FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Katalina Park Pastoral Pty Ltd [2005] FCA 1800

Corporations Act 2001 ss 459A, 459C, 459G, 459H, 459P, 459Q, 459S, 465C

Income Tax Assessment Act 1936 s 166A, 177

Taxation Administration Act 1953 ss 22, 59, Schedule 1, ss 284‑75(1), 284‑75(3), 298‑30(3)

Deputy Commissioner of Taxation v Richard Walter Ltd (1995) 183 CLR 168 applied

Platypus Leasing Inc v Commissioner of Taxation [2005] NSWCA 399 followed

Briglia v Commissioner of Taxation 2000 ATC 4247 applied

Madden v Madden (1996) 65 FCR 354 applied

ANZ Banking Group Ltd v Federal Commissioner of Taxation 2003 ATC 5041 cited

McCleary v Federal Commissioner of Taxation (1997) 97 ATC 4266 applied

Federal Commissioner of Taxation v S Hoffnung and Co Ltd (1928) 42 CLR 39 distinguished

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

DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA v KATALINA PARK PASTORAL PTY LTD

VID 671 OF 2005

KATALINA PARK PASTORAL PTY LTD v DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

VID 1184 OF 2005

SUNDBERG J

9 DECEMBER 2005

MELBOURNE

THE COURT ORDERS THAT:

1.                  Proceeding VID 1184 of 2005 be dismissed under Order 20 rule 2 of the Rules of Court as disclosing no reasonable cause of action.

2.                  The applicant in VID 1184 of 2005 pay the respondent’s costs of that proceeding including the motion notice of which was filed on 8 November 2005.

3.                  In proceeding VID 671 of 2005:

(a)                the defendant be wound up in insolvency;

(b)               Bruno Anthony Robert Secatore, of Bentleys MRI, Level 7, 114 William Street, Melbourne, be appointed liquidator of the defendant, and

(c)                the plaintiff’s costs be paid out of the assets of the defendant.

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

REASONS FOR JUDGMENT

BACKGROUND

1                     The plaintiff in VID 671 of 2005 (the Commissioner) applies to wind up the defendant (Katalina) in insolvency under s 459P of the Corporations Act 2001 (the Act). The application was filed on 30 June 2005 and was served on Katalina on 6 July 2005.

2                     In VID 1184 of 2005 Katalina seeks the following relief against the Commissioner:

“1. An injunction (interlocutory and permanent) restraining the Respondent from proceeding with its application for the winding up of the Applicant until the completion of the audit of the Applicant’s affairs and the correct amount of income tax, Goods and Services Tax (‘GST’) and penalty is calculated by the Respondent and definitive notices of assessment are issued.

2.                  A declaration that in the premises the various notices of assessment issued by the Respondent to the Applicant for income tax, GST and penalties are tentative, interim and arbitrary in nature and are not valid assessments.

3.                  A Declaration that in the premises the three GST assessments currently issued to the Applicant by the Respondent are tentative, interim and arbitrary in nature and are invalid.

4.                  A Declaration that in the premises the Respondent’s calculation of GST and BAS penalties is incorrect.”

In a notice of motion filed in VID 1184 of 2005 the Commissioner seeks an order dismissing the proceeding on the ground that it discloses no reasonable cause of action, is frivolous and vexatious and an abuse of process.

3                     The winding up application and the motion were heard together. Katalina did not appear.

WINDING UP APPLICATION

4                     The Commissioner relies on Katalina’s failure to comply with a statutory demand. See s 459A of the Act. The demand relates to two debts and interest, totalling $72,930.31. Katalina did not comply with the demand or secure or compound the amount claimed to the Commissioner’s reasonable satisfaction within twenty one days of service of the demand. No application under s 459G was made to set aside the statutory demand.

5                     The winding up application is supported by the affidavit of Chantal Gardiner verifying the debt of $72,930.31 and Katalina’s failure to comply with the demand.

6                     Section 459C(2), which has effect for the purposes of an application under s 459P, provides in part that

“The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made:

(a)               the company failed (as defined by section 459F) to comply with a statutory demand ….”

