Liverpool & London & Globe Insurance Co Ltd v Federal Commissioner of Taxation [1927] HCA 18; (1927) 40 CLR 108 (20 April 1927)

HIGH COURT OF AUSTRALIA

The Liverpool and London and Globe Insurance Company Limited Appellant; and The Federal Commissioner of Taxation Respondent.

H C of A

20 April 1927

Knox C.J.

Flannery K.C. and H. E. Manning, for the appellant.

Teece K.C. and Hill, for the respondent.

Knox C.J. delivered the following written judgment:—

April 20

Knox C.J.

On 9th June 1925 the respondent caused to be served on the appellant notices of assessment to war-time profits tax in respect of profits made during the years 1917-1918 and 1918-1919 respectively. The appellant on 25th June 1925 lodged notices of objection to these assessments and the Commissioner, having allowed one ground of objection contained in each notice, issued amended notices of assessment. It was then agreed that the objections lodged, except that which had been allowed, should be treated as an appeal from the amended assessment; and the appeal now comes on for determination. The grounds stated in the objection lodged in respect of each assessment include the following:—(1) The assessment is not nor does it purport to be made by the Commissioner pursuant to sec. 22 of the Acts. (2) A previous assessment purporting to be made pursuant to sec. 21 of the Acts in respect of the same period was cancelled or withdrawn on 23rd July 1923, upon ground of objection similar to ground No. 5 herein, after such objections had been duly considered and allowed by the Commissioner in pursuance of sec. 28 of the Acts. (3) The assessment hereby objected to is neither an "alteration in" nor "an addition to any assessment" made "in order to ensure its completeness and accuracy" or otherwise made in pursuance of sec. 23 of the Acts by the Commissioner. (4) The assessment objected to is in the nature of an attempt by unauthorized methods to reverse or avoid the previous decisions of the Commissioner duly given and notified by him after due consideration and allowance of objections thereto pursuant to sec. 28 of the Acts.

The facts relevant to the determination of the questions raised by these grounds are as follows:—

(1)

As to the assessment in respect of the financial year 1917-1918.—On 23rd March 1920 notice of assessment was issued stating the amount of tax payable as £6,509 2s. 6d. On 29th March 1920 notice of objection to this assessment was lodged, the grounds of objection being that the Company was entitled to a deduction which had not been allowed in respect of the loss on life insurance business carried on by it and that there were no excess profits liable to taxation under the Act. The notice of objection included also a claim that the assessment should be cancelled. On 30th June 1920 the Commissioner gave notice that he had disallowed these objections. On 10th July 1920 appellant requested the Commissioner to treat his objection as an appeal and refer it to the High Court. It was subsequently arranged that the appeal should not be set down for hearing until a decision has been reached in certain matters pending in England. On 23rd July 1923 the Commissioner sent to the appellant a letter in the words following:—"I have to advise that the assessments which issued to you under the above Act in respect of profits derived during the periods ended 30/6/16 and 30/6/18, have now been cancelled. The result of these adjustments is a credit balance of £3,770 14s., and this amount has been transferred in part payment of your assessment for the year ended 30/6/19, leaving a balance thereon of £1,505 11s. which sum should be paid not later than 22nd Sept. 1923." In explanation of this letter it should be stated that the sum of £3,770 14s. was the amount which had been paid by the appellant as war-time profits tax for the financial year 1915-1916, that nothing had been paid in respect of the tax for 1917-1918, and that by notice of assessment issued on the same day, 23rd July 1923, tax in respect of the financial year 1918-1919 was assessed at £5,276 5s. Nothing further happened until 9th June 1925 when the Commissioner issued the notice of assessment to which this appeal relates.

(2)

As to the assessment in respect of the financial year 1918-1919.—On 23rd July 1923 a notice of assessment was issued stating the tax payable as £5,276 5s. On 10th August 1923 notice of objection to this assessment was lodged, the grounds of objection including the following:—If and when the calculation of war-time profits is made in accordance with law, it will be found that no tax is leviable under the Act. The notice of objection included also a claim that the assessment should be cancelled. On 25th October 1923 the Commissioner sent to the Company a letter in the words following, namely:—"War-time Profits Tax Assessment Act 1917-1918.—I desire to inform you that your objection of 10th August 1923 to Assessment No. 1662 issued under date 23/7/23 in respect of excess profits derived in the year ended 30/6/19 has been allowed and the assessment cancelled. The effect of the cancellation is to entitle the Company to a refund of £5,276 5s., form of claim for which amount is enclosed for favour of signature as claimant where indicated on the face thereof and early return to this office. On receipt of the signed voucher, a not negotiable cheque, payable to your order, will in due course be forwarded to you by the Treasury. The amount cannot be paid by this office to a bank for credit of your account nor can an order to any other person to collect be recognized." The amount of £5,276 5s. was subsequently repaid to the Company. Nothing further happened until 9th June 1925, when the Commissioner issued the notice of assessment to which this appeal relates.

