Foster v Federal Commissioner of Taxation [1951] HCA 18; (1951) 82 CLR 606 (27 April 1951)

HIGH COURT OF AUSTRALIA

FOSTER v. FEDERAL COMMISSIONER OF TAXATION (1951) 82 CLR 606

Income Tax (Cth.)

High Court of Australia
Latham C.J.(1), Dixon(2), McTiernan(3), Williams(4), Webb(5) and Fullagar(6) JJ.

CATCHWORDS

Income Tax (Cth.) - Assessment - Amended assessment - "Full and true disclosure of all the material facts" - "Amendment . . . to correct . . . a mistake of fact" - Facts known to Commissioner but not to Deputy Commissioner from whose office assessment issued - Income Tax Assessment Act 1936-1947 (No. 27 of 1936 - No. 63 of 1947), ss. 104, 107, 170.*

HEARING

Melbourne, 1951, March 15, 16;
Sydney, 1951, April 27. 27:4:1951
CASE STATED.

DECISION

April 27.
The following written judgments were delivered:-
LATHAM C.J. This is a case stated in an appeal from an amended assessment appellant Francis Henry Foster derived during the year 1st January 1944 to 31st December 1944. The appellant in 1944 held 58,678 fully-paid shares of 1 pounds each in the North Australian Pastoral Company Limited. That company was a private company within the meaning of s. 104 of the Income Tax Assessment Act. The company was therefore assessed in respect of the aggregate additional amount of tax which would have been payable by its shareholders if the company had made a sufficient distribution of its income of the year to the shareholders. Section 107 provided that a person should be entitled to a rebate of the amount by which his income tax was increased by the inclusion in his assessable income of dividends paid to him by a company where the dividends were paid wholly and exclusively out of any amount or amounts in respect of which under the relevant division of the Act (Division 7 of Part III.) the company paying the dividends had paid or was liable to pay tax. The company on 18th June 1941 in fact paid ordinary income tax, and also tax under Division 7 of Part III. in respect of undistributed income. Subsequently, during the income year ended 30th June 1943, the company made an appropriation out of the amount of the undistributed income of a sum of 28,961 pounds to a tax-free reserve account. On 20th September 1944 the company passed a resolution in the following terms:-
"Resolved that a dividend at the rate of 5% on the paid-up capital of the Company be paid, absorbing 8,100 pounds, and that this amount be paid wholly and exclusively out of the profits of the Company in respect of the year ending 30th June 1940 and in respect of which the Company has paid tax under Division 7 of the Federal Income Tax Act, such profits being shown in the tax-free reserve". A dividend in pursuance of the resolution was paid to the appellant taxpayer on 6th October 1944. On 27th September 1945 the taxpayer made his return for the year 1st January 1944 to 31st December 1944, and included in his return a statement that he had received a dividend of 2,933 pounds from the North Australian Pastoral Company "on which Notional Tax has been paid by the Company". Accordingly, as the company had in fact paid tax under s. 104 the taxpayer was entitled to a rebate under s. 107. On 13th August 1946 an assessment was issued by the Deputy Commissioner of Taxation, Hobart, by which the rebate was allowed in full. Accordingly the taxpayer was not required to pay any tax in respect of the dividend received from the company. (at p612)

2. In the meantime the company had appealed against its assessment to ordinary tax and to additional tax under Division 7, Part III. The appeal related to tax in respect of the income years ending 30th June 1940, 1941, 1942 and 1943. The appeals were heard by Dixon J. and on 19th July 1946 judgment was given in favour of the company: see North Australian Pastoral Co. Ltd. v. Federal Commissioner of Taxation [1946] HCA 17; (1946) 71 CLR 623 . On 8th October 1946 the commissioner issued amended assessments of the company's income stating the tax payable as nil, and the amount of 14,812 pounds which had been paid as additional tax was repaid to the company. (at p613)

3. The assessment of the appellant taxpayer was made in the office of the deputy commissioner at Hobart. The commissioner, of course, was aware of the appeal and of the result of the appeal, but his information was not communicated to the deputy commissioner, and on 13th August 1946, as already stated, he assessed the appellant, allowing a rebate under s. 107 of the Act, with the result that the tax payable by the appellant was stated as nil. (at p613)

4. When the appellant made his return he knew that the company had appealed against its assessment and that the appeal was pending. (at p613)

5. None of the officers at Hobart who actually prepared the taxpayer's assessment knew of the appeal or of the result of the appeal at the time when the assessment was prepared and issued. (at p613)

