Anderson's Industries Ltd v Federal Commissioner of Taxation [1932] HCA 6; (1932) 47 CLR 354 (15 April 1932)

Anderson's Industries Limited Appellant; and The Federal Commissioner of Taxation Respondent.

This is a case stated upon an appeal from an assessment under the War-time Profits Tax Assessment Act 1917-1918. The assessment is made in respect of the profits of a business derived during the year ended 30th June 1919. The appellant, upon whom the assessment was made on 26th August 1931, did not carry on the business in 1919, but took it over on 5th January 1921 from its previous owner, which had derived the profits now brought into assessment.

Sub-sec. 2 of sec. 14 of the Act enables the Commissioner to assess any person for the time being owning or carrying on the business. In the corresponding provision of the British Act the words "for the time being" have been construed to mean the time at which the assessment is made (Wankie Colliery Co. v. Commissioners of Inland Revenue[1]). Notwithstanding the observations made by Higgins J. in Federal Commissioner of Taxation v. Hipsleys Ltd.[2], the same construction should be placed upon the same words in the Australian statute. Indeed, in that case, Isaacs J. and Rich J.[3] delivered judgments which were based upon the assumption that this construction must be adopted. It follows that, unless the Commissioner was in some way precluded from doing so, he was at liberty to make upon the appellant, who at the time of the assessment was carrying on the business, an assessment in respect of the profits earned by its predecessor.

The appellant, however, contends that the Commissioner is precluded from so assessing it by reason of persistent attempts which he made to assess the former owner, which was a company, or its liquidator. Sub-sec. 2 of sec. 14, as it has been interpreted in Boase Spinning Co. v. Commissioners of Inland Revenue[4] and Hipsleys' Case[5], gives the Commissioner a power when a business has changed ownership to assess the transferor in respect of the profits derived prior to the transfer as well as a power to assess the transferee. These powers are said to be alternatives, so that one or other but not both may be exercised by the Commissioner in a given case. "If under the third branch of sub-sec. 2 the Commissioner elects to assess the former owner, he elects thereby to substitute him for the new owner, who apart from that election would be the person assessable" (per Isaacs J. in Hipsleys Case[6]).

In the present case the Commissioner began in October 1924 by making an assessment upon the liquidator of the company which had derived the profits and had transferred the business to the appellant. Until 13th June 1929, at least, the Commissioner maintained this assessment on foot, and he relied upon it as a basis for an attempt to impose upon the appellant under sub-sec. 5 of sec. 14 a secondary liability for the tax thereby assessed. It is upon these facts that the appellant rests its case that the Commissioner had conclusively exercised an election to assess the transferor of the business and not the appellant as transferee. The answer of the Commissioner is simple. He says it is true that he did attempt to do what would have amounted to an election, but that his attempt was entirely nugatory because, when he made it, the company whose liquidator he purported to assess did not exist and there was no such liquidator. It appears that the affairs of the company had been fully wound up in 1921 and that on 29th December 1921 (nearly three years before the assessment) the company became dissolved by force of the operation of sec. 142 of the Companies Act 1899 N.S.W.. It is, therefore, clear that the transferor had ceased to exist. No assessment can be made upon a non-existing person, and a document purporting to be such an assessment could not, we think, operate as an election under sub-sec. 2 preventing the assessment of the transferee of the business. The actual assessment, however, was upon a named person described as liquidator of the company. The definition of contained in sec. 4 includes liquidator. If the company had continued in existence and the person assessed had remained its liquidator, the assessment might have been supported under sec. 47, which authorizes assessments upon "trustees" in their representative capacity. But he could be assessed in his representative capacity only, and would incur only a vicarious liability which is limited and is never personal unless he disposes of assets while the tax is unpaid. Whatever might be the effect of secs. 24 and 25 in preventing an attack upon the validity of such an assessment, its effect in producing liability must depend upon the existence of the representative capacity. Since, in this case, the person assessed did not occupy that situation and as the juristic person he was supposed to represent did not exist, the assessment, in our opinion, could not be effective as an election to pursue the authority given by sub-sec. 2 of sec. 14 to assess the transferor to the exclusion of the transferee's liability.

This position is not in itself unjust, because the Commissioner was not at the material time in possession of a choice between two taxpayers. The present appellant was the only taxpayer against whom he had a right of recourse, and his attempt to resort to the transferor company and its liquidator was based upon a mistaken belief in its continued existence. Any appearance of hardship the circumstances may have is due rather to the great length of time which has elapsed and to the Commissioner's failure to notify the liquidator what sum he desired set aside to answer war-time profits tax when he was informed by him of the liquidation before the company was dissolved. No estoppel, however, arises from any of the Commissioner's acts or omissions in this case.

I agree that the question should be answered "No," but I do not wish to accede, at present, to the view that sec. 14 (2) gives only alternative methods of assessment or to the view that the liquidator of the company could be assessed whether it be or be not dissolved.

Although the document called the "notice of assessment" and dated October 21st, 1924, was received by R. S. Norris, it was not directed, nor was it intended to be directed, at him except as liquidator representing the old Company. But at this date the old Company was not in existence, having been dissolved nearly three years earlier, on December 29th, 1921. In relation to it Norris did not possess in the year 1924 any representative capacity. In law there was no assessment at all. Neither the document posted to him nor any preliminary determination by the Commissioner as to the matter, imposed any liability or created any right. And Norris might have treated the document as never having been received by him or even made.

Further, the so-called "notice of assessment" dated January 21st, 1925, which was directed to the appellant as "the person to whom the business is transferred" within the meaning of sec. 14 (5), proceeded expressly upon the basis that there had been a valid assessment upon the old Company in October 1924. So too, the so-called "notice of assessment" dated October 29th, 1928, was made upon the same basic assumption.

As late as October 29th, 1928, the Commissioner purported to make an amended notice of assessment upon "the liquidator" of the "old Company." The error was discovered, and on June 13th, 1929, the Commissioner requested the return of the document which Norris had received, pointing out that he was not at the material time acting in the capacity of liquidator. The appellant was also informed that the notice of liability under sec. 14 (5) which had been forwarded to it had been "sent in error and should be disregarded."

In my opinion all the documents which were brought into existence by the Commissioner upon the mistaken assumption of the continuance in life of the old Company, can and should be disregarded in the present proceedings. There was not, in fact or in law, any decision by the Commissioner to assess the tax upon the past owner of the business or upon Norris as the agent of the past owner. No such decision could be made by the Commissioner under the third part of sec. 14 (2), unless the person or company supposed to be the past owner was a real and existing entity.

It follows that, whatever be the true scope and purpose of sec. 24 in preventing the challenge of the validity of an assessment, it does not prevent this Court from holding that the various proceedings taken by the Commissioner against an imaginary company were void. The invalidity of the assessment of 1924 does not spring from non-compliance with the Act, but from mistake of fact as to the existence of the person supposed to have been assessed. The assessment was made upon a mere name.

The Commissioner was therefore entitled to re-adjust the matter by assessing the tax on the profits of the business upon the "person for the time being owning or carrying on the business" (sec. 14 (2)). The decisions show that the time referred to is the time of assessment. The appellant was such a person, the tax was properly assessed upon it, and the question should be answered: No.

[1] (1922) 2 A.C. 51.

[2] (1926) 38 C.L.R., at pp. 234-235.

[3] (1926) 38 C.L.R. at pp. 226, 238.

[4] (1926) Sc.L.T. 307; 135 L.T. 211.

[5] [1926] HCA 34; (1926) 38 C.L.R. 219.

[6] (1926) 38 C.L.R., at p. 227.

High Court of Australia

Anderson's Industries Ltd v Federal Commissioner of Taxation [1932] HCA 6; (1932) 47 CLR 354 (15 April 1932)

HIGH COURT OF AUSTRALIA