FEDERAL COURT OF AUSTRALIA

 

Queensland Trading & Holding Company Limited v Commissioner of Taxation

[2005] FCA 418

ADMINISTRATIVE LAW – sequel to determination of Spassked litigation – transferred Spassked taxation losses to two corporate members of Industrial Equity Limited corporate group disallowed – amended assessment issued to each applicant for primary tax – each amended assessment contained imposition of additional tax – reasons sought for refusal to remit additional tax pursuant to s 13 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) – reasons refused by Commissioner – whether QTH and IEL entitled to reasons pursuant to s 13 ADJR Act not to remit additional tax pursuant to s 227(3) of the Income Tax Assessment Act 1936 (Cth) – whether decision to impose additional tax excluded from obligation to give reasons from operation of ADJR Act by paragraph (ga) of Schedule 1 thereto

 

Income Tax Assessment Act 1936 (Cth) Part VII

Administrative Decisions (Judicial Review) Act 1977 ss 13(1) and (4A); pars (e) and (ga) of Schedule 1 thereto

Taxation Administration Act 1953 (Cth)

Taxation Laws Amendment Act (No 3) 1991 (Cth)

Training Guarantee (Administration) Act 1990 (Cth)

 

 

Supreme Court Rules 1970 (NSW) Pt 15AA r 18

 

 

Spassked Pty Limited v Federal Commissioner of Taxation [2004] HCATrans 545 referred to

Spassked Pty Limited v Federal Commissioner of Taxation (2003) ATC 5099 referred to

Spassked Pty Limited v Federal Commissioner of Taxation (2003) ATC 4148 referred to

Deputy Commissioner of Taxation v Mostyn (1987) 18 FCR 260 applied

Grollo Nominees Pty Ltd v Federal Commissioner of Taxation (1997) 73 FCR 452 distinguished

Kajewski v Federal Commissioner of Taxation [2003] ATC 4375 distinguished

Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353 referred to

Brown v Federal Commissioner of Taxation (2001) ATC 4299 distinguished

Richardson v Federal Commissioner of Taxation (1932) 48 CLR 192 discussed

Jolly v Federal Commission of Taxation (1935) 53 CLR 206 discussed

Finance Facilities Pty Ltd v Commissioner of Taxation (1971) 127 CLR 106 applied

TCN Channel 9 Pty Ltd v Antoniadis (No 2) (1999) 48 NSWLR 381 applied

Director of Public Prosecutions v West (2000) 48 NSWLR 647 referred to

Air Caledonie International v Commonwealth (1988) 165 CLR 462 discussed

Re Dymond (1959) 101 CLR 11 applied

CIC Insurance Ltd v Bankstown Football Club Limited (1997) 187 CLR 384 applied

Northern Suburbs General Cemetery Reserve Trust v Commonwealth (1993) 176 CLR 555 applied

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

QUEENSLAND TRADING & HOLDING COMPANY LIMITED v COMMISSIONER OF TAXATION

N 681 OF 2004

 

INDUSTRIAL EQUITY LIMITED v COMMISSIONER OF TAXATION

N 683 OF 2004

 

 

 

CONTI J

19 APRIL 2005

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 681 OF 2004

 

BETWEEN:	QUEENSLAND TRADING & HOLDING COMPANY LIMITED APPLICANT
AND:	COMMISSIONER OF TAXATION RESPONDENT
JUDGE:	CONTI J
DATE OF ORDER:	19 APRIL 2005
WHERE MADE:	SYDNEY

 

 

THE COURT ORDERS THAT:

 

1.         Upon the true construction of Schedule 1 to the Administrative Decisions (Judicial Review) Act 1977 and par (ga) thereof in particular, and in the events which have happened, the applicant Queensland Trading & Holding Company Limited is entitled to make the request contained in its letter dated 15 March 2004 to the respondent Commissioner of Taxation for a statement of reasons in respect of the decision of the respondent made on 11 March 2004 under s 227(3) of the Income Tax Assessment Act not to further or fully remit additional tax imposed purportedly in accordance with Part VII thereof.

2.         The respondent Commissioner of Taxation pay the costs of the applicant Queensland Trading & Holding Company Limited of the proceedings to date.

3.         The proceedings of grant for further declaratory relief be stood over generally with liberty to restore on 14 days notice.

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY		N 683 OF 2004
BETWEEN:	INDUSTRIAL EQUITY LIMITED APPLICANT
AND:	COMMISSIONER OF TAXATION RESPONDENT
JUDGE:	CONTI J
DATE OF ORDER:	19 APRIL 2005
WHERE MADE:	SYDNEY

 

 

THE COURT ORDERS THAT:

1.         Upon the true construction of Schedule 1 to the Administrative Decisions (Judicial Review) Act 1977 and par (ga) thereof in particular, and in the events which have happened, the applicant Industrial Equity Limited is entitled to make the request contained in its letter dated 15 March 2004 to the respondent Commissioner of Taxation for a statement of reasons in respect of the decision of the respondent made on 17 February 2004 under s 227(3) of the Income Tax Assessment Act not to further or fully remit additional tax imposed purportedly in accordance with Part VII thereof.

2.         The respondent Commissioner of Taxation pay the costs of the applicant Industrial Equity Limited of the proceedings to date.

3.         The proceedings of grant for further declaratory relief be stood over generally with liberty to restore on 14 days notice.

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 681 OF 2004

 

BETWEEN:	QUEENSLAND TRADING & HOLDING COMPANY LIMITED APPLICANT
AND:	COMMISSIONER OF TAXATION RESPONDENT
	N 683 OF 2004
BETWEEN:	INDUSTRIAL EQUITY LIMITED APPLICANT
AND:	COMMISSIONER OF TAXATION RESPONDENT

 

JUDGE:	CONTI J
DATE:	19 APRIL 2005
PLACE:	SYDNEY

REASONS FOR JUDGMENT

Background to the commencement of the proceedings

1                     Each of the applicants was at all material times a corporate member of the Industrial Equity Group of public companies.  That corporate group included an apparent subsidiary Spassked Pty Limited (‘Spassked’), which has been involved unsuccessfully in major income tax litigation, initially in the Federal Court at first instance (Spassked Pty Limited v Federal Commissioner of Taxation (2003) ATC 4148), and subsequently in a Full Court on appeal (2003) ATC 5099).  The judgments in those cases were delivered on 14 February 2003 and 8 December 2003 respectively.  An application for leave to appeal against the Full Court’s decision to the High Court of Australia made by Spassked was later dismissed on 10 December 2004 (Spassked Pty Limited v Federal Commissioner of Taxation [2004] HCATrans 545).

2                     On 11 March 2004 and 17 February 2004, the Assistant Commissioner of Taxation wrote to the public officer of each of the applicants respectively and asserted that the Federal Court decisions made in the Spassked proceedings established the following:

(i)         interest commitments related to corporate intra-group borrowings claimed by Spassked as deductible for the fiscal years ended 30 June 1991, 1993 and 1994 did not constitute allowable deductions in respect of those income years within s 51 of the Income Tax Assessment Act 1936 (Cth) (‘the Tax Act’); and

(ii)        the losses for taxation purposes, which had been purportedly transferred by Spassked to the applicant Industrial Equity Limited (‘IEL’) for the year ended 30 June 1996, and further losses for taxation purposes which had been purportedly transferred by Spassked to another related member of the IEL Group, namely the applicant Queensland Trading & Holding Company Limited (‘QTH’) for the earlier year ended 30 June 1991, were ‘not available to the extent claimed by the transferor’ pursuant to s 80G(6) of the Tax Act.

Each of the applicants was informed by the Commissioner that as a consequence of the outcome of the Spassked litigation, the grounds of objection in respect ‘of your tax liability’ were disallowed in full.  Numerous transfers of losses from Spassked to other Industrial Equity Group subsidiary companies were similarly treated by the Commissioner. 

3                     In the case of the Commissioner’s above letter of 17 February 2004 to IEL, it was further stated as follows:

‘Your objection includes a reference to interest imposed in terms of section 170AA of the Act.  You are unable to object against interest imposed in terms of section 170AA (subsection 170AA(13)).  Accordingly, your objection on that point is invalid.  However, the imposition of interest under section 170AA has been reviewed under subsection 170AA(11) and it has been decided that it should not be remitted.

If you are dissatisfied with this review, then you may request that the matter be reviewed by the Federal Court in terms of the Administrative Decisions (Judicial Review) Act 1977.  The Administrative Appeals Tribunal cannot review the imposition of the interest component.’

Section 170AA is located within Part IV of the Tax Act, headed ‘Returns and Assessments’, and provided at the material times as follows:

‘(1)      Subject to this section, where an amendment of an assessment increasing the liability of a taxpayer to tax is made, the taxpayer is liable to pay the general interest charge, for each day in the period of subsection (4), on the amount… by which the tax payable by the taxpayer under the amended assessment exceeds the tax payable by the taxpayer under the assessment that was amended.’

The taxable income of $106,231,784 returned by IEL was therefore denied deduction in respect of losses for tax purposes transferred from Spassked to IEL, and as a consequence, IEL was subjected to assessment of tax and penalties and interest described as follows:

‘Tax Properly Payable                          $38,243,442.24

Tax Shortfall Penalty                            $22,946,065.34

Tax Shortfall Interest                            $36,014,368.34’

The reference above to Tax Shortfall Penalty may be observed in particular, the same being, in the case of the applicant IEL, the focus of its present outstanding dispute with the Commissioner.  Section 170AA is headed ‘Liability of Taxpayer Where Assessment Amended’.  Subsection 170AA(1), which took effect from 1 July 1999, stipulates that a taxpayer is liable to pay the general interest charge in relation to any increase in tax assessed by an amended assessment, including any additional tax by way of penalty for which a taxpayer becomes liable pursuant to subsection 170AA(1AA).  It is that expression which would presently correspond to the Commissioner’s above description of Tax Shortfall Penalty.  The statutory notion of general interest charge replaced the previous statutory notion simply of interest in operation in respect of the years of income the subject of the present proceedings.  The since repealed subsections 170AA(11) and (13) stipulated at the times relating to the issue of the contentious assessments as follows:

‘The Commissioner may, in his or her discretion, remit the whole or any part of the interest payable to a taxpayer under this section.

…

The ascertainment of an amount of interest under this section shall be deemed not to be an assessment within the meaning of any of the provisions of this Act.’

The replacement interest accruing provisions are more complex and need not be reproduced.

4                     In the case of the Commissioner’s above letter of 11 March 2004 to the applicant QTH, it was stated as follows:

‘Your objection against the imposition of additional tax has also been reviewed and has been disallowed in full.

…

Your objection includes a reference to any interest imposed under section 170AA or any other provision of the Act.  No interest has been imposed under section 170AA of the Act or any other provision of the Act.