6. On 12th March 1948 the deputy commissioner at Hobart amended the appellant's assessment by disallowing the s. 107 rebate and claimed payment of 1,875 pounds 17s. 0d. as tax. The taxpayer objected, the objection was disallowed and the taxpayer appealed to this Court. A case was stated under s. 198 (1) of the Income Tax Assessment Act 1936-1949 by which the following questions were submitted to the Court:- "(a) Whether the provisions of s. 170 (3) of the Income Tax Assessment Act 1936-1947 preclude the lawful issue of the said amended assessment dated 12th March 1948. (b) Whether a rebate under s. 107 of said Act is allowable in respect of the dividend of 2,934 pounds received by the appellant from the North Australian Pastoral Company Limited." (at p613)

7. The first question is whether s. 170 (3) of the Act precludes the lawful issue of the amended assessment in which the rebate was disallowed. (at p613)

8. Section 170 contains in sub-s (1) a general power to amend assessments "subject to this section". Section 170 (2) provides for the case where a taxpayer has not made to the commissioner full and true disclosure of the facts necessary for his assessment. In such a case where there has been an avoidance of tax the commissioner may, where he is of opinion that there has been fraud or evasion, amend the assessment at any time and in other cases within six years of the date when the tax became due and payable. The amendment which is authorized under this provision is such amendment as the commissioner thinks necessary to correct an error of calculation or a mistake of fact or to prevent an avoidance of tax. (at p614)

9. It is contended for the taxpayer that this provision is not applicable because this is not a case in which the taxpayer has not made a full and true disclosure of material facts. The taxpayer contends and the commissioner denies that s. 170 (3) is applicable to the case. Section 170 (3) is as follows:- "Where a taxpayer has made to the Commissioner a full and true disclosure of all the material facts necessary for his assessment, and an assessment is made after that disclosure, no amendment of the assessment increasing the liability of the taxpayer in any particular shall be made except to correct an error in calculation or a mistake of fact; and no such amendment shall be made after the expiration of three years from the date upon which the tax became due and payable under that assessment." (at p614)

10. No question arises in the present case of an error in calculation, and therefore, if the taxpayer made the full and true disclosure specified in the sub-section, the commissioner may amend the assessment so as to increase the liability of the taxpayer only in order to correct a mistake of fact. The two questions which arise, therefore, are (1) whether the taxpayer made to the commissioner a full and true disclosure of all the material facts necessary for his assessment? - and (2) if he did make such a disclosure, was the amendment disallowing the rebate an amendment made to correct a mistake of fact? (at p614)

11. In Federal Commissioner of Taxation v. Westgarth [1950] HCA 59; (1950) 81 CLR 396 it was held that disclosure of "all the material facts necessary for making an assessment" under s. 20 (1) of the Estate Duty Assessment Act 1914-1942 meant disclosure of relevant facts known to the taxpayer or of relevant beliefs held by him, and that it did not involve making the commissioner aware of facts unknown to the taxpayer. In the present case it is urged for the commissioner that the taxpayer did not disclose to the commissioner the facts that the appeal was pending and that the company succeeded upon the appeal. But the commissioner, as the taxpayer must have known, was already aware of those facts and he was aware of them as facts having a direct relation to the assessment of the company in which the taxpayer was a shareholder. In my opinion it is not possible, according to the ordinary use of language, to "disclose" to a person a fact of which he is, to the knowledge of the person making a statement as to the fact, already aware. There is a difference between "disclosing" a fact and stating a fact. Disclosure consists in the statement of a fact by way of disclosure so as to reveal or make apparent that which (so far as the "discloser" knows) was previously unknown to the person to whom the statement was made. Thus the taxpayer could not add anything to the commissioner's knowledge with respect to the appeal. In my opinion in these circumstances it should be held that the failure of the taxpayer to repeat to the commissioner what he already knew did not constitute a failure to disclose material facts. (at p615)

12. The deputy commissioner at Hobart was not aware of those facts. But s. 170 (3) refers to disclosure made to the commissioner. There are no provisions in the Act which require a disclosure to the particular deputy commissioner who happens to be the officer dealing with the assessment of a particular taxpayer. (at p615)