No explanation of the events which I have narrated was offered by the Commissioner. His counsel do not now contend that sec. 22 of the Act, providing for default assessments, has any application to this case, nor do they deny that under this Act, as under the Income Tax Assessment Act, there can only be one main or basic assessment in respect of any one financial year (per Isaacs J. in R. v. Deputy Federal Commissioner of Taxation (S.A.); Ex parte Hooper[1]). But they say that, notwithstanding the earlier transactions in respect of the assessments for these years, the Commissioner had power in 1925 to treat the assessments which he had cancelled as existing assessments and to alter or add to them as often and as much as he pleased. They contended accordingly that the assessments made in June 1925 were valid as alterations of or additions to the assessments previously made. But, in my opinion, the Commissioner was not in 1925 entitled to treat the assessments previously made as existing assessments capable of being altered or added to. In the case of each assessment now under consideration the taxpayer, being dissatisfied, lodged an objection under sec. 28 (1) of the Act. Under sec. 28 (2) it was the duty of the Commissioner to consider the objection and to disallow it or allow it wholly or in part. Acting under this provision he disallowed the objection to the 1917-1918 assessment, and the taxpayer then availed himself of his right to have the objection determined by the High Court. The appeal to the High Court was, I think, instituted by the request of the taxpayer to have his objection treated as an appeal, and while that appeal was pending, the Commissioner withdrew his disallowance of the objection and in substance, if not in express words, allowed it. The objection being thus disposed of in accordance with the procedure laid down by sec. 28 of the Act, it seems to me that the dispute as to that assessment was concluded and that the Commissioner could not thereafter reopen the matter on the footing that the objection was wrongly allowed. In the case of this assessment the Commissioner's action resulted in frustrating the appeal to the High Court then pending and thus precluding the taxpayer from obtaining the opinion of the Court on his objection. The injustice of allowing the Commissioner to revive at a later date the controversy which he had ended by determining it in favour of the taxpayer appears to me to be obvious, and I do not think the Act compels the Court to hold that the action of the Commissioner was within his power. It is true that no express power is given to the Commissioner to "cancel" an assessment, but by sec. 28 he is authorized to decide any objection raised by the taxpayer and, in my opinion, his decision on such an objection if not appealed from must be regarded as final and conclusive. To hold otherwise would be to attribute to Parliament the intention that the decision of the Commissioner on an objection under sec. 28 should have no binding force or effect unless it were against the taxpayer.

Turning to the 1918-1919 assessment, the Commissioner in that case expressly allowed the objection. In the case of each financial year the taxpayer raised the contention that no tax was assessable and that the assessment should be cancelled. In each case the Commissioner, acting under sec. 28, allowed the objection and cancelled the assessment, or, in other words, decided that no tax was payable, and refunded what had been paid. I do not think he was entitled after so deciding to revive the question of liability to tax which had been decided, or to treat as an existing assessment the assessment which he had on the objection of the taxpayer declared to be cancelled. In my opinion, the intention of the Legislature in enacting sec. 28 of the Act was to provide a method for finally determining the liability of the taxpayer on an assessment with which he was dissatisfied. If the proceedings under that section result in a decision that no tax is payable, it seems to me that the original assessment ceases to operate or to have any legal existence, and in such a case it follows that the original assessment cannot be added to or altered. Counsel for the Commissioner relied on the decision of this Court in Trustees, Executors and Agency Co. v. Federal Commissioner of Land Tax[2], but, in my opinion, that decision has no application to the facts of the present case. In the case cited no objection had been lodged by the taxpayers to the original assessment or to any of the amended assessments prior to that which was the subject of appeal. Consequently there had been, in that case, no allowance by the Commissioner of any objection, nor any cancellation by him of the original assessment.

For these reasons I am of opinion that the appeal should be allowed and the assessments of 9th June 1925 set aside. The Commissioner is to pay the costs of the appeal.

Appeal allowed and assessments of 9th June 1925 set aside. Respondent to pay costs of appeal.

Solicitors for the appellant, Norton, Smith & Co.

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

[1] [1926] HCA 3; (1926) 37 C.L.R. 368, at pp. 372-374.

[2] [1915] HCA 35; (1915) 20 C.L.R. 21.