If you are dissatisfied with this decision, then you may request that the matter be reviewed by the Federal Court in terms of the Administrative Decisions (Judicial Review) Act 1977.  The Administrative Appeals Tribunal cannot review the imposition of the interest component.’

The taxable income of $26,311,177 returned by QTH in respect of the year ended 30 June 1991 was similarly denied allowance for the tax losses purportedly transferred from Spassked to QTH, and consequently QTH was subjected to assessment and penalties described as follows:

‘Tax Properly Payable                          $10,261,359.03

Additional Tax-Culpability                     $4,617,611.56

Additional Tax-Per Annum                     $8,645,020.45.’

The description Additional Tax-Culpability in relation to QTH reflects the same fiscal impost as the Tax Shortfall Penalty referred to by the Commissioner in the earlier letter of 17 February 2004 to IEL, and the description Additional Tax-Per Annum reflects the Tax Shortfall Interest used by the Commissioner in that earlier letter.

5                     Those notices of disallowance and of adverse fiscal determination were furnished by the Commissioner to IEL and QTH in the context of their respective notices of objection to tax assessments each lodged with the Commissioner on 9 May 2003, being disallowances of the deductions wholly claimed by IEL and QTH apparently in relation to the purported taxation losses transferred from Spassked to IEL and QTH, by way of offset against assessable income derived by QTH and IEL respectively.

6                     On 15 March 2004, QTH and IEL notified the Commissioner that each company was aggrieved by those assessment decisions, and requested that pursuant to s 13 of the Administrative Decisions (Judicial Review) Act 1977 (‘the ADJR Act’), the Commissioner furnish a written statement of the reasons for the decisions not to further or fully remit the additional tax imposed by the Commissioner pursuant to Part VII of the Tax Act, which is headed Penalty Tax, and additionally in the case of IEL, not to further or fully remit the interest charge originally imposed pursuant to the since repealed (ie in 1999) provisions of s 170AA(11) of the Tax Act.  That request for reasons extended to the Commissioner’s findings on the material questions of fact.  Reference was made by QTH and IEL in the same notification to Taxation Ruling 2521 (‘IT2521’), and in particular, to pars 15-17 thereof, and it was asserted ‘[t]hat ruling correctly concludes that the exercise of the discretion contained in subsection 227(3) can be made independently of the assessment process and thus is susceptible to judicial review’. 

7                     IT2521 appears to have been promulgated on or about 4 May 1988, and so far as may be material, reads as follows:

‘1.        The Full Court of the Federal Court of Australia has dismissed the Deputy Commissioner’s appeal from the decision of a single judge of the Federal Court reported as Mostyn v Deputy Commissioner of Taxation 87 ATC 4482; (1987) 18 ATR 912.  The decision of the Full Court is reported as Deputy Commissioner of Taxation v Mostyn 87 ATC 5056; (1987) 19 ATR 588.  No application was made to the High Court for special leave to appeal.  This ruling provides guidelines for the application of the judgment to other cases, particularly for processing requests for remission of additional tax under former subsection 226(3) of the Income Tax Assessment Act (the Act) and under section 227(3) of the Act as the Act presently stands.

            …

13.       The decision of the Full Federal Court has been accepted and the principles emerging from it are to be applied generally.

14.             In the course of the judgment, the Full Court noted that section 227, (which is recognised as the present counterpart of former section 226), is in a substantially different form from section 226 and that it was not intended in the judgment to indicate a view of the proper construction of section 227.

15.       On examination of the wording of subsection 227(3) and the explanatory memorandum which accompanied its enactment, it has been decided that the interpretation placed on subsection 226(3) by the Federal Court can and should be extended to apply to the present subsection 227(3).

16.       The discretions in subsection 227(3) and the former subsection 226(3) may therefore be exercised independently of the assessment process.  The assessment imposing the additional tax does not necessarily have to be amended in order to give effect to a decision to remit the additional tax.  Wherever an amendment of the assessment imposing the additional tax is authorised by section 170, however, it is desirable that, following a decision to remit, the assessment be amended.

17.       The discretions in subsection 227(3) and the former subsection 226(3) may be exercised after the statutory time limit for lodging an objection against an assessment or for lodging an appeal against the disallowance of an objection has expired.

…

21.       A taxpayer who is aggrieved by a decision by the Commissioner to refuse to remit additional tax may apply to the Federal Court for review of the decision.  The grounds on which a taxpayer may rely are set out fully in section 5 of the ADJR Act.  It is then a matter for the court to decide whether any ground for seeking the review has in fact been proved. 

The reference above to the Full Federal Court’s decision in Commissioner of Taxation v Mostyn (since reported (1987) 18 FCR 260) may be observed; it is an authority upon which the applicants QTH and IEL placed emphasis in the course of submissions; I will later address the same in more detail. 

8                     Subsection 227(3) of the Tax Act, referred to throughout IT2521 to the extent extracted above, appears to have replaced s 170AA(11) of the Tax Act; the full text of s 227 reads as follows:

‘(1)      The Commissioner shall make an assessment of the additional tax payable by a person under a provision of this Part.

(2)       Nothing in this Act shall be taken to preclude notice of an assessment made in respect of a person under subsection (1) from being incorporated in notice of any other assessment made in respect of the person under this Act.

(3)       The Commissioner may, in the Commissioner’s discretion, remit the whole or any part of the additional tax payable by a person under a provision of this Part, but, for the purposes of the application of subsection 33(1) of the Acts Interpretation Act 1901 to the power of remission conferred by this subsection, nothing in this Act shall be taken to preclude the exercise of the power at a time before an assessment is made under section (1) of the additional tax.’

Section 227 is located within Part VII, which is headed ‘Penalty Tax’, being a description used in the text of the headings to a number of sections within Part VII. 

9                     By letter dated 8 April 2004, the Assistant Commissioner of Taxation responded in the following terms in relation to the IEL request for reasons:

‘Re:  Industrial Equity Limited – Year of income ended 30 June 1996

Reference is made to your request for a statement of reasons dated 15 March 2004, in respect of the following:

1.         A decision made under section 227(3) not to further or fully remit additional tax imposed on the company in accordance with Part VII; and

2.         A decision made under section 170AA(11) not to further or fully remit interest imposed on the company in accordance with section 170AA.

Statement of Reasons as to the decision made under section 227(3)

Section 13 of the Administrative Decisions (Judicial Review) Act 1977 (“ADJR Act”) entitles certain taxpayers to apply for a statement in writing of reasons for decisions to which the ADJR Act applies.

The decision in respect of which reasons are sought pursuant to section 13 of the ADJR Act, must be “a decision to which this section applies”.  Schedule 1 of the ADJR Act specifically lists the classes of decisions that are not decisions to which this Act applies.  Paragraph (ga) of this Schedule indicates that decisions under section 14ZY of the Taxation Administration Act 1953 disallowing objections to assessment or calculations of tax, charge or duty are excluded from the scope of the ADJR Act.

It is considered that your request, on behalf of Industrial Equity Limited, is a request in relation to a decision under section 14ZY of the Taxation Administration Act 1953 disallowing an objection to an assessment or calculation of tax and is not a reviewable decision to which section 13 of the ADJR Act applies.

Accordingly, there is no requirement to furnish a statement of reasons pursuant to section 13 in relation to the matters that you have raised.  However, as indicated in our letter of 17 February 2004, the taxpayer may use the provisions of Part IVC of the Taxation Administration Act 1953 to obtain a further review of the decision under section 227(3). 

Statement of reasons as to the decision made under section 170AA(11)

Pursuant to section 13 of the Administrative Decisions (Judicial Review) Act 1977, please find enclosed a statement in writing setting out the findings on material questions of fact, referring to the evidence or other materials on which those findings were based and giving the reasons for the decision made.

Please contact me if these matters require further clarification.’

A similar letter was simultaneously sent by the Commissioner in response to QTH, in so far as concerned reasons for the decision made by the Commissioner pursuant to s 227(3) affecting the same. 

10                  The Commissioner’s above assertion as to the absence of any entitlement of the applicants QTH and IEL to reasons for the Commissioner’s decisions here relevant, pursuant to s 13 of the ADJR Act, is at the centre of the dispute the subject of the present proceedings, constituted as the present proceedings are as essentially applications for orders that the Commissioner provide reasons for the respective decisions as to the imposition of what QTH and IEL would describe as penalty tax imposed on each of QTH and IEL (the assessment documents accompanying the respective notices of assessment to QTH and IEL used the description ‘Company Tax and Penalty Calculations’), albeit referred to as additional tax by the Tax Act, and also similar orders as to the imposition of the general interest charge imposed pursuant to the since prevailing s 170AA(1) of the Tax Act.  It is appropriate to set out immediately below subsections (1), (2) and (3) of section 13 of the ADJR Act:

‘13.     Reasons for decision may be obtained

            (1)     Where a person makes a decision to which this section applies, any person who is entitled to make an application to the Federal Court or the Federal Magistrates Court under section 5 in relation to the decision may, by notice in writing given to the person who made the decision, request him or her to furnish a statement in writing setting out the findings on material questions of fact, referring to the evidence or other material on which those findings were based and giving the reasons for the decision. 

            (2)     Where such a request is made, the person who made the decision shall, subject to this section, as soon as practicable, and in any event within 28 days, after receiving the request, prepare the statement and furnish it to the person who made the request.

            (3)     Where a person to whom a request is made under subsection (1) is of the opinion that the person who made the request was not entitled to make the request, the first-mentioned person may, within 28 days after receiving the request:

                     (a)     give to the second-mentioned person notice in writing of his or her opinion; or

                     (b)     apply to the Federal Court or the Federal Magistrates Court under subsection (4A) for an order declaring that the person who made the request was not entitled to make the request.’

11                  Section 3 of the ADJR Act defines the above expression decision to which this Act applies, which in short means ‘a decision of an administrative character made (whether in the exercise of a discretion or not…)… under an enactment…’.  Excluded from the operation of the ADJR Act are the classes of decision described in Schedule 1 to the Act.  That class of excluded decision here directly relevant, as foreshadowed in the Commissioner’s above letter of 8 April 2004, is set out in par (ga) of Schedule 1, reading as follows:

‘decisions under section 14ZY of the Taxation Administration Act 1953 disallowing objections to assessments or calculations of tax, charge or duty.’

I shall hereafter refer to the Taxation Administration Act 1953 (Cth) as the ‘Administration Act’.  Section 14ZY has at all material times required the Commissioner to decide whether to allow in whole or in part, or to disallow, taxation objections.  It stands within Part IVC of the Administration Act, which is headed ‘Taxation Objections, Review and Appeals’. 

12                  Section 14ZY was inserted into the Administration Act in 1991 as part of the then newly introduced Part IVC headed ‘Taxation Objections, Reviews and Appeals’, and thus after the Full Federal Court’s decision in Mostyn.  Division 3 of Part IVC is headed ‘Taxation Objections’, Division 4 of Part IVC is headed ‘AAT review of objection decisions and extension of time refusal decisions’, and Division 5 of Part IVC is headed ‘Federal Court appeals against objection decisions’.  These newly introduced Divisions related to a wide range of Commonwealth legislation, apart from income tax; they related for instance to fringe benefits, pay-roll tax, petroleum resource rent tax, sales tax and wool tax.  It is no understatement to observe that the legislation thus introduced represented substantial and comprehensive procedural rationalisation of the Commonwealth revenue system and the processes for review or appeal from Commonwealth departmental decision-making.

13                  The Explanatory Memorandum to the Taxation Laws Amendment Act (No 3) 1991 (Cth), which introduced, inter alia,Part IVC to the Administration Act, provided the following so-called ‘overview’ under the heading ‘Direct lodgment of appeals and applications for review’; references to the ‘Principal Act’ are to the Administration Act:

‘Introduces new arrangements for taxpayers to lodge appeals against, or applications for review of, objection decisions directly with the Federal Court or the Administrative Appeals Tribunal.

Repeals the objection and appeals provisions of various taxation laws administered by the Commissioner of Taxation and includes a set of generic objection and appeal provisions in the Taxation Administration Act.’

14                  Thereafter followed the so-called ‘Summary of proposed amendments’:

‘26.1    Under the existing law, if a taxpayer is dissatisfied with the Commissioner’s decision on an objection, the taxpayer may lodge with the Commissioner a request to refer the decision to either the AAT or the Federal Court of Australia.  This right of review or appeal is provided for in various taxation laws.  Each of these taxation laws sets out the mechanisms and conditions for the lodgement of objections, requests for review and appeals, and the Commissioner’s responsibilities and duties in relation to them.

26.2          This Bill will amend these taxation laws in two ways.

·     Firstly, applications for review and appeals will no longer need to be lodged with the Commissioner for him to refer them to the AAT or the Federal Court.  Taxpayers will now lodge applications for review and appeals directly with the AAT or the Federal Court.

·     Secondly, there will be one set of generic provisions for objections, reviews and appeals included in the Taxation Administration Act 1953 (the Principal Act).’

15                  The ‘Background to the legislation’ was then explained as follows:

‘The current law

26.3          The various taxation laws enable taxpayers to dispute certain decisions made by the Commissioner, e.g. to object against an assessment made by the Commissioner.  A taxpayer who is dissatisfied with the decision on the objection may lodge with the Commissioner a request in writing to refer that decision to either the AAT or the Federal Court.  Taxpayers must lodge this request with the Commissioner within sixty days after service of the notice of the decision on the objection.

26.4          Taxpayers may also apply for an extension of time in which to lodge the objection, request for review or the appeal.

26.5          When the request for review or the appeal is heard taxpayers cannot rely on any grounds other than those stated in their objection, unless the AAT or the Federal Court orders otherwise.  Also, the burden of proving that the assessment is excessive lies upon the taxpayer.

26.6          In relation to requests for review Part IVB of the Taxation Administration Act modifies the operation of Part IV of the Administrative Appeals Tribunal Act (the AAT Act) in so far as it relates to the review by the AAT of the Commissioner’s decision on the objection.’

16                  Under the heading ‘Why change the law’, there next appeared the following:

‘26.7    A review of the Australian Taxation Office’s (ATO) processes for resolving disputes recommended that taxpayers should lodge applications for review and appeals directly to the AAT and the Federal Court.  The Government accepted this proposal.

26.8     A number of provisions in various taxation laws must now be amended to remove the requirement that applications for review and appeals should first be lodged with the Commissioner.  The Commissioner will cease to have any involvement in the processing of these applications or appeals, or in processing applications for extension of time to lodge these applications or appeals.

26.9     These changes provided an opportunity to bring the objection, review and appeal provisions of the various laws within the one Act - the Principal Act.  These amendments use more modern language and drafting techniques.’

17                  Under the heading ‘Explanation of the proposed amendments’, it was emphasised that ‘The Bill does not substantially change the law’, the main significant change being described in the following terms:

‘Taxpayers need to lodge their requests for review or appeal directly with the AAT or the Federal Court.

…

Taxpayers will still be given the right to object against an assessment, etc by the Act under which the assessment, etc is made, but Part IVC of the Principal Act will set out the mannerin which the objections – made under all of those Acts – is to be made, unchanged for existing laws…’  (The underlining is that of the text itself). 

Subsequently in the same document, there appeared the following under a heading referring to the ADJR Act and ‘Specific Amendments’:

‘26.47  It is necessary to include objection decisions made under section 14ZY of the Principal Act in Schedule 1 (as a class of decisions that are not decision[s] to which the ADJR Act applies).  This is to ensure that objection decisions made under the Principal Act are not reviewable under the ADJR Act.’

18                  Returning to the earlier mentioned letter of the Commissioner of 8 April 2004 to IEL, the same contained the following statement purportedly pursuant to s 13 of the ADJR Act:

‘Industrial Equity Limited

Statement pursuant to Section 13 of the Administrative Decisions (Judicial Review) Act 1977 (the ADJR Act)

In a letter dated 15 March 2004, Industrial Equity Limited (the taxpayer), through its solicitors, Blake Dawson Waldron sought a statement in writing setting out the findings of material questions of fact, referring to the evidence or material on which those findings were based and giving reasons for a decision made under section 170AA(11) of the Income Tax Assessment Act 1936 (the Act) not to further or fully remit interest imposed on the taxpayer in accordance with section 170AA.

I made the decision not to further or fully remit the interest imposed on the taxpayer under section 170AA as a delegate of the Commissioner.  In accordance with section 13 of the ADJR Act, I furnish the following statement.

Findings of Material Questions of Fact and Evidence or Material on which those Findings are Based.

1.      The taxpayer claimed a deduction under section 79E in relation to losses transferred from Spassked Pty Ltd under section 80G for the year ended 30 June 1996.  This deduction was disallowed and a notice of assessment issued on 14 April 2003. This assessment included additional tax in terms of sections 226L and 226X or sections 226 and 226C, and notified the taxpayer that interest had been imposed.

2.      The interest amount of $36,014,368 imposed and notified in the assessment notice was pursuant to section 170AA of the Act.

3.      The taxpayer lodged an objection, dated 9 May 2003, to the assessment stating that a deduction should be allowed for losses transferred from Spassked Pty Limited, that additional tax imposed under Part VII of the Act should be excluded or reduced and that interest imposed under section 170AA of the Act be excluded or reduced.

4.      On 17 February 2004, the taxpayer was advised of the decision not to further or fully remit interest imposed on the taxpayer in accordance with section 170AA.  The decision was made following the decision to disallow the objection.

5.      The objection was determined subsequent to the decision handed down by Justice Lindgren on 14 February 2003 in Spassked Pty Ltd v Commissioner of Taxation (No. 5) [2003] FCA 84, Industrial Equity Limited v Commissioner of Taxation and Stanley Park Limited v Commissioner of Taxation. 

6.      The decision of Justice Lindgren was upheld by Justices Hill, Gyles and Lander in the Full Federal Court on 8 December 2003 in Spassked Pty Ltd v Commissioner of Taxation [2003] FCAFC 282, Industrial Equity Limited v Commissioner of Taxation and Stanley Park Limited v Commissioner of Taxation.

 

7.      The additional tax imposed under Part VII and the interest imposed under section 170AA of the Act were not matters subject to appeal in the Federal Court or the Full Federal Court.

REASONS FOR DECISION

8.      The effect of the decisions in the Federal Court and the Full Federal Court establishes that the interest deduction claimed by Spassked Pty Ltd, for the year ended 30 June 1996, is not an allowable deduction pursuant to section 51 of the Act.  The decisions further indicate that the losses sought to be transferred by Spassked to the taxpayer pursuant to section 80G of the Act for the year ended 30 June 1996, are not available.

9.      The decisions of the Federal Court have confirmed the Commissioner’s increase in the liability of the taxpayer in respect of the assessment for the year ended 30 June 1996.

10.    Section 170AA of the Act provides that the taxpayer is liable to pay interest to the Commissioner on the amount of this increased liability.

11.    Under sub-section 170AA(11), the Commissioner may remit the whole or any part of the interest payable by a taxpayer.  However, clause 21 (page 126) of the Explanatory Memorandum for the relevant Bill, the Taxation (Interest on Underpayments) Bill 1986, states that in relation to sub-section 170AA(11) “it is not intended that the power of remission be exercised in the general run of cases”. 

12.    I formed the view that the circumstances of the taxpayer and the information provided by the taxpayer at the time of the lodgement of the objection have not established that the taxpayer’s case in relation to section 170AA is other than that of the “general run of cases”.  No further relevant information regarding the circumstances of the taxpayer and the application of section 170AA has been provided by the taxpayer following lodgement of the objection.

13.    Having regard to the foregoing, I made a decision not to further or fully remit the interest imposed pursuant to section 170AA.’ 

19                  It will thus be seen that in the case of IEL, the Commissioner purported to provide reasons for the decision not to further or fully remit the interest imposed pursuant to section 170AA, the reference to interest being to the so-called ‘Tax Shortfall Interest’ sum of $36,014,368.34 which I have already identified within the Commissioner’s letter of 17 February 2004.  The Commissioner’s letter did not appear, at least explicitly, to address the IEL request, in so far as it sought reasons for the Commissioner’s imposition of the so-called ‘Tax Shortfall Penalty’, that being the present objective of QTH and IEL in pursuing the relief the subject of the present proceedings.

20                  By letter dated 8 April 2004, the Australian Taxation Office separately responded to the QTH request in virtually the same terms as the foregoing response to the IEL request, in so far as concerned the controversy as to the provision of reasons for the decision made under s 227(3) of the Tax Act relating to QTH; the following was additionally stated in relation to interest:

‘I advise that no decision has been made to impose interest on the company pursuant to section 170AA of the Income Tax Assessment Act 1936 in respect of the year ended 30 June 1991.  Additional tax has been imposed in terms of section 223 or section 226 and where this is the case, interest is not payable under section 170AA.  Accordingly there is no requirement to furnish a statement in terms of section 13 of the ADJR Act.

…’

Section 223 of the Tax Act related to penalties for false and misleading statements, and was subsequently repealed in 1992, that is, after the relevant 1991 fiscal year; section 226 relates to penalty tax where Part IVA of the Tax Act applies, and has not been repealed. 