13. The next question is, if (as I think was the case) there was the full and true disclosure of material facts referred to in s. 170 (3) whether the amendment by disallowing the s. 107 rebate was an amendment made to correct a mistake of fact. When the assessment was made it was correct upon the facts as they then existed. The company had actually paid tax under s. 104. There was no mistake about that fact and, that being so, the assessment was quite correct. If the deputy commissioner had known that the appeal was pending he probably would have delayed issuing assessments to shareholders in the company. But a mistake consisting in issuing an assessment instead of withholding it for a period is not a mistake of fact in the making of the assessment itself. In my opinion the mistake of fact referred to in s. 170 (3) is a mistake of fact which affects the making of the assessment and not the issue of the assessment at a particular time. (at p615)

14. It is true that a refund of the additional tax paid was made to the company. It is argued that therefore the company had not "paid" the tax. The decision upon the appeal was that the company was not liable to pay the tax. Accordingly, it is argued that the company had neither paid nor was liable to pay the tax. The refund to the company, however, was not made until 8th October 1946. The assessment of the appellant had been made on 13th August 1946. On that date the true position was that the company had paid tax under Division 7 of Part III. of the Act. Accordingly there was no error in the making of the assessment, though if further facts had been known the issue of the assessment would have been delayed. (at p616)

15. For these reasons I am of opinion that the provisions of s. 170 (3) of the Act precluded the lawful issue of the amended assessment and that a rebate under s. 107 of the Act was allowable in respect of the dividend received from the company. (at p616)

DIXON J. This matter comes before us by way of a case stated under s. 198 (1) of the Income Tax Assessment Act 1936-1949 in an appeal by a taxpayer from an amendment of an assessment for the financial year ended 30th June 1945 based upon income derived during the year ended 31st December 1944. The notice of the original assessment which has been amended was issued from the office of the Deputy Commissioner of Taxation at Hobart on 13th August 1946. (at p616)

2. On 6th October 1944 (that is, during the year of income) the taxpayer received from the North Australian Pastoral Company Limited a dividend upon certain shares in that company of which he was the holder. The payment amounted to 2,933 pounds 18s. 0d. The dividend had been distributed by the company out of profits in respect of which the company had been assessed for additional tax under Division 7 of Part III. of the Income Tax Assessment Act. The profits were earned during the year ended 30th June 1940 and additional tax was levied upon them by notice of assessment dated 19th April 1941. The additional tax was paid by the company. The appellant, in his return of income for the year ending 31st December 1944, a document dated 27th September 1945, included among the dividends received by him that of 2,933 pounds 18s. 0d. from the North Australian Pastoral Company, but he added the statement that "notional tax" had been paid upon the dividend by the company and he did not extend the figures 2,933 pounds 18s. 0d. into the column of items of income. The return was furnished to the deputy commissioner in Hobart. The assessment issued on 13th August 1946 was prepared in the deputy commissioner's office. It treated the taxpayer as entitled under s. 107 of the Income Tax Assessment Act 1936-1944 to a rebate of the amount by which his income tax had been increased by the inclusion in his assessment of the dividend because it was paid wholly and exclusively out of an amount in respect of which, under Division 7, the company paying the dividend had paid tax. Having regard to the allowances and deductions to which the taxpayer was entitled from his other assessable income, this meant that an assessment to no tax for the current year should be made upon the taxpayer, and the notice of assessment was expressed accordingly as "nil assessment". (at p617)

3. Some time after he had thus assessed the taxpayer, apparently a considerable time afterwards, the deputy commissioner in Hobart became aware that though the company had in truth paid the additional tax upon its profits for the year ended 30th June 1940 it had nevertheless appealed against the assessment under Division 7 as well as against its ordinary assessment. The chief ground for the appeal was that the profits formed income exempt under s. 23 (m) as income derived directly and in the first place from primary production in the Northern Territory of Australia by a resident of that Territory. The appeal was allowed: North Australian Pastoral Co. Ltd. v. Federal Commissioner of Taxation [1946] HCA 17; (1946) 71 CLR 623 . The order allowing the appeal was made on 19th July 1946, that is nearly eight weeks before the assessment upon the taxpayer was notified. The tax and additional tax which the company had paid in respect of the income year ended 30th June 1940 was refunded on 30th October 1946 - that is to say, some considerable time after the notice of assessment had been issued to the taxpayer with whom we are now concerned. Eighteen months later the deputy commissioner proceeded to amend the assessment by excluding the rebate and assessing the taxpayer upon the dividends. It is from this amendment that the taxpayer appeals. (at p617)

