection within the meaning of the Act and there was therefore no objection decision and there can therefore be no appealable objection decision arising out of what I think the respondent accepts would be the combination of the two letters of November and December last year. So for that reason alone I would hold that the application WAG 8 of 1996 should be struck out. Furthermore, because of the existence of the appeal, WAG 117 of 1995, it seems to me, given the answers to the two questions which I put to Mr Sanders, that within the meaning of Order 20 rule 2 of the Federal Court Rules these claims are frivolous
or vexatious and amount to an abuse of the process of this Court. When that appeal goes forward to the Federal Court, that is the appeal in WAG 117 of 1995, the Court, if there is a valid point of law involved, has power under section 44 of the Administration Appeals Tribunal Act 1975 (Cth), even if it sees fit to dismiss the appeal, (and I am not prejudging that of course, but if it did) to make such orders as it thinks appropriate by reason of its decision.

In my view, given the circumstance that since the decision of the Administrative Appeals Tribunal there has been the issuing of the notices of nil tax payable, clearly stating the Commissioner's position of giving credit for $13,722 to the taxpayer, that if the appellant were to raise that matter in the hearing of the appeal I would be very surprised if the Federal Court did not make an order varying the decision below by excision of the provisional tax of $13,722 and if there is any suggestion of penalty tax having been attracted by virtue of the non-payment of that provisional tax, to make an order directing that that be excised also. In fact, I would be very surprised if that order was not made by consent.

However, for those reasons, in my view, the public resources should not be exhausted either in the prosecution of the principal application itself, in WAG 8 of 1996 or, for that matter, should the resources of this Court which are by no means limitless be wasted on such a futile exercise. I now turn to application WAG 9 of 1996, that is the application for an order of review. In my view, there is no decision within the meaning of the ADJR Act capable of being reviewed because there was nothing to decide. There was no assessment, therefore the occasion for filing an objection did not
arise, therefore there was no call or requirement on the Commissioner's part to make a decision.

I do not rely on any deficiencies which Mr Sanders suggested may or may not exist in the objection itself. I think, on the contrary, the objection makes it very clear what Mr Stuart is complaining about in the treatment that has been given to him by the Commissioner. It is quite clear he is disputing those parts of the documents which refer to amounts previously assessed. So I do not rely on that at all and so my primary reason for acceding to the respondent's motion in WAG 9 of 1996 is that there is no decision - no relevant decision - simply because there was nothing to decide.

Secondly, because there is the appeal in WAG 117 of 1995 afoot, with the consequences that the matters of Mr Stuart's real grounds for complaint (and again I refer to the two questions I put to Mr Sanders), are progressing to the Federal Court and Mr Stuart will have his day in Court, through the vehicle of appeal number WAG 117 of 1995. So as a matter of discretion under section 10 of the ADJR Act, apart from any other reasons, I consider it would be appropriate to dismiss the application peremptorily, conscious of the very high standard of satisfaction that is required by the cases dealing with striking-out applications which I referred to earlier in these reasons. For those reasons the orders will be in each matter in these terms: "The application be dismissed".

I certify that this and the preceding thirteen

(13) pages are a true copy of the Reasons for

Judgment of Justice Carr.

Associate:

Date:

Counsel for the Applicant: Mr L. Saunders

Solicitors for the Applicant: A.C. Thorpe

Counsel for the Respondent: Ms L. Price

Solicitors for the Respondent: Australian Government

Solicitor

Date of Hearing: 15 March 1996

Date of Judgment: 15 March 1996

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