21                  On 30 April 2004, the solicitors for the IEL companies listed in an attachment thereto, (which companies comprised:

(i)         QTH as to the fiscal year ended 30 June 1991;

(ii)        a further 33 IEL Group companies (inclusive of IEL) as to the fiscal year ended 30 June 1992;

(iii)       IEL as to the fiscal years ended 30 June 1993 and 30 June 1996; and

(iv)       Industrial Equity Limited (the parent public company of QTH and IEL) as to the fiscal years ended 30 June 1996 and 1997)

wrote to the Commissioner and raised controversy, first as to the provision by the Commissioner of a statement of reasons for the decisions made under s 227(3) of the Tax Act concerning the Commissioner’s discretion, which had been withheld from exercise in favour of the IEL Group companies, being decisions to remit the whole or any part of an assessment of additional tax, and secondly as to the provision by the Commissioner of a statement of reasons as to decisions made under the since repealed s 170AA(11) of the Tax Act concerning the absence of remission by the Commissioner of the whole or part of the interest payable in respect of the additional tax. 

22                  As to that first matter so raised, the Commissioner was requested by the solicitors for the IEL companies to reconsider the decision to decline to provide reasons, including the Commissioner’s asserted reason that remission decisions are not reviewable decisions to which s 13 of the ADJR Act applies.  It was pointed out to the Commissioner that each of the IEL companies had included a ground in each objection to the assessment of income tax that the Commissioner should exercise the Commissioner’s remission discretion to further or fully remit the additional tax assessed.  It was contended by the solicitors for the IEL companies that the stance adopted by the Commissioner was contrary to the decision of the Full Federal Court in Mostyn, and also contrary to IT2521, and in particular, pars 15, 16 and 17 thereof.  It was asserted further that the exercise by the Commissioner of the discretion said to be therein contained ‘can be made independently of the assessment process and thus is susceptible to judicial review’.  Those contentions have been pursued in the proceedings leading to the present reasons for judgment.  An application to this Court for an order pursuant to s 13(4A) of ADJR Act was foreshadowed.

23                  As to the second matter so raised, the solicitors for the IEL companies complained of the Commissioner’s ‘reluctance to provide reasons, or in some cases furnish adequate reasons for [the Commissioner’s] decisions’, asserting thereby that ‘the IEL Group has at all times, and on a voluntary basis, co-operated with the Commissioner’s numerous requests for information in relation to the Spassked losses’, and reference was additionally made to the Australian Taxation Office Taxpayers’ Charter.  After drawing attention also to s 13(4A) of the ADJR Act, a request was made by the solicitors for the provision of statements of reasons in relation to the matters of controversy before 6 May 2004.  I have already extracted subsections 1, 2 and 3 of s 13 of the ADJR Act; subsection 13(4A) of the ADJR Act provides as follows:

‘The Federal Court or the Federal Magistrates Court may, on the application of:

(a)         a person to whom a request is made under subsection (1); or

(b)         a person who has received a notice under subsection (3);

make an order declaring that the person who made the request concerned was, or was not, entitled to make the request.’

24                  That letter of 30 April 2004 written by the solicitors for the IEL Group to the Commissioner moved next to the subject of statements of reasons for the decisions which had been made by the Commissioner under s 170AA(11) of the Tax Act, and complained that the statements of reasons until then given by the Commissioner, pursuant to s 13 of the ADJR Act, did not contain adequate particulars or findings on material questions of fact that were directly relevant to those decisions made under subsection 170AA(11) (relating of course to the general interest charge).  It was foreshadowed on behalf of the IEL Group that IEL would apply to the Court for an order, pursuant to s 13(7) of the ADJR Act, for additional statements containing further and better particulars.  The text of that further subsection of the ADJR Act is in the following terms:

‘If the Federal Court or the Federal Magistrates Court, upon application for an order under this subsection made to it by a person to whom a statement has been furnished in pursuance of a request under subsection (1), considers that the statement does not contain adequate particulars of findings on material questions of fact, an adequate reference to the evidence or other material on which those findings were based or adequate particulars of the reasons for the decision, the court may order the person who furnished the statement to furnish to the person who made the request for the statement, within such time as is specified in the order, an additional statement or additional statements containing further and better particulars in relation to matters specified in the order with respect to those findings, that evidence or other material or those reasons.’

For reasons which will later be addressed, the Commissioner denied an obligation in law to provide the particulars of the reasons sought. 

25                  The issue arising in the context of the IEL proceedings, as formally pleaded, as to whether the Commissioner is obliged to furnish reasons in respect of the decision not to further or fully remit interest on the tax assessed, and  imposed originally under the auspices of the former s 170AA(11) of the Tax Act, was ultimately deferred by mutual agreement of the parties, and I was so notified at the commencement of the hearing of the present proceedings.  The precisely framed as well as comprehensive written submissions of the parties, which were submitted for the purpose of the hearing of the proceedings the subject of these reasons for judgment, were confined in scope to the s 227(3) additional tax issue.  Those written submissions were prepared in the sequence, first by Commissioner in chief as it were, thereafter by QTH and IEL in response, and finally by the Commissioner by way of rejoinder.  Although the parties orally addressed the Court in the reverse order, that being the usual order of course in taxation disputes, I have found it to be more precise and comprehendible to formulate these reasons essentially in the sequence in which the written submissions were tendered, since it was by reference to the written submissions that the respective parties at least for the most part orally addressed the issues arising. 

The Commissioner’s contentions as to the absence or otherwise of obligation of the Commissioner to give reasons for decisions pursuant to ADJR Act not to remit additional tax and some preliminary observations

26                  The Commissioner framed the issue arising for resolution in the present proceedings as whether the determinations on the Commissioner’s part not to remit additional tax, pursuant to s 227(3) of the Tax Act, constituted decisions to which the ADJR Act applied.  The Commissioner contended that each of the decisions not to remit additional tax in favour of QTH and IEL, pursuant to s 227(3) of the Tax Act, was a decision in relation to which the ADJR Act did not apply, and that consequently the Commissioner was not obliged to give reasons for either of those decisions not to remit additional tax. 

27                  The Commissioner first drew attention to s 3 of the ADJR Act, which provides that a decision to which that Act applies excludes ‘a decision included in any of the classes of decisions set out in Schedule 1’, and to Schedule 1 to the ADJR Act, which stipulates the ‘[c]lasses of decisions that are not decisions to which this Act applies’.  That class of decision directly material to the present proceedings appears in par (ga) of Schedule 1, and as I have foreshadowed in my extraction of the Commissioner’s letter of 8 April 2004 and reproduced in that context, it comprises the critical exception ‘decisions under section 14ZY of the Taxation Administration Act 1953 disallowing objections to assessments or calculations of tax, charge or duty’.  The construction and operation of par (ga) of Schedule 1 to the ADJR Act, in relation to the Commissioner’s decisions to impose upon QTH and IEL the substantial amounts of additional tax here involved and not to remit the whole of any part of that additional tax pursuant to s 227(3) of the Tax Act, thus provides the context to the critical issue arising for present resolution, by virtue of the order presently sought in these proceedings by each of QTH and IEL against the Commissioner pursuant to s 13(4A) of the ADJR Act.  That relief has been sought by QTH and IEL at least for the reason that the Commissioner has declined to exercise the discretion conferred by s 227(3) of the Tax Act to remit the whole or some part of the additional tax payable. 

28                  The reasoning expressed in support of the Commissioner’s contention, as to the absence of operation of the ADJR Act and particularly s 13 thereof, in the circumstances here postulated, is in summary as follows:

(i)         each decision of the Commissioner not to further or fully remit additional tax constituted a decision made under s 14ZY of the Administration Act by way of disallowance of the applicants’ respective objections against each relevant assessment of additional tax, and thus involved objections to assessments or calculations of taxwithin par (ga) of Schedule 1 to the ADJR Act, and was therefore not a decision to which the ADJR Act applies by reason of s 3 thereof; and/or

(ii)        additionally or alternatively, each decision of the Commissioner constituted a disallowance of objections to assessments or calculations of… [a] charge… within the said par (ga) of Schedule 1.

(The bold letters are to distinguish the two bases for the Commissioner’s contention that par (ga) applies adversely to QTH and IEL).  The latter basis appeared to reflect the Commissioner’s preferred case, though both bases were vigorously pursued, cumulatively and in the alternative.  The Commissioner submitted that the description charge is to be construed as bearing the notion merely of ‘a liability to pay money’, citing in that regard the observation of the NSW Court of Appeal in Davison v Bathurst City Council [1966] 1 NSWR 61 (per Wallace P, Jacobs and Asprey JJA).  The context to that case was local government charges and fees for paving footpaths adjacent to property held under private ownership.  At 64 the following passage appears in the joint reasons for judgment:

‘An ordinary meaning of the word “charge” is a liability to pay money.  It is not limited to such a liability when it is imposed on property but is also applicable to such a liability imposed on a person.’

29                  In elaboration of the contention that the decisions relating to each of QTH and IEL related to the disallowance of objections to assessments or calculations of tax within par (ga) of Schedule 1 to the ADJR Act, the Commissioner acknowledged that this Court has jurisdiction to consider the issue of remission of additional tax on a tax appeal brought pursuant to Part IVC of the Administration Act, which is headed ‘Taxation Objections, Reviews and Appeals’,referring in that regard to the discussion in Grollo Nominees Pty Ltd v Federal Commissioner of Taxation (1997) 73 FCR 452 at 517-526, being a decision of a Full Federal Court comprising Sheppard, Foster and Whitlam JJ.  The Full Court observed at 523 that ‘… it would seem an odd thing if there were… an appeal to the Tribunal on the question of the amount of income tax payable, which did not carry with it the right to question any consequential imposition of additional tax’.  However the fiscal context to the issue of construction here arising extends beyond that usual kind of situation, in that the decisions in Spassked have effectively produced the result that the primary tax assessed in relation to each of QTH and IEL is wholly payable and not susceptible to dispute, so that in contrast to the situation in Grollo, the only sustainable issue is the so-called additional tax. 

30                  A further recent example cited by the Commissioner of this Court’s consideration of the remission of additional tax otherwise payable, being remission pursuant to s 227 of the Tax Act, is Kajewski v Federal Commissioner of Taxation (2003) ATC 4375, where Drummond J said (at 4403) that he ‘would not interfere with the Commissioner’s discretion not to remit any additional tax, if it were open to me to do that in conformity with [Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353 at 360]’.  In Kajewski, the taxpayer’s expenditure related to his engagement in a mass-marketed tax avoidance arrangement, and it is apparent again therefore that the circumstances relevantly for present purposes were similar to Grollo.  Yet another example cited by the Commissioner was Brown v Federal Commissioner of Taxation (2001) ATC 4294, where at 4328, Emmett J concluded that he did ‘not consider that the Commissioner’s amended notice of assessment is excessive’, adding ‘[n]or do I find that the Commissioner misdirected his discretion not to reduce penalties further’.  Once again however the circumstances there were not relevantly comparable to those here arising.  It was said somewhat rhetorically by senior counsel for the Commissioner that in the context of those authorities, ‘… this very jurisdiction is invoked by both applicants in their respective Part IVC appeals to this Court’.  I think that it is necessary to bear in mind that what QTH and IEL seek to establish is entitlement to curial relief by way of judicial review of the imposition of additional tax (being however in the nature of a penalty), in the more unusual circumstance where the liability of each of QTH and IEL to primary income tax has been already resolved effectively, in consequence of the decisions of this Court in Spassked.  The obtaining of statements of reasons from the Commissioner is therefore to be seen as an initial and discrete step necessary or appropriate for subsequent achievement of the ultimate application of QTH and IEL for final relief in relation to the Commissioner’s imposition of additional tax. 