4. The authority of the commissioner to make an amendment under s. 170 (1) is, in the circumstances of this case, restricted by s. 170 (3). If the taxpayer is considered to have made a full disclosure of all the material facts necessary for his assessment prior to the making of the original assessment, then the amendment could not be made unless it was to correct an error in calculation or a mistake of fact. Obviously it is not a case of error in calculation. If at the time the assessment was made it was the only assessment that could lawfully be made, I do not see how it could be said that the amendment was "to correct a mistake of fact" even if it be true, as probably it is, that the deputy commissioner would never have issued the notice of assessment at that juncture had he been aware that an appeal had been instituted by the company and allowed. (at p617)

5. I do not agree with the contention which I understand to be made for the commissioner that, if at the date when the amendment is made the facts are such that the original assessment no longer represents what would be the liability of the taxpayer were he to be thus assessed for the first time, that is enough to enable the commissioner to "correct" it, provided it appears that some misapprehension existed. I think that there must be something incorrect in the original assessment as at the time it was made, something then needing correction. (at p618)

6. In my opinion there was nothing incorrect in the assessment as at that date. It was the only assessment which at that time could have been made. At that time the company had "paid" the tax under Division 7 in respect of the amount from which the dividend was declared within the meaning of s. 107 and the commissioner had not refunded the tax. The mistake which the deputy commissioner made was in issuing the notice of assessment at that date and in not waiting until the tax was refunded, as he probably would have done had he known of the appeal and the order allowing it. Because the additional tax had not been repaid at the time the original assessment was made, it seems to me to be impossible to say that at that date it was not still in a condition of being "paid" within s. 107. The cases of D. & W. Murray v. Federal Commissioner of Taxation [1927] HCA 51; (1927) 40 CLR 148 and W. & A. McArthur v. Federal Commissioner of Taxation [1930] HCA 47; (1930) 45 CLR 1 could have no application unless and until the tax was refunded. An argument was advanced for the commissioner that the additional tax was paid only in pursuance of s. 201, which makes tax recoverable notwithstanding that there is an appeal against an assessment, and that the payment was provisional and therefore no longer a payment within s. 107 when the appeal was allowed. This appears to me to be a fallacious argument. The payment was not made to be held in suspense. It was made to satisfy a demand which by reason of the assessment was enforceable. It satisfied an obligation. If the appeal were to be allowed, a counter obligation on the part of the commissioner to repay it would arise. Until it was repaid, it did not cease to be "paid". The mere existence of the obligation to refund does not seem to me enough to undo the fact of payment. Section 107 distinguishes between the liability to pay and the fact of payment by making these alternative conditions, either of which will confer a right to the rebate. I do not think that because the order set aside the assessment imposing the liability it can be said that the payment actually made and accepted as and for additional tax lost that character. (at p618)

7. The limitation upon the commissioner's power of amendment arise under s. 170 (3) where a taxpayer has made to the commissioner a full and true disclosure of all the material facts necessary for the assessment and an assessment is made after the disclosure. This condition was, in my opinion, fulfilled. The taxpayer did not, it is true, tell the deputy commissioner that the company had appealed, but he knew that the commissioner was aware of this fact. The commissioner was, in fact, a party to the appeal. It may be doubted whether this was a fact "necessary for the assessment". It bore only on the wisdom of withholding an assessment till the appeal was determined, not on the contents of the assessment, if made. But a taxpayer can hardly be said to fail to disclose to the commissioner a fact which is not only within the commissioner's knowledge in connection with the exercise of his functions in the very matter, but which the taxpayer knows so to be within his knowledge. (at p619)

8. In the view that I have taken it is unnecessary to pursue the question whether the ignorance of the deputy commissioner of the facts known to the commissioner amounted to, or gave rise to, a mistake of fact within the meaning of s. 107. But it is perhaps desirable to say that the case stated does not contain a delegation under s. 12 or raise any question concerning the operation of s. 13 (b) with respect to the position of the deputy commissioner under s. 170 (3) where there is disclosure to the commissioner but not to him. (at p619)

9. For the foregoing reasons I think that s. 170 (3) did preclude the making of the amendment the subject of the notice of amended assessment of 12th March 1948 and that the rebate under s. 107 was allowable at the date of the assessment it was then sought to amend. (at p619)

10. These are two questions in the case stated both of which use the present tense. To avoid misunderstanding I would use the past tense in answering both questions, in question (a) because the answer relates to the date of the amendment and in question (b) because the answer relates to the date of the assessment. I think the questions should be answered as follