Federal Commissioner of Taxation v Australian Boot Factory Ltd [1926] HCA 45; (1926) 38 CLR 391 (22 November 1926)

HIGH COURT OF AUSTRALIA

The Federal Commissioner of Taxation Plaintiff; against The Australian Boot Factory Limited Defendant.

H C of A

22 November 1926

Knox C.J., Isaacs, Higgins, Gavan Duffy, Powers, Rich and Starke JJ.

E. M. Mitchell K.C. (with him Hill), for the plaintiff.

Brissenden K.C. (with him Harper), for the defendant.

E. M. Mitchell K.C., in reply.

The following written judgments were delivered:—

Nov. 22

Isaacs J.

The only questions for the Court's determination are:—(a) Is the Commissioner's ascertainment of the excess amount referred to in sec. 21, sub-sec. 2, an "assessment" within the meaning of sec. 54, and is notice thereof consequently notice of assessment within the meaning of the same section? (b) Does sec. 32 (2) preclude such an assessment for any period prior to 1st July 1922? (c) Is the Commissioner's determination challengable in this action for the reason alleged in par. 7 of the defence?

These I answer as follows:—

(a)

The nature of an "assessment" I have stated in Hooper's Case[1], and I apply it to the operations prescribed by sec. 21. It is true that in sec. 21, sub-secs. 1 and 2, the word "assessment" is not used to denote the necessary official operation. Neither is that operation denoted by the word "calculate," which has reference only to a preliminary step in arriving at the final result. The Commissioner is to "calculate" the "additional tax," not an additional tax payable by the company, but "which would have been payable by the shareholders"—if the further sum had been actually distributed. That is one step. Then the company is directed by the Act to "pay to the Commissioner" the excess of that hypothetical "additional tax" over the company's own normal tax in respect of the further sum determined under sub-sec. 1. It is the implied and necessary ascertainment of the "excess," and not the calculation of the "additional tax," which is the final official operation constituting the "assessment," and the notification of that ascertainment is the "notice of assessment" required by sec. 54. If it be not so, then either the explicit direction "shall pay to the Commissioner" in sec. 21 (2) is futile, or else there would have been no appeal open to the taxpayer under sec. 50 from the Commissioner's ascertainment under sec. 21—each alternative being unthinkable, unless impossible of escape.

(b)

As to sec. 32 (2), its provisions apply, it is true, to assessments from the date named. But earlier periods, including that under consideration, are provided for by sec. 2 as amended by sec. 2 of Act No. 51 of 1924.

(c)

The third question is really unarguable since the decision in Cornell's Case[2]. In the Australian Tesselated Tile Co.'s Case[3] I stated a principle which applies, and is in line with Cornell's Case. I would add that the Act clearly provides appeal as the only method of correcting an erroneous assessment and, apart from mala fides, leaves it unchallengeable in such an action as this.

The Crown, therefore, succeeds on the demurrers.

I am authorized by my brothers the Chief Justice and Powers J. to say they have read and agree with this judgment.

Higgins J.

In my opinion, the grounds for the defendant's demurrer to the statement of claim have not been sustained; but the demurrer of the plaintiff to the defence should be allowed.

It must be understood that we have to confine ourselves to grounds (f) and (g) of par. 10 of the defence, the other grounds not being pressed, and to par. 7 of the defence as amended during the argument.

As for ground (f) of par. 10 of the defence, it is, to my mind, obvious that sec. 32 (2) of the Act—a section which appeared as it now stands in the Act of 1922 as well as in the present Act 1922-1925—applies to what sec. 21 calls the "ordinary assessment" only—the assessment which is based on actual receipts of the shareholder—and not to additional tax calculated or assessed on any further sums that could reasonably have been distributed by the company to its shareholders, under sec. 21. Moreover, sec. 21 (7) shows clearly that the additional tax for dividends that reasonably could have been distributed is applicable to financial years before the year commencing on 1st July 1922. Sec. 21 (7) is to be found even in the Act of 1922.

As for ground (g) of par. 10, the same reasoning applies. I regard sec. 54 as not applying to the additional tax imposed by sec. 21.

As for par. 7 of the defence, to which the plaintiff demurs, I think that the determination of the Commissioner under sec. 21 cannot be impugned in this action under a statement that "there were no relevant facts known to the" Commissioner "at the time of his said determinations on which he could reasonably have determined," &c., or under a statement that therefore "the" Commissioner "did not determine in pursuance of the powers and provisions of the said Act." If the determination seem to be wrong, the remedy is to bring it before a Board of Appeal, or (as it is called by the Act of 1925) a Board of Review (see sec. 21 (5) of the Act of 1922, as it stood before sec. 5 of the Act of 1925; and see sec. 17 of the Act of 1924, and sec. 24 of the Act of 1925). There is nothing in the Act authorizing the Court, in an action for the additional tax, to make a new determination, or to alter a determination of the Commissioner—"to substitute its opinion or satisfaction for that of the Commissioner," as my brother Starke said in Thomson's Case[4]; and see sec. 39 (1).

Dr. Brissenden has referred to some remarks of mine made in my judgment in the recent British Imperial Oil Co's Case[5]. I said in the course of that judgment: "I am not at all satisfied that a person assessed wrongly (e.g., a charitable institution) could not wait till he be sued and then defend the action." But these words were based on the specific provision in sec. 14 that the income of a charitable institution was to be exempt from income tax. A charitable institution does not come even under the definition of in sec. 4: "A taxpayer means any person chargeable with income tax"; and such an institution is not so chargeable. The elaborate provisions applicable to taxpayers are not applicable to it; and it may well be that the institution is entitled to wait until it be sued, and then show that it is not subject to income tax. No such consideration can apply to an admitted taxpayer who is called upon to pay additional tax under sec. 21.

Gavan Duffy, Rich and Starke JJ.

We agree that the demurrer of the defendant to the statement of claim should be overruled, and that the demurrer of the plaintiff to par. 7 of the defence should be allowed.

Demurrer of defendant to statement of claim overruled. Demurrer of plaintiff to par. 7 of the defence allowed. Defendant to pay costs. Leave to defendant to amend its pleadings as advised.

Solicitor for the plaintiff, Gordon H. Castle, Crown Solicitor for the Commonwealth.

Solicitors for the defendant, Minter, Simpson & Co.

[1] (1926) 37 C.L.R., at p. 373.

[2] (1920) 29 C.L.R., at p. 47.

[3] (1925) 36 C.L.R., at p. 125.

[4] (1923) 33 C.L.R., at p. 74.

[5] (1926) 38 C.L.R., at p. 208.