31                  The Commissioner asserted moreover that it had been ‘long established that the procedures of assessment, objection, review and appeal apply to the assessment of additional tax and its remission’, the Commissioner referring first to Richardson v Federal Commissioner of Taxation (1932) 48 CLR 192 at 201-205 (per Dixon J as he then was), which involved the imposition of additional tax in circumstances where a hotelkeeper caused his hotel’s profits to be returned as part of the income of his nominee, and where the High Court found on appeal by the taxpayer (from the judgment of a single justice of the High Court) that it had jurisdiction to consider, on an appeal from the Board of Review, the liability of a taxpayer to additional tax, but that it did not follow that the exercise of the discretion of the Commissioner to remit additional tax could be controlled by the High Court.  At 204-205 Dixon J observed as follows:

‘That process and the subsequent proceedings upon objection provide the Commissioner with a convenient method and an appropriate occasion for determining whether the section applies to the case, and, if so, how he will exercise the discretions which it reposes in him, and for recording and communicating the result in a formal manner.  Finally the very description “additional tax” gives rise to a presumption that it will be levied and collected in the same way as the principal tax to which it is accessory.  Unless some contrary intention appears, the inclusion of additional tax in the assessment is a natural consequence of the view that ascertainment of the tax, as well as of taxable income, is part of the process of assessing… the better interpretation of the statute is that the procedure of assessment, objection, review and appeal does apply to additional tax under sec 67.  It does not follow that upon an appeal to this Court under s 51(6) or s 51A the discretion of the Commissioner to remit additional tax can be controlled. Whether the Board of Review is, or is not, entrusted with the revision of this discretion depends upon the language of sec 44, which does not apply to the Court….’

The remaining members of the Court in Richardson (Evatt and McTiernan JJ) reached the same conclusion.

32                  The Commissioner next referred to Jolly v Federal Commission of Taxation (1935) 53 CLR 206, where in the joint judgment of Rich and Dixon JJ, after reference was made to Richardson, the following appears (at p 211):

‘This decision means that the additional tax under sec 67 as well as the ordinary income tax imposed upon the taxpayer must be dealt with by the machinery of assessment and alteration of assessment under Part IV.  It also means that a taxpayer may under sec 50 object to the amount of tax and additional tax which the assessment is expressed to levy.  From the disallowance of that objection he may appeal to the Court or to the Board of Review.  But the grounds open to him depend on further considerations.’

To that citation I would add the following dicta appearing in the joint judgment in Jolly, following upon explanation as to why the Board of Review’s function included the consideration, and the reconsideration if thought appropriate, of the function of the Commissioner in imposing additional tax (at 214):

‘The Board is only another executive body in an administrative hierarchy.  The purpose of erecting it was to enable taxpayers to have a reconsideration or re-examination of the process by which liability had been imposed upon them, particularly in relation to matters where the Commissioner had a discretion. The important discretion given by sec 67(1) possesses no features which make it less proper for the Board to review it.  Indeed we should think that all the arguments of fairness were on the side of a review of the ascertainment, including the discretionary remission, of an amount which may prove a ruinous imposition.’

The other members of the High Court in Jolly (Starke, Evatt and McTiernan JJ) reached similar conclusions to those of Rich and Dixon JJ. 

33                  Largely upon the footing of those authorities, the Commissioner submitted that the ‘[t]he existence of this exhaustive appeal procedure supports a construction of par (ga) which would exclude a parallel right of objection and review under the ADJR Act’.  I do not follow why that should at least necessarily be so.  Despite the nature of the proceedings authorised to be conducted by the former Board of Review, and by the present Administrative Appeals Tribunal (‘AAT’), the taxpayer bears (as has always been the case) the onus of proof of establishing that an assessment to income tax be set aside, both in the AAT (s 14ZZK of the Administration Act) and in the Federal Court (s 14ZZO of the Administration Act).  It is to be borne in mind however that the decisions in Richardson and Jolly preceded amendments to the Tax Act and the Administrative Act effected prior to the decision of the Full Federal Court in Mostyn on 3 December 1987, and made in the context of amendments relevantly to those Acts, and also the administrative review reforms introduced in the form of the ADJR Act, and the circumstance that the exclusions the subject of par (ga) of Schedule 1 to the ADJR Act, and also par (e) thereto (subsequently identified in these reasons), are specifically related to decisions concerning ‘… assessments or calculations of tax, charge or duty’.  What of course the applicants presently seek, by way of threshold step to an intended challenge to the imposition, or at least the extent of imposition, of additional tax predicated upon an assessment of primary tax no longer in issue, is the provision of reasons from the Commissioner for his decisions not to further or fully remit that additional tax imposed purportedly in the exercise of the Commissioner’s discretion conferred by s 227(3) of the Tax Act.

34                  The Commissioner contended nevertheless that the so-called ‘exhaustive appeal procedure’ provided for by the Tax Act supported a construction of par (ga) which excluded any parallel right of objection and review under the ADJR Act, and the Commissioner pointed to the following further factors by way of support for that contention:

(i)                  par (ga) of Schedule 1 of the ADJR Act was inserted by Schedule 4 to the Taxation Law Amendment Act (No 3) 1991 (Cth)as a consequence of the introduction of Part IVC to the Administration Act, and reflects a general policy to exclude from the ADJR Actthe entirety of that objection and appeal process;

(ii)                the High Court decisions in Richardson and Jolly confirm that the assessment and remission of additional tax forms part of the objection and appeal process;

(iii)               it would be an anomalous result if part only of that process was excluded from the ADJR Act; and

(iv)       consistent with the imposition of additional tax forming part of the objection and appeal process, s 227(2) of the Tax Act hasprovided, in relation to both the 1991 and 1996 fiscal years, that a notice of assessment of additional tax could be incorporated within the notice of any other assessments made (of course to the same taxpayer) under the Tax Act; moreover the amounts of additional tax assessed in respect of each of QTH and IEL were in fact incorporated into the notices of assessment issued to each of them on 11 and 14 April 2003 respectively.

As to (i) above, the observation may nevertheless be made, why has no reference been made to additional tax, and in particular, additional tax in the nature of penalties, appearing in pars (e) and (ga) of Schedule 1 to the ADJR Act?  Moreover the further question may be asked, would it be ‘anomalous’ for rights of review of additional tax in the nature of penalties to be excluded from the administrative review reforms introduced by the ADJR Act, at least in circumstances where there is no dispute, or continuing dispute, as here in the case of QTH and IEL, as to liability to primary tax referable to the same income or capital gain?  In any event of course, the issue here arising is confined to that of a claim to entitlement to reasons, not to any alternative process of review. 

35                  As to the reliance of QTH and IEL upon Mostyn (which was a decision of a Full Federal Court comprising Bowen CJ, Sheppard and Wilcox JJ), the Commissioner submitted as follows:

(i)                  that decision was made in the context of the former s 226(3) of the Tax Act; it is appropriate that I reproduce below (to the extent material) both subsections (2) and (3) of the former s 226 from the reasons for judgment in Mostyn (which was related to returns of income in respect of the 1979 and 1981 years of income):

         ‘(2)      Any taxpayer who omits from his return any assessable income, includes in his return as a deduction for, or as a rebate in respect of, expenditure incurred by him an amount in excess of the expenditure actually incurred by him or, in relation to a claim to be entitled to a rebate, …, includes in his return information that is false in any particular, shall be liable to pay as additional tax an amount equal to double the difference between the tax properly payable by him and the tax that would be payable if it were assessed upon the basis of the return furnished by him, or the amount of $2, whichever is the greater.

         …

(3)               The Commissioner may in any case, for reasons he thinks sufficient, either before or after making any assessment, remit the additional tax or any part thereof’.

(ii)        thus the former s 226(3) of the Tax Act provided that the power to remit might be made either before or after the making of any assessment, thereby involving a difference in language from the present power to assess and remit additional tax conferred by s 227 of the Tax Act, which was the subject of observation in the Full Federal Court’s judgment in Mostyn in the following terms (at 268):

            ‘It should be observed that s 227, which is the present counterpart of s 226, is in a substantially different form from the section which arises for consideration in this case.  Nothing we have said is intended to indicate a view of the proper construction and application of the present s 227’;

(the full text of s 227 has been earlier extracted in full);

(iii)               it was precisely those words included in the former s 226(3) of the Tax Act, being either before or after the making any assessment, which enabled the Full Court in Mostyn to distinguish the decisions of the High Court in Jolly and Richardson; lack of such words in s 227 ‘strongly supports the conclusion that in enacting s 227, Parliament intended that those decisions should apply to the assessment and remission of additional tax’;

(iv)              further, Mostyn does not establish that the power to impose and remit additional tax must necessarily and always be considered as a separate exercise from the assessment of the taxable income of a taxpayer; the following further passage was cited by the Commissioner from Mostyn at 268 (which immediately preceded the dicta already extracted in (ii) above):

            ‘We make it clear that our conclusions are not inconsistent with the accepted view that the ordinary provisions of the [Tax] Act providing for objections and appeals (Pt V) apply to assessments of additional tax made pursuant to s 226 and that the Administrative Appeals Tribunal has power to review exercises of discretion by the Commissioner in refusing to remit additional tax.  All that we are saying is that, because of the words, “after making any assessment”, in s 226(3), the Commissioner is empowered to remit the additional tax long after the period limited for any objection to an assessment has passed and after the time limited for any appeal against the disallowance of such an objection has elapsed’.

36                  The Commissioner thus sought to draw significance from the circumstance that s 227(2) of the Tax Act ‘now makes clear that a Notice of Assessment of the taxable income of a taxpayer may include an Assessment of Additional Tax,’ and further that so much was what happened here, the circumstances of each of QTH and IEL being described by the Commissioner as not involving ‘… a case where the [Commissioner] has exercised a power to remit outside of the normal process of assessment and objection’.  The Commissioner’s principal submissions concluded with the contention that the decision in Mostyn did not in any event bear upon the correct interpretation of par (ga) of Schedule 1 to the ADJR Act, since par (ga) was inserted after that decision was handed down.  I would intrude to point out nevertheless that there is no suggestion of explicit legislative intent, in the form of any collateral announcement or statement, to neutralise the operation of the Full Court’s observation in Mostyn here relied upon by QTH and IEL; moreover the Commissioner’s submissions do not appear to adequately address the implications of s 227(3). 

The principal contentions of QTH and IEL as to the obligation of the Commissioner to give reasons and the rejoinders of the Commissioner

37                  The contentions of QTH and IEL made the following preliminary observations:

(i)         the focus of the applications of QTH and IEL was that each of the decisions of the Commissioner as a Commonwealth officer was made under an enactment, whether being either the Tax Act or arguably the Administration Act it did not ultimately matter which, being decisions conferring rights in principle to reasons pursuant to s 13 of the ADJR Act;

(ii)        the rights to relief sought by QTH and IEL from the Commissioner under the auspices of the ADJR Act turned on whether each had a right to seek a refund or reduction of additional tax imposed by way of penalty;

(iii)       the contest presently arising was whether QTH and IEL were entitled to bring applications for review of the relevant decisions of the Commissioner under the auspices of and pursuant to s 5 of the ADJR Act, which enumerates various grounds for administrative review, and to do so notwithstanding the relevant classes of decisions excluded by Schedule 1 thereto, and in particular, as appear in par (ga) thereof;

(iv)       the Commissioner had expressed the opinion, purportedly pursuant to s 13(3) of the ADJR Act, that QTH and IEL were not entitled to make the subject applications for relief, and have given notice to that effect; hence the jurisdiction of the Federal Court under s 13(4A) of the ADJR Act has been invoked by QTH and IEL to make the orders sought; and

(v)        the Parliament expressly preserved the right to seek relief under the ADJR Act when enacting Part IVC (including s 14ZY) of the Administration Act and inserting par (ga) in Schedule 1 to the ADJR Act by the Taxation Laws Amendment Act (No 3) 1991 (Cth).

38                  Subsection 13(4A) of the ADJR Act was thus said to crystallise the operation of the Court’s jurisdiction in the terms which I again reproduce for ease of reference:

‘The Federal Court… may, on the application of:

(a)       a person to whom a request is made under subsection (1); or

(b)       a person who has received a notice under subsection (3);

make an order declaring that the person who made the request concerned was, or was not, entitled to make the request.’

It was submitted by QTH and IEL that although the word may is strategically used in subsection (4A), the Court is not thereby afforded a discretion whether or not to make the declaration sought, assuming that the grounds for so doing are made out.  That submission was said to be supported by the longstanding decision of the High Court in Finance Facilities Pty Ltd v Commissioner of Taxation (1971) 127 CLR 106.  The validity of the submission was not seemingly repudiated by the Commissioner, and is in any event plainly correct, having regard to the context generally of s 13 of the ADJR Act.  I did not understand the Commissioner to dispute the proposition.  Subsequent exemplifications of the application of that principle of statutory construction that the word ‘may’, where appearing in contexts such as that involved in Flight Facilities, is not used to confer a discretion, but rather to confer a power upon proof of the particular circumstances giving rise to the exercise of the power, appear in TCN Channel 9 Pty Ltd v Antoniadis (No 2) (1999) 48 NSWLR 381, which involved the interpretation of Part 15AA rule 18 of the Supreme Court Rules 1970 (NSW) whereby the ‘Court of Appeal may make such orders for restitution… as the Court of Appeal thinks fit’,and further appear in Director of Public Prosecutions v West (2000) 48 NSWLR 647, which involved the interpretation of provisions of the Justices Act 1902 (NSW) containing a condition that a magistrate ‘may extend accordingly the time for hearing the matter’.

39                  The scope of the reasons which QTH and IEL submitted as necessary to be provided by a decision-maker, in circumstances where the decision-maker was obliged in law to provide reasons for his decision, as here in the case of s 13 of the ADJR Act, was framed by QTH and IEL, in the light of subsection (1) thereof, to identify the material factual findings, to identify the evidence on which those findings are based and to set out the reasons.

40                  The critical contention advanced by QTH and IEL was that par (ga) of Schedule 1 to the ADJR Acthas no application to or operation upon the particular nature of the additional tax imposed by the various provisions of Part VII of the Tax Act, which as already indicated is headed ‘Penalty Tax’, because although constituting a tax so described, that additional tax the subject of Part VII is in substance, as well as in practical operation, not a tax, charge or duty, but a penalty according to legal principles.  Were additional tax of the descriptions the subject of those sections, in substance and otherwise on true analysis, taxes and not penalties in substance as well as by purported description, QTH and IEL further submitted, those sections, and other aspects of the Tax Act, would be invalid by reason of s 55 of the Australian Constitution.  In that regard, I was referred to the unanimous judgment of seven members of the High Court in Air Caledonie International v Commonwealth (1988) 165 CLR 462, where a fee payable for immigration clearance, imposed by a section of the Migration Act 1958 (Cth), was held to be invalid as constituting a tax in legislation containing provisions otherwise addressing migration subjects. 

41                  More directly bearing upon the present issues arising, I was further referred by QTH and IEL to Re Dymond (1959) 101 CLR 11 at 21-22 (per Fullagar J with whose reasons for judgment Dixon CJ, Kittto, Taylor and Windeyer JJ agreed), where reference was made to ‘the penal nature of the liability’ imposed ‘by way of additional tax’ in the following context:

‘It is true that the amount payable under s 10(2B) or s 46, whether it be the sum of £1 or a larger sum, is expressed to be payable “by way of additional tax”.  And in Richardson v Federal Commissioner of Taxation (1932) 48 CLR 192, this Court, dealing with the similar provision in s 67 of the Income Tax Assessment Act 1922-1930, held that (to use the words of Dixon J) “… the procedure of assessment, objection, review and appeal does apply to additional tax under s 67” (at 204-5).  But all this is matter of machinery, the appropriateness of which is indicated by the words “by way of additional tax”.  It does not affect the penal nature of the liability imposed.  As Evatt J said in Richardson’s Case “But s 67 is a penal provision, as is indicated by the heading to Pt VII, and the amount of liability therein specified is an amount in the nature of a penalty.  The liability is not to pay ‘additional tax’ but to pay an amount ‘by way of additional tax’”(at 214).  The words “by way of additional tax” mean, I think, no more than that the amount of the penalty (to the extent to which it is not remitted) is to be notified, like the tax itself, by a notice of assessment, so that the quantified penalty and the quantified tax are subject to the right of objection and appeal, made actually payable by the same machinery.  The liability is imposed by the Act not as a consequence of a sale of goods but as a consequence of an attempt to evade payment of a tax on a sale of goods.  The exaction is directly punitive, and only indirectly fiscal.  It is imposed for the protection of the revenue, but as a sanction and not for the sake of revenue as such.  It is not a tax on the sale of goods, and it is not a tax on anything else.’

42                  Focusing further upon the critical nature of the par (ga) expression charge (which of course I have earlier extracted), it was next pointed out on behalf of QTH and IEL that even if conceivably read in isolation, such as to encompass the notion of penalty, the true nature or character relevantly thereof is not to be construed as though divorced from the context in which it is used in Schedule 1 to the ADJR Act, reference generally being thereby made to the well known passage appearing in the joint reasons for judgment of Brennan CJ, Dawson, Toohey and Gummow JJ in CIC Insurance Ltd v Bankstown Football Club Limited (1997) 187 CLR 384 at 408, where the modern approach to statutory construction was described as requiring that ‘… the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise’, and as using context ‘…in its widest sense to include such things as the existing state of the law, and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy’.

43                  The context to par (ga) was pointed out by QTH and IEL to include the further class of decisions excluded from the operation of the ADJR Act by Schedule 1 thereto, namely par (e) thereof, which uses the same critical par (f) expression tax, charge or duty twice in the wider context of fiscal statutes extracted in full below:

‘(e)      decisions making, or forming part of the process of making, or leading up to the making of, assessments or calculations of tax, charge or duty, or decisions disallowing objections to assessments or calculations of tax, charge or duty, or decisions amending, or refusing to amend, assessments or calculations of tax, charge or duty, under any of the following Acts:

            A New Tax System (Goods and Services Tax) Act 1999

            A New Tax System (Luxury Car Tax) Act 1999

            A New Tax System (Wine Equalisation Tax) Act 1999

            Australian Capital Territory Taxation (Administration) Act 1969

            Debits Tax Administration Act 1982

            Coal Excise Act 1949

            Customs Act 1901

            Customs Tariff Act 1995

            Excise Act 1901

            Fringe Benefits Tax Assessment Act 1986

            Income Tax Assessment Act 1936

            Income Tax Assessment Act 1997

            Pay-roll Tax Assessment Act 1941

            Pay-roll Tax (Territories) Assessment Act 1971

            Petroleum Resource Rent Tax Assessment Act 1987

            Acts providing for the assessment of sale tax

            Superannuation Guarantee (Administration) Act 1992

            Taxation Administration Act 1953, but only so far as the decisions are made under Part VI of that Act

            Training Guarantee (Administration) Act 1990

            Trust Recoupment Tax Assessment Act 1985

            Wool Tax (Administration) Act 1964.’

The inclusion of reference to the Tax Act generally and to the Administration Act, to the extent of decisions made under Part VI of the latter legislation, is to be observed.

44                  It was emphasised on behalf of QTH and IEL that both pars (e) and (ga) of Schedule 1 to the ADJR Act are concerned with the process of assessment and calculation of fiscal imposts and with the subsequent assessment of objections against assessments and calculations thereof.  As I have earlier pointed out, s 14ZY of the Administration Act requires the Commissioner in effect to determine taxation objections, and forms part of Part IVC of the Administration Act headed ‘Taxation Objections, Reviews and Appeals’.  (Part IV of the Administration Act the subject of par (g) of Schedule 1 to the ADJR Act relates to exchange control).  The word charge was added (at least) to par (ga) by Act 60 of 1990 called, the Training Guarantee (Administration) Act 1990 (Cth), being legislation which imposed the training guarantee charge, which was held by the High Court to be valid in Northern Suburbs Cemetery Reserve Trust (1993)176 CLR 555, upon the basis that it was in the nature of a tax, and significantly for present purposes, not in the nature of a penalty, since the statutory liability to pay that training guarantee charge did not arise from any failure of an employer to discharge antecedent obligations to expend moneys in relation to eligible training programs.

45                  QTH and IEL submitted that ‘it is clear beyond doubt, from the legislative history of and the context of Schedule 1’ to the ADJR Act, that the expression charge as ‘crucially’contained in par (ga) of that Schedule, contrary to the Commissioner’s case, does not connote simply a fiscal liability to pay money imposed upon a taxpayer.  Rather, so QTH and IEL submitted, the term charge, as in the case of tax and duty appearing also of course within the par (ga) exclusion (and also within the par (e) exclusion), is referrable to ‘the value or amount of transactions or dealings by taxpayers, and so assessed by the Commissioner in performance of his role of general administration of Acts imposing taxation’.  QTH and IEL submitted further that the term charge is only included in pars (e) and (ga) of Schedule 1 to the ADJR Act in order to avoid any issue otherwise arising that a fiscal impost, the power to impose whereof rests on s 51(ii) of the Commonwealth of Australia Constitution Act 1900 (as amended) is not a tax because it is called a charge (s 51(ii) relates, in terms, to Taxation, but so as not to discriminate between States or parts of States).  In reply, the Commissioner contended that the applicants’ case amounted merely to an ‘attempt to confine the ordinary meaning of the word charge in par (ga) of Schedule 1 [of the ADJR Act] to a more narrow meaning than that which it would ordinarily bear’, being an attempt said to be not supported by the Supplementary Explanatory Memorandum related to the amending legislation which inserted par (ga) into Schedule 1 of the ADJR Act.  I will shortly reproduce the text of that Memorandum. 

46                  I observe that the ordinary meaning of the word ‘charge’ will vary widely according to the context in which it is used, as is apparent from The Macquarie Dictionary (Revised Third Edition).  One of the numerous meanings there appearing does indeed include to hold liable for payment, thus coinciding to that extent with the meaning ascribed by the NSW Court of Appeal in Davison.  That meaning was also adopted in the circumstances of contractual dispute involved in BP Australia Pty Ltd v Nyran Pty Ltd (2003) 198 ALR 442 (see [77] and [88]-[90] appearing in the judgment of R D Nicholson J).  In the present case however the statutory contexts are of course the Administration Act and the Tax Act, in particular to the extent that the same are specifically excluded by Schedule 1 to the ADJR Act from operation in relation thereto.  Whilst the notion of holding a person liable for a payment of tax imposts may be said to be within the scope of the Schedule 1 exclusions of pars (e) and (ga) in particular, those tax imposts at the centre of the present dispute appear to be in substance in the nature of penalties, as the heading ‘Penalty Tax’ to Part VII of the Tax Act, and the various sub-headings thereunder, explicitly connote.  No issue arises in the present proceedings as to the liability of QTH and IEL to income tax per se in accordance with the Tax Act, and s 51(1) thereof in particular, in the light of the outcome of the Spassked proceedings.  The matter here remaining, at the instance of QTH and IEL, is their endeavours to secure the review of the imposition of additional tax in the nature of penalty tax, the latterbeing the fiscal description used in the headings to sections within Part VII of the Tax Act (apart from the heading ‘Penalty Tax’ to Part VII itself) that I have already identified, commencing with the former s 223 and following thereafter, as specifically identified by QTH and IEL in particular, ss 226, 226C, 226G, 226H, 226K, 226L and 226X. 

47                  The applicants further submitted that the statutory intention, for which they contended as forensically open to be inferred, to the effect that decisions to remit penalties imposed under Part VII of the Tax Act are not excluded from review under the ADJR Act, was effectively established by the decision of the Full Court in Mostyn, where the following appears (at 268), in the context of reference by the Full Court to the provisions of par (e) of Schedule 1 to the ADJR Act:

‘Paragraphs (e) thereof specifies a decision making, or forming part of the process of making, or leading up to the making of an assessment of tax, inter alia, under the Act.  Since the Deputy Commissioner’s power to remit additional tax arises independently of his power to assess income tax, the provisions of par (e) can have no application to this case.’

No reasoning was provided, but in the light of Part VII of the Tax Act, containing of course the sections above enumerated, what may be observed above by the Full Court, albeit probably obiter, has persuasive force. 

48                  My attention was then drawn by QTH and IEL to the Supplementary Explanatory Memorandum to the Bill for the Taxation Laws Amendment Act (No 3) 1991 (Cth), to which I have already referred in another context, includingas it did reference to par (ga) as then proposed, which further contained the following:

‘Two amendments to Part 7 of the Bill are to be moved on behalf of the Government.  These amendments relate to the imposition of a time limit in relation to the determination of taxation objections and to an amendment to Schedule 1 of the [ADJR] Act…

The effect of the proposed amendment of paragraph (ga) of Schedule 1 of the ADJR Act is to ensure the continuation of the right to dual avenues of review (ie appeal to the Federal Court or application for review to the AAT, or review under the ADJR Act) in respect of those objection decisions that do not relate to assessments or calculations of tax, charge or duty…

Consequential amendments

Schedule 4 of the Bill contains amendments to certain Acts as a consequence of the proposed consolidation of taxation objection, review and appeal provisions in the Taxation Administration Act.  One of those is an amendment to Schedule 1 of the ADJR Act made by paragraph (ga).  This provision sought to ensure that objection decisions now made under various taxation laws would, when made under the Principal Act, get the same treatment under the ADJR Act as they do now.  It has been pointed out that it is possible, in respect of a limited range of objection decisions, that a person may currently have a right to dual avenues of review – that is, under the relevant taxation laws and under the ADJR Act.  The proposed amendment to paragraph (ga) will ensure the continuation of any right to dual avenues of review that may now exist [the emphasis of QTH and IEL] in respect of objection decisions that do not relate to assessments or calculations of any tax charge or duty (Schedule 4, paragraph (ga) of Schedule 1 of ADJR Act).’

(The emphasis placed upon the words in the second and third paragraphs above was that of QTH and IEL).  In short, the Supplementary Explanatory Memorandum underlined the maintenance of the status quo as to avenues of review in favour of taxpayers in circumstances of income tax disputes with the Commissioner. 

49                  The observations expressed in the Supplementary Explanatory Memorandum were submitted by QTH and IEL to correspond with what was expressed by the Commissioner, in the capacity as the Commonwealth officer charged with the administration of Part VII of the Tax Act, and inclusive therefore of s 227 (which relates of course to the assessment of additional tax), as applicable to the years of income now the focus of dispute.  So much was described by QTH and IEL as reflecting, ‘no doubt intentionally’, the views promulgated by the Commissioner in IT2521. 

50                  The Commissioner responded that the reference in the Supplementary Explanatory Memorandum to ‘dual right’ of appeal, ‘in respect of those objection decisions that do not relate to assessments or calculations of tax, charge or duty’, did not support the proposition that judicial review may be sought of a decision to remit additional tax, and contended instead that it was ‘precisely because a decision to remit additional tax relates to an assessment or calculation of tax or chargethat there is only one relevant avenue of appeal – [being] that provided for by Part IVC of the [Administration Act] which contains the tax appeals provisions’.  The Commissioner pointed out that there are dual avenues of appeal for decisions which do not relate to assessments or calculations of tax, charge or duty,being decisions which can be objected against under the machinery of the Tax Act; examples given by the Commissioner included the following:

(i)         a taxpayer may object against a decision by the Commissioner, in the context of Division 10BA relating to Australian films, that a person is not an appropriate person for the purposes of s 124AZADA(2) and (4) (see s 124AZADA (10)); and

(ii)        a taxpayer may object against a decision of the Commissioner to refuse to issue a certificate under Division 11AS of Part III of the Act, which provides exemptions in certain cases for interest withholding tax (see s 128P).

It was pointed out by the Commissioner that decisions in respect of those objections were subjected to dual avenues of appeal because they would not relate to an assessment or calculation of tax, charge or duty, whereas a decision to remit additional tax is in a different category, in that it does relate to an assessment or calculation or calculation of tax or a charge. 

51                  QTH and IEL acknowledged that IT2521, which I have earlier extracted in full, is not a binding public ruling within the auspices of Part IVAAA of the Administration Act, though it was pointed out by QTH and IEL that the Commissioner has repeatedly stated that he would ‘stand by what is said in [such] rulings and depart from them only if there are good and substantial reasons’.  In this regard, I was referred by QTH and IEL to what appears in Taxation Ruling 92/1 at [38], and also to Practice Statement 2001/4; the latter was reproduced in the submissions of QTH and IEL to the following extent:

‘96.      These rulings provide guidance and instruction for both the public and ATO staff.  They do not have the force of law.  When the time comes to assess liability to tax, the law as it then exists must be applied to the facts as established at that time: see FCT v Wade (1951) 84 CLR 105.  However, the basic administrative policy of the ATO is to stand by what is said in these rulings and to depart from them only if there are good and substantial reasons.  Any departure would be confined to situations where:

            (i)         there have been legislative changes since the ruling issued;

            (ii)        a Tribunal or Court decision has affected our interpretation of the law since the ruling issued; or

            (iii)       for other reasons, the ruling is no longer considered appropriate – for example, if commercial practice has changed, the ruling has been exploited in an abusive and unintended way, or the ruling is found on reconsideration to be wrong in law.’

Accordingly it was asserted by QTH and IEL that ‘[t]here is a reasonable expectation on the part of the taxpayer community that the Commissioner will stand by the views he [has] expressed, particularly in public rulings which have not been withdrawn and where the exceptions noted in Practice Statement 2001/4 are not applicable’.  It was further contended that ‘if the Commissioner seeks to rely on a view of the law contrary to that publicly expressed, and offered to the community as available to rely on, the Court should not summarily dismiss a claim brought consistently with that expectation’.  Moreover QTH and IEL further asserted that it could not be said in any event, in circumstances of that kind, that there was no reasonable cause of action, or that the claim was frivolous or vexatious, or that it was an abuse of process, within Order 20 rule 2 of the Federal Court Rules, as is contended by the Commissioner in the two notices of objection to competency filed in these proceedings. 

52                  The Commissioner rejoined in relation to the submissions of QTH and IEL as to the significance of IT2521, asserting that the same were misplaced, for the reason that the ruling dealt with ‘a different set of circumstances, and was issued prior to the introduction of the critical par (ga) to Schedule 1 of the ADJR Act’.  As I have earlier indicated, IT2521 was issued three years prior to the 1991 legislative amendments the subject of Part IVC of the Administration Act.  It was further said by the Commissioner that IT2521 provided that the discretion to remit taxation could be exercised independently of the assessment process, and that in such a case, an aggrieved taxpayer can seek review of such a decision under the ADJR Act, being an entitlement described as ‘not surprising’, since ‘[a]bsent the issue of a relevant assessment, a taxpayer would have no other avenue to appeal.’  The Commissioner further pointed out ‘… that is not this case, because here the decision to remit took place as part of the assessment process, not independently of it, and that each applicant has a right to appeal the [Commissioner’s] exercise of the discretion to remit as part of the presentation of their tax appeals otherwise to this Court under Part IVC of the [Administration Act]’.  That right was said by the Commissioner ‘to have already been exercised by QTH in respect of the 1991 fiscal year, and by IEL in respect of the 1996 fiscal year’. 

53                  More critically to the point however, it was submitted by QTH and IEL, in relation generally to the Commissioner’s position postulated upon the basis of the existence of an avenue of appeal contained in Part IVC of the Administration Act, that the same was ‘both misdirected and premature’.  That was said by QTH and IEL to be because the relief sought in the present proceedings is not that of review of the remission decision, but merely the provision of reasons for the making of the decision.  Thus it was pointed out by QTH and IEL in that context that since review of the decision not to remit is available under Part IVC, if relief is to be sought by QTH and IEL in Part IVC proceedings, such proceedings would not overlap with the present application of QTH and IEL for the provision by the Commissioner of reasons.  It was emphasised by QTH and IEL that since there was no power or authority, in the context of proceedings under Division 5 of Part IVC of the Administration Act, to require the Commissioner to provide a statement of his reasons for a challenged decision, and moreover, since no statement of reasons had yet been furnished by the Commissioner (such as is presently sought in the subject proceedings), there could not apparently exist any document containing section 13 reasons which would be discoverable in Part IVC proceedings.  The reluctance therefore of the Commissioner to expose the reasons for the very decision here the subject of dispute, and the Commissioner’s election instead to litigate the present motion, rather than simply to provide the reasons requested, was submitted by QTH and IEL per se to ‘manifest the very need which the provisions of section 13 was enacted to meet’. 

54                  QTH and IEL next referred to the contention of the Commissioner that because of:

(i)         the Commissioner’s obligation to file a statement of facts, issues and contentions if so directed by the Court (referring thereby to Rio Tinto Limited v Federal Commissioner of Taxation [2004] FCA 335 (Sundberg J));

(ii)        the ability of a taxpayer to seek and obtain particulars of the exercise of the Commissioner’s power to remit additional tax by direction of the Court; and

(iii)       the particulars, and further and better particulars, already supplied to both QTH and IEL in the Part IVC tax appeals being conducted in this Court;

there existed power or authority vested in QTH and IEL under Division 5 of Part IVC of the Administration Act to require the Commissioner to provide a statement of his reasons for the decision challenged; however none of those three matters, it was said, could seemingly be said to operate or bear upon the issues of legislative construction, which I think to be strictly correct.

55                  In conclusion, the applicants QTH and IEL contended that no basis for any discretionary refusal of the relief sought had been propounded by the Commissioner.  Nevertheless the Commissioner did ultimately contend that if the Court did not accept the correctness of the Commissioner’s notices of objection to competency, final relief should be refused to QTH and IEL as a matter of discretion, because:

(i)         the orders sought would have no practical effect; that was said to be because particulars, and subsequent further and better particulars, have been furnished by the Commissioner to QTH and IEL ‘about how the [Commissioner] exercised his discretion to remit additional tax for both the 1991 and 1996 years of income’; moreover reasons were said to have been already provided to QTH and IEL in the Part IVC tax appeals in respect of the same years about precisely the same issue;

(ii)        the letter of the Commissioner’s solicitors of 10 November 2004 to the solicitors for QTH and IEL invited the applicants ‘to identify urgently what information each of them wished to obtain in the ADJR proceedings which each applicant could not obtain in the Part IVC tax appeals’, yet no response had been made thereto.

Conclusions

56                  As both parties have implicitly acknowledged, the scope of meaning of the critical words of Schedule 1 to the ADJR Act, and of par (ga) in particular, comprising tax, charge or duty, fall to be ascertained in the context also of the Tax Act and the Administration Act in operation at the times here material.  The temporal coincidence of the enactment of the Taxation Laws Amendment Act (No 3) 1991 (Cth) with the insertion of par (ga) into Schedule 1 of the ADJR Act, reflects in the first place the legislative context of the dual avenues for review of the statutory income tax assessment process, consistently with what had been observed by the Full Federal Court’s decision in Mostyn several years earlier.  As I have earlier mentioned, Mostyn distinguished the operation relevantly of the 1922 precursor to the [1936] Tax Act, as had been previously declared by the High Court in Richardson and Jolly, and entrenched the principle that the Commissioner’s power to remit additional tax pursuant to the latter legislation is exercisable independently of the process of assessment of income tax.  The imposition of additional tax, to the extent that it comprises exactions of a penal nature, raises particular implications in fiscal contexts such as here confront QTH and IEL.  Moreover given the differing facets of additional tax, referred to also as penalty tax in Part VII of the Tax Act consistently with the sub-headings and with the description of additional tax also afforded by the Tax Act and the Administration Act (see for instance s 163B of Part IV of the Tax Act), additional tax cannot be accurately characterised as wholly penal in legislative character.  All that depends on the context, which provides some of the background to resolution of the issues of statutory construction of Schedule 1 to the ADJR Act.

57                  My examination of relevant provisions of the Administration Act in particular assists to demonstrate that the statutory intent and purpose of adoption of the key expressions tax, charge or duty, as appearing in the critical par (ga) of Schedule 1 to the ADJR Act, was implicitly to adopt fiscal descriptions according to general law connotations, and not comprehensively in the sense of all fiscal connotations appearing in the Tax Act and the Administration Act.  Those key expressions tax, charge or duty are designed to accommodate the many Commonwealth fiscal statutes identified in Schedule 1, in particular for present purposes of course, the Administration Act and the Tax Act, with the consequence that the approach to the construction of each of those three key words in the latter two statutes requires that their respective true meanings should be read and construed according to substantive notions as generally or normally used and understood, and not necessarily in some special sense geared exclusively to any one of the fiscal statutes identified in Schedule 1.  The particular focus here is of course upon two of those key expressions, tax and charge. 

58                  Put perhaps another way, the context to par (ga) of Schedule 1 to the ADJR Act requires that those key expressions of present relevance, namely of course tax and charge is to be determined in each relevant statutory context as species of fiscal exaction bearing their respective normal or ordinary meanings according to the general law.  In circumstances where fiscal legislation, such as the Tax Act, imposes a tax or charge which is in the substantive nature of a penalty, imposed for instance for the avoidance or evasion of income tax or some other fiscal misconduct or shortcoming, the meaning of so-called additional tax, in the particular penal contexts involving QTH and IEL which I have reviewed, is not in substance or reality of the nature of a tax, charge or duty, but something more as reflective of that penal nature.  To the extent for instance that the adverse tax assessments issued to QTH and IEL comprise or contain elements or components of any one or more of the species of exactions the subject of Part VII of the Tax Act, which is indeed headed ‘Penalty Tax’, the same fall inherently and necessarily in my opinion outside the scope of each of the expressions tax and charge appearing in Schedule 1 to the ADJR Act.

59                  I think that QTH and IEL have relevantly invoked the High Court dicta in Dymond, which I have earlier extracted at some length, where reference is made to the statutory expressions additional tax or by way of additional tax.  Sections 222(1A), 224(1), 226(1A), 226G, 226H, 226J, 226K, 226L and 226M, located within Part VII of the Tax Act, appear in the contexts for instance … the taxpayer is liable to pay, by way of penalty, additional tax…, while other sections of Part VII use the expression tax shortfall, each involving themes of taxation avoidance, and thereby giving rise to the statutory consequence of the offending taxpayer becoming liable to pay additional tax, pursuant to the subsequently appearing s 226W of Part VII.  In each of those instances, what the legislation exemplifies is the substance and reality of a taxpayer’s fiscal conduct.  In the result, I think that it would be indeed surprising, if not inimical to the operation of the reforms introduced by the ADJR Act, that the administrative relief the subject thereof would be susceptible to avoidance by way of resort to the adoption or appropriation of any one or more of the ADJR Act Schedule 1 notions of tax, charge or duty, yet in circumstances where what is involved is not of the true nature of a fiscal exaction in the substantive, as distinct from the penal, sense of that description.  Particularly must that be so where the particular legislation involved as here, provides for sanctions by way of financial penalties or exactions based on a taxpayer’s failure to comply with the statutory requirements, for instance, to duly and appropriately declare or disclose, or return for fiscal exaction, the derivation of assessable income derived by that taxpayer.

60                  I would further therefore uphold the submission of QTH and IEL to the effect that the true import and meaning of tax, charge or duty,appearing in par (ga) in particular of Schedule 1 to the ADJR Act, derives a measure of support from the observations of the Full Federal Court in Mostyn at 268 which I have earlier cited.  The subsequent statement appearing in the context of the Explanatory Memorandum to the Taxation Law Amendment Act (No 3) 1991 (Cth)in relation to the enactment of par (ga), which I have earlier extracted, and in particular the following:

‘The effect of the proposed amendments to paragraph (ga) of Schedule 1 of the ADJR Act is to ensure the continuation of the right to dual avenues of review (ie appeal to the Federal Court or application for review to the AAT, or review under the ADJR Act) in respect of those objection decisions that do not relate to assessments or calculations of tax, charge or duty.’

is consistent with the conclusions I have reached as to the substantive meaning of the critical par (ga) expression.

61                  The implicit purport of par (e) of Schedule 1 of the ADJR Act is partly to acknowledge the status quo of the existing avenues of taxpayer review of fiscal decision-making, for instance pursuant to the Tax Act and Administration Act, yet on the other hand to provide access to the reforms made by the ADJR Act, where such access is not inconsistent with the operation of the fiscal statutes enumerated in Schedule 1 thereto.  Inconsistency does not here arise in circumstances where all that is imposed upon fiscal decision-makers is the provision of reasons for decision-making.  Experience demonstrates incidentally that in the case of the Commissioner of Taxation, there is normally provided an adjustment sheet indicating reasons for alterations made to the quantification of the assessable income of a taxpayer.  The insertion of par (ga) into Schedule 1 reflects implicitly the legislative intent that in circumstances outside those involving the exaction of a ‘tax charge or duty’, as normally understood, a taxpayer is entitled to the benefit of the legislative reforms of the ADJR Act, at least to the extent of providing reasons for decision-making. 

62                  It would be enigmatic, much less inconsistent, with the preservation of the dual systems of fiscal review provided for by the Administration Act, in the context of course of the Tax Act, for the Legislature to have stipulated by Schedule 1 to the ADJR Act for the same to not to have operation at least to the limited extent I would find to be envisaged by par (ga).  In the context in which it appears, I would reject the further contention of the Commissioner that the reference in par (ga) to charge reflects the meaning simply of a liability to pay money.  Nor do I accept that the preceding word tax extends to and includes what in substance would constitute exactions in the nature of penalties.

63                  I would therefore uphold the submissions of the applicants QTH and IEL and grant the declaratory relief sought.

I certify that the preceding sixty-three (63) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti.

Associate:

Dated:              19 April 2005

Counsel for the Applicant:	AH Slater QC with PM Fraser
Solicitor for the Applicant:	Blake Dawson Waldron
Counsel for the Respondent:	MM Gordon SC with SM Steward
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	18 November 2004
Date of Judgment:	19 April 2005