Federal Commissioner of Taxation v Reid [1927] HCA 54; (1927) 40 CLR 196 (8 December 1927)

HIGH COURT OF AUSTRALIA

The Federal Commissioner of Taxation Appellant; and Reid Respondent.

H C of A

8 December 1927

Knox C.J., Isaacs, Higgins, Powers and Starke JJ.

Lamb K.C. (with him Alroy Cohen), for the appellant.

Flannery K.C. (with him Weston), for the respondent.

Lamb K.C., in reply,

The following written judgments were delivered:—

Dec. 8

Knox C.J. and

Starke J.

Consideration has led us to the conclusion that both the questions stated in the case should be answered in the affirmative.

On 26th September 1925 the royal assent was given by the Governor-General for and on behalf of the King to an Act, No. 28 of 1925, whereby it was enacted:—"2. Section two of the Principal Act" (i.e., the Income Tax Assessment Act 1922-1924) "is amended" by adding at the end thereof the following further proviso: "Provided further that no alteration or addition shall be made in or to any assessment made under any such Act after the expiration of three years from the date when the tax payable on the assessment was originally due and payable, unless the Commissioner has reason to believe that there has been an avoidance of tax owing to fraud or attempted evasion." The Acts Interpretation Act 1901-1918, sec. 5, enacts: "(1) Every Act to which the royal assent is given by the Governor-General for and on behalf of the King shall come into operation on the day on which such Act receives the royal assent, unless the contrary intention appears in such Act." Consequently, sec. 2 of the Act No. 28 of 1925 commenced and came into operation on 26th September 1925 unless some other provision is made or some contrary intention appears. There is nothing to the contrary expressly provided in the Act No. 28 of 1925, but it is argued that such provision has been made or such an intention appears when the Act is read together with the Acts No. 37 of 1922, sec. 2, and No. 51 of 1924, sec. 2. The provision in sec. 2 (2) of the Act No. 51 of 1924 "This section shall be deemed to have commenced upon the date of the commencement of the Principal Act"—i.e., on 18th October 1922—applies on its proper construction only to the provision contained in sec. 2 (1) of the Act No. 51 of 1924 and not to the provision of sec. 2 of the Act No. 37 of 1922. Consequently the Act No. 51 of 1924 does not affect the general rule enacted by the Acts Interpretation Act.

Next, it is said that sec. 2 of the Act No. 28 of 1925 is a further proviso to a repeal section in the Act No. 37 of 1922—sec. 2—which operates from 18th October 1922. However the modification of the operation of a repeal clause may operate from the date of the royal assent being given to the modification it establishes no contrary intent to the rule of the Acts Interpretation Act. The taxpayer therefore is unable to rely upon the provision of sec. 2 of the Act No. 28 of 1925, for the alteration or addition in his assessment was made before the passing of the Act and was allowed by the Income Tax Assessment Acts then in force. Some reliance was also placed upon sec. 37 of the Act No. 37 of 1922, but the Income Tax Assessment Act 1915-1921, and not sec. 37 of the Act of 1922, governs this case. The effect of the Acts No. 51 of 1924 and No. 28 of 1925, sec. 2, is so to provide, and it is unnecessary to enter upon a detailed examination of the 1922 Act for the purpose of considering what assessments are covered by it.

Isaacs J.

The whole question in this case is whether sec. 2 of Act No. 28 of 1925 is retrospective so as to operate as from 18th October 1922. I am very clear that the answer should be in the negative. The relevant legislation really speaks for itself in terms that I think are unequivocal. Prior to 18th October 1922 certain Income Tax Assessment Acts were in force. On that date, by Act No. 37 of 1922, it was enacted in sec. 2: "The Acts set forth in the Schedule to this Act are repealed." That was all. The Act of 1922 applied for assessment purposes only to financial years beginning 1st July 1922. For previous years, the power of assessment no longer existed. For the purpose of enforcing liabilities accrued as under assessments made and notified, doubtless sec. 8 of the Acts Interpretation Act 1901 would have applied. But it would not have availed to validate a new assessment or a new amendment in an existing assessment. So that the unqualified repeal left a gap in the management and administration of the income tax, which nothing but new legislation could bridge. Consequently, by Act No. 51 of 1924 and by sec. 2 of that Act, it was enacted in these words:—"(1) Section two of the Principal Act is amended by inserting at the end thereof the following proviso: Provided that the Acts repealed by this Act shall, subject to this Act, continue, and be deemed to have at all times continued, in force for all purposes in connection with income tax payable for any financial year prior to the first day of July one thousand nine hundred and twenty-two. (2) This section shall be deemed to have commenced upon the date of the commencement of the Principal Act." It is very necessary in view of the argument to examine that section closely:—(a) It is a section of Act No. 51 of 1924, or as the Act calls itself, "the Income Tax Assessment Act 1924." (b) It is not a section of the Principal Act, namely, "the Income Tax Assessment Act 1922-1923." (c) The section by sub-sec. 1 adds a proviso to sec. 2 of the Principal Act. (d) It adds to the Principal Act nothing more than the proviso and it does not add the enacting words of sub-sec. 1 or any part of sub-sec. 2.

By sec. 1, sub-sec. 3, of the Act of 1924 "The Principal Act" (that is, the Act of 1922-1923), "as amended by this Act, may be cited as the Income Tax Assessment Act 1922-1924." But only the "amendments" themselves are made part of the Principal Act, not what is said about those amendments. What is said about those amendments is part of the Act of 1924 only. So that sec. 2 of the Principal Act, that is the Income Tax Assessment Act 1922-1924 thenceforth read as follows:—"The Acts set forth in the Schedule to this Act are repealed: Provided that the Acts repealed by this Act shall, subject to this Act, continue, and be deemed to have at all times continued, in force for all purposes in connection with income tax payable for any financial year prior to the first day of July one thousand nine hundred and twenty-two." And nothing more. Both by force of the internal construction of the proviso itself, and also by express force of sub-sec. 2 of the Act of 1924, the proviso was to apply retrospectively to 18th October 1922. The Legislature in October 1924 was thus doubly careful to see that the new proviso did operate retrospectively; and it even went further and again recognized this in sec. 17, sub-sec. 4.

Eleven months afterwards, on 26th September 1925, a further Act was passed, No 28 of that year. By that time, it may be confidently assumed, a great many assessments had been made or altered and acted on by Crown and taxpayers all over the Commonwealth on the authority of the proviso to sec 2 of the Act of 1922. In the 1925 Act sec. 1 is important. It says: "(1) This Act may be cited as the Income Tax Assessment Act 1925. (2) The Income Tax Assessment Act 1922-1924 is in this Act referred to as the Principal Act." Then comes sec. 2, which says: "Section two of the Principal Act is amended by adding at the end thereof the following further proviso." The wording of the proviso itself is noticeably different from the wording of the former proviso. It is couched entirely in the future: "no alteration or addition shall be made" and "unless the Commissioner has reason to believe," &c. There is no "deeming" to have been in force as in the former proviso. So that on ordinary well established principles of construction no retrospective effect could legitimately be given to it, even if there were no further considerations forbidding it. But there are additional reasons. I have written out above, the complete form of sec. 2 of the Principal Act as it stood immediately before the 1925 Act was passed. In addition, there is no sub-section as in the Act of 1924 declaring retrospectively. Not only so, it is clear that is no oversight, if oversight could in any case be lawfully assumed. Sec. 24 of the 1925 Act shows beyond question that the Parliament specifically directed its attention to the subject of retrospectivity in sec. 16 and sec. 24. The latter section is particularly strong to show that the new proviso was not intended to be retrospective, and to hold it so would be in direct opposition to the considered intention of Parliament. If reasons were needed for this attitude, they are on the surface. Nearly twelve months had passed: there must have been many thousands of pounds assessed as tax and paid by taxpayers and placed in the Treasury, including items going beyond the three years limit. These payments were, we must assume, justly due. To annul them, as we are invited to do, means either to introduce inequalities among taxpayers or seriously to disturb the settled Treasury conditions. It is not for me to pronounce on the policy of Parliament, but I can see no such injustice as was argued for. Even if I could, it is beyond my province, and I am bound to expound the will of Parliament as it has declared by unusually plain words.

In my opinion the questions ought to be answered: (1) Yes, both valid; (2) Yes.

Higgins J.

In my opinion, both questions asked in the case stated must be answered in the affirmative, in favour of the Commissioner. The problem vanishes when it is clearly grasped that the limitation to three years is first imposed on the Commissioner (as to the financial years before 1st July 1922) by the amendment contained in sec. 2 of the Income Tax Assessment Act 1925; that this Act came into operation on 26th September 1925; and that the amended assessments which the Board has rejected were notified before that date, on 17th December 1924 and 12th June 1925. Sec. 37 of Act No. 37 of 1922 has nothing to do with assessments for the financial years up to 1st July 1922. There seems to have been a mistake made in this Act of 1922 in repealing the earlier Acts absolutely, without making provision for assessments for the financial years up to 1st July 1922. This mistake was rectified by providing that the repealed Acts should be deemed to have at all times continued for all purposes of income tax for those years (sub-sec. 1); and that the rectification should be deemed to apply as from 18th October 1922 (sub-sec. 2). But the limitation to three years for amended assessments did not begin to apply till 26th September 1925.

Powers J.

This is an appeal from the decision of a majority of a Board of Review, on the following objection submitted to the Board: "that the assessment is an alteration or an addition to an assessment notified on 23rd May 1916, and that such alteration or addition was not made until after the expiration of three years from the date when the tax payable on the original assessment was originally due and payable, and was, therefore, legally not within the power of the Commissioner, the Commissioner not having reason to believe that there had been any avoidance of tax owing to fraud or attempted evasion." It is admitted that the assessment was an alteration or an addition; that it was not made until after three years, &c.; and that the Commissioner had no reason to believe there had been any fraud or attempted evasion.

The Chief Justice of this Court on the hearing of the appeal stated a case and submitted for the opinion of this Full Court the following questions of law arising in the appeal:—(1) Were the amended assessments mentioned in the notices of amended assessment given by the Commissioner to the taxpayer on 17th December 1924 and 12th June 1925, or was either of them, a valid exercise of the powers of the Commissioner under the Income Tax Assessment Act 1915-1921 and the Income Tax Assessment Act 1922-1925? (2) Was the Board of Review in error in holding that the Commissioner was not entitled to make such amended assessments after the expiration of three years from the date when the tax payable on the original assessment was due and payable.

It appears to me that the question for this Court to decide is whether sec. 2 of Act No. 28 of 1925, adding a proviso to sec. 2 of the Principal Act (1922-1924), was by implication or directly made retrospective.

It was contended that, as sec. 2 of the Income Tax Assessment Act of 1922-1924 (the Principal Act referred to) commenced from the date of the commencement of that Act, sec. 2 of the 1925 Act adding a proviso to the section must also be deemed to have commenced from that date. I do not agree with that contention. In sec. 24 of the Act of 1925 Parliament declared that "Sections three and five, paragraph (i) of section six and section seven of this Act shall be deemed to have commenced upon the date of the commencement of the Income Tax Assessment Act 1922." Parliament evidently applied its mind to the question as to what part of the Act should be made retrospective and deliberately omitted sec. 2 and sec. 4 and part of sec. 6 of the Act when it declared what part of the Act was to have a retroactive effect.

For the reasons mentioned the answer to the first question submitted should be Yes, and to the second question Yes.

Both questions answered in the affirmative.

Solicitor for the appellant, W. H. Sharwood, Crown Solicitor for the Commonwealth.

Solicitors for the respondent, Sly & Russell.