That presumption operates except so far as the contrary is proved for the purposes of the application: subs (3).

7                     The Commissioner has complied with the requirements in ss 459Q and 465A of the Act.

8                     Section 465C of the Act provides in part that:

“On the hearing of an application under section 459P …,

a person may not, without the leave of the Court, oppose the application unless, within the period prescribed by the rules, the person has filed, and served on the applicant:

(a)               notice of the grounds on which the person opposes the application; and

(b)               an affidavit verifying the matters stated in the notice.”

The prescribed period is three days before the date of hearing. Katalina did not within that period file and serve such documents. Accordingly it requires leave to oppose the application.

9                     Section 459S provides:

“(1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:

(a)               that the company relied on for the purposes of an application by it for the demand to be set aside; or

(b)               that the company could have so relied on, but did not so rely on (whether it made such an application or not).

(2)               The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent.”

10                  There is no evidence before the Court to displace the presumption of insolvency in s 459C(2). As I have said, Katalina has not given notice of the grounds on which it opposes the application. Accordingly, it cannot oppose the application without the leave of the Court, which it has not sought. Even if it obtained leave, s 459S disables it from opposing the application on a ground upon which it could have relied had it applied to set aside the statutory demand, except by leave. No such leave has been sought.

11                  The material before the Court establishes that Katalina is indebted to the Commissioner in a further amount totalling $315,090.92.

12                  Unless Katalina’s application to restrain the Commissioner from proceeding with the winding up application provides a reason not to make a winding up order, such an order should be made.

KATALINA’S PROCEEDING

13                  Katalina’s statement of claim can be summarised as follows:

(a)                in April 2003 officers of the Commissioner informed Donald Pownceby, Katalina’s sole director and shareholder, that an audit would be undertaken into his financial affairs, including those of Katalina, for the period 1 July 1999 to 30 June 2002;

(b)               until March 2005 Nicholas Corcoris was Katalina’s accountant and registered tax agent, and was responsible for the preparation and lodgement of its business activity statements (BAS) and returns of income;

(c)                in late 2003 the Federal Police, with Australian Taxation Office (ATO) involvement, seized all Katalina’s business activity documents;

(d)               at a meeting between Jacinta Lawson of the ATO and Mr Pownceby in March 2004, he told her that Mr Corcoris had informed him that he did not have any documentation with which to prepare Katalina’s taxation return for the year ended 30 June 2003, and that the Police would not return any documents to him;

(e)                at the same meeting Mr Pownceby was informed by ATO officers that they would not provide him with copy documents to enable him to prepare the 2003 tax return or any outstanding BAS for Katalina;

(f)                 as at November 2005 the Commissioner has not finished the audit that commenced in April 2003;

(g)                in order to distance itself from Mr Corcoris, whose integrity was doubted by the ATO, Katalina relied on an associate of Mr Corcoris, Christine Lawry, a qualified accountant, but not a tax agent, to prepare the figures for its 2003 and 2004 income tax returns;

(h)                using the figures prepared by Ms Lawry, Mr Corcoris electronically lodged the returns for those years;

(i)                  in September 2004 the Commissioner informed Katalina that its BAS figures for the period 1 July 2000 to 31 March 2003 had been revised as a result of audit, and it was liable to additional tax of $67,070 and a penalty of $60,363, and the Commissioner issued assessments accordingly;

(j)                 Katalina contends that the assessments in (i) are based on income figures which are still the subject of audit and on that basis are “tentative, arbitrary, provisional and not definitive” because the audit has not been completed;

(k)               Katalina has objected to the assessments claiming that the Commissioner’s calculations are incorrect;

(l)                  in January 2005 Mr Corcoris and Ms Lawry were charged with defrauding the Commonwealth of income tax and GST;

(m)              Katalina is “concerned” that its liability for income tax and GST has been wrongly calculated by the Commissioner, Mr Corcoris and Ms Lawry, and that the fraud charges involve money it had made available to Mr Corcoris for payment of tax and GST;

(n)                at a meeting in February 2005 ATO officers informed Katalina’s representatives that the Commissioner would grant access to “documentation in return for the provision of any documents still in the possession of Mr Pownceby” relating to Katalina and other entities, and it was agreed that Katalina’s returns of income would be lodged, although there was “doubt about the figures which could later be amended after the audit was completed and the documentation was examined” by Katalina;

(o)               in March 2005 Mr Corcoris electronically lodged the return of income for the year ended 30 June 2004 in the sum of $234,710, the figure calculated by Ms Lawry;

(p)               Katalina contends that there is a “real danger” that the taxable income figures on the returns of income for the years ended 30 June 2003 and 30 June 2004 are incorrect, and that until both the income tax and GST audits are completed, those figures are “merely tentative, provisional and are not a definitive calculation” of its taxable income “and consequently so are the figures in the GST assessments”;

(q)               the Commissioner did not supply the documentation that it agreed at the February meeting to provide, before it commenced the winding up proceedings in July 2005;

(r)                 the Commissioner failed to act bona fide in issuing the winding up proceeding in that, inter alia,

·                 the audits were still in progress

·                 Katalina had been requesting access to documents under the Commissioner’s control to allow it to verify figures

·                 most of the outstanding amount (namely $72,850.24 of $72,930.31) arose as a result of Mr Corcoris electronically filing the 2004 return, and he had recently been charged with fraud

·                 it was agreed at the February meeting that there were grave doubts over the accuracy of the taxable income figures;

(s)                on or about 19 September 2005 the Commissioner issued an amended GST assessment for the period 1 July 2000 to 30 June 2002 of $72,930.31;

(t)                 in early September 2005 the Commissioner advised Katalina, without having consulted it, that the outstanding debt was now $373,104.76, an amount it disputes;

(u)                Katalina has lodged notices of objection against the assessment in (s) and the “deemed assessments arising when the returns of income are lodged by a corporation”.

THE ASSESSMENTS

14                  The assessments in question are

(a)                a deemed assessment under s 166A of the Income Tax Assessment Act 1936 (the 1936 Act) in respect of the year of income ended 30 June 2003 taken to have been made by the Commissioner and served on Katalina on 4 August 2004;

(b)               a deemed assessment under s 166A of the 1936 Act in respect of the year of income ended 30 June 2004 taken to have been made by the Commissioner and served on Katalina on 2 March 2005;

(c)                GST assessments made by the Commissioner under s 22 of the Taxation Administration Act 1953 (TAA) of Katalina’s net amount for the tax periods between 1 July 2000 and 30 June 2003 (the tax periods);

(d)               assessments of penalty (GST penalty assessments) made by the Commissioner under s 284‑75(1) of Schedule 1 to the TAA (for the tax periods other than 1 April to 30 June 2003) and s 284‑75(3) of that Schedule (for the excepted period)

15                  Section 166A(1) of the 1936 Act (see (a) and (b) in [17]) provides:

“Where a taxpayer that is a relevant entity within the meaning of Division 1B of Part VI furnishes a return in respect of income to which that Division applies:

(a)               the Commissioner is taken to have made, on the day on which the return is furnished, an assessment of the relevant taxable income or net income, as the case may be, and of the tax payable on that taxable income or net income, being those respective amounts as specified in the return; and

(b)               on and after the day on which the Commissioner is deemed to have made the assessment, the return is deemed to be a notice of the deemed assessment and to be under the hand of the Commissioner; and

(c)               the notice referred to in paragraph (b) is deemed to have been served on the entity on the day on which the Commissioner is deemed to have made the assessment.”

16                  Certified copies of Katalina’s income tax returns disclose in respect of the year ended 30 June 2003 taxable income of $228 and tax payable of $68.40, and in respect of the year ended 30 June 2004 taxable income of $234,710 and tax payable of $70,413.

17                  Certified copies of the notices of GST assessments and penalty assessments disclose that the net amounts to which Katalina was assessed for the tax periods is $81,717, and the total penalty was $71,348.25.

THE CHALLENGE TO THE ASSESSMENTS

18                  As appears from the summary of Katalina’s statement of claim at [16], the basis for the challenge is the contention that the assessments are tentative or provisional.

19                  Section 177(1) of the 1936 Act (applicable to income tax) provides:

“The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all particulars of the assessment are correct.”

20                  Section 59 of the TAA (applicable to GST) provides:

“The production of a notice of assessment under this Part … is conclusive evidence:

(a)               that the assessment … was properly made; and

(b)               except in proceedings under Part IVC on a review or appeal relating to the assessment … ‑ that the amounts and particulars in the assessment … are correct.”

21                  Section 298‑30(3) of Schedule 1 to the TAA (applicable to penalties under Division 284 of the TAA) provides:

“The production of a notice of [an assessment under Division 284], or of a copy of it certified by or on behalf of the Commissioner, is conclusive evidence of the making of the assessment and of the particulars in it.”

22                  The effect of s 177 of the 1936 Act (and comparable provisions) is that unless a taxpayer can show that assessments are tentative or provisional, or were not made in good faith, the production of the assessments precludes challenge to their validity: Deputy Commissioner of Taxation v Richard Walter Ltd (1995) 183 CLR 168 at 199‑200, 218‑219, 229, 237 and Platypus Leasing Inc v Commissioner of Taxation [2005] NSWCA 399.

23                  The fact that an assessment may be subject to amendment does not make it tentative or provisional. As Kenny J said in Briglia v Commissioner of Taxation 2000 ATC 4247 at [7]:

“Of course, an assessment is necessarily subject to the Commissioner’s power to review and amend it (subject to the constraints in s 170). The fact that it is subject to review and amendment does not, of course, make an assessment tentative or provisional in the Hoffnung sense. In consequence, an assessment is not relevantly tentative simply because the Commissioner informs the taxpayer that it might later be subject to revision: see e.g. Madden v Madden (1996) 65 FCR 354 at 392.”

24                  The assessments in the present case specify fixed sums said to be due and payable. There is nothing on their face suggesting they are tentative or provisional.

25                  Various matters in the statement of claim summarised at [13] appear to be relied on to support the tentative and provisional claim. Foremost amongst them is the existence of the continuing audits. See (a), (f) and especially (j). However the existence of an audit does not make the assessments provisional. In Madden v Madden (1996) 65 FCR 354 at 391‑392 Foster J, with whom Sheppard J agreed, said:

“It will be remembered that in the documents obtained under the Freedom of Information application … , reference was made to a recommendation that ‘initially’ an assessment should be raised under s 167 of the Tax Act. The learned primary judge held that it was impossible, on the basis of this piece of evidence, to envisage any viable case that the assessment was merely tentative or provisional. I agree. In the first place I am not satisfied that this evidence can provide a lawful basis for mounting such an attack. This statement appears in a document which in no way formed any part of the assessment and was certainly not served with it. In Hoffnung the tentative or provisional nature of the assessment in question was shown on the face of the Notice of Assessment. The Notice described the assessment as ‘tentative’ or ‘subject to revision’ with the result that it lacked the definitive quality necessary to constitute a true assessment. It may also be noted that in Simons v Federal Commissioner of Taxation (1981) 147 CLR 360 … the Notice of Assessment served on the taxpayer was accompanied by an adjustment sheet which carried the notation ‘your assessment will be reviewed upon determination of the objection against your assessment for 30 June 1977’. It was held (at 381‑382 per Aickin J) that this notification ‘conveyed no more than that there was an outstanding objection in respect of the preceding year of income, the determination of which might require an amendment of the assessment notified by the Notice of Assessment, including the alteration sheet’. It did not convey the meaning that the Notice of Assessment was tentative. It was a ‘definitive’ assessment notwithstanding that it might later be subject to amendment.

I am satisfied that, even if the statement in the document in this case can properly be taken into account, it is incapable of indicating that the assessment was tentative or provisional. At very best it might indicate that an amended assessment might later be appropriate.”

26                  As was the case with the document in Madden and the notation in Simons, the existence of what are here alleged to be continuing audits does no more than indicate that further investigation might result in amended assessments. See also Briglia at [7] (set out at [23]) and [10], ANZ Banking Group Ltd v Federal Commissioner of Taxation 2003 ATC 5041 at [69]‑[70] and McCleary v Federal Commissioner of Taxation (1997) 97 ATC 4266 at 4270.

27                  The complaints in the statement of claim that the Commissioner’s officers would not provide copy documents, and did not comply with their agreement to provide documents, cannot render the assessments tentative or provisional. They are quite extraneous to the Commissioner’s making of the assessments. As Hill J said in McCleary at 4270, the conclusion that an assessment is tentative will ordinarily emerge from an examination of the assessment itself, as in Federal Commissioner of Taxation v S Hoffnung and Co Ltd (1928) 42 CLR 39.

28                  The contention in the statement of claim that at the meeting in February 2005 it was agreed that “the returns of income for [Katalina] … would be lodged although there was doubt about the figures which could later be amended after the audit was completed and the documentation was examined by [Katalina]”, does not make out a tentative or provisional case. It appears to reflect a concern by Katalina that it had doubts about the figures that would appear in the return of income it had agreed to lodge, and an assurance by the Commissioner’s representatives that if the audit, or the documentation to be examined by Katalina, sustained this doubt, the figures could be amended. As the cases cited at [22] to [29] indicate, the possibility of amendment or review is not enough to make out a tentative or provisional case.

29                  In McCleary, at a meeting between the taxpayer and an ATO officer, the latter said words to the effect that the assessments may not be correct, but that he would need to see the actual income returns when lodged by the taxpayer to gauge whether the amounts shown on the notices of assessment were correct. At 4270 Hill J said:

“The mere indication that an assessment will be reviewed later does not require the conclusion that the assessment is tentative ….

The evidence in this case falls far short of demonstrating that the assessment here in question was tentative. An assessment is not, as I have already indicated, to be treated as tentative , merely because it may be the subject of review when further information is provided. Subject to matters of limitation and the strictures of the objection and appeal procedure, the Commissioner would, if provided with information which showed an assessment to be wrong, be under an obligation to take that information into account and amend the assessment. A statement of that obligation could thus not constitute evidence of tentativeness. Unless and until any information is provided and an amended assessment made, there has been determined a definitive liability.”

See also ANZ Banking Group at [69]‑[70].

BAD FAITH

30                  Katalina does not allege that the making of the assessments was done in bad faith, though it is alleged that the Commissioner failed to act bona fide in issuing the “winding up notice”. The particulars of this allegation are that when Ms Gardiner swore the affidavit verifying the contents of the “notice”, she knew that

·                 the audits were still in progress

·                 Katalina had been requesting access to documentation under the Commissioner’s control to enable it to verify the figures in the electronically lodged income tax return and those in the GST assessments

·                 Katalina kept Ms Gardiner informed of the importance of access to the documents to verify the figures in the returns of income for the 2003 and 2004 years

·                 most of the outstanding amount, namely $72,850.24 of $72,930.31, arose as a result of the electronic filing by Mr Corcoris, who had recently been charged with fraud

·                 at the 11 February 2005 meeting it was agreed that there were grave doubts over the accuracy of the taxable income figure

·                 Katalina disputes both the taxable income figures and the amounts included in the GST assessments.

31                  None of these matters goes anywhere near establishing lack of good faith or bad faith on the part of the Commissioner. See generally Briglia at [8]‑[9]. The Commissioner has a statutory obligation to administer the taxation legislation, including an obligation to recover tax from those who have been assessed as liable to pay it. Recourse available to him includes resort to the winding up provisions of the Act and reliance on the provisions set out at [19] to [21]. In view of those obligations, powers and rights, it cannot be said that any of the matters now relied on, or all of them in combination, establish a case of bad faith.

CONCLUSION

32                  For the reasons I have given, there is no prospect of Katalina obtaining either the injunction or the declarations sought in its application. The application is bound to fail. See General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 128‑130. The relief sought by the Commissioner’s motion should be granted.

33                  As appears from [10], Katalina requires leave to oppose the winding up application. As I have said, Katalina did not appear, and leave has not been sought. A winding up order should be made.

Associate:

Dated: 9 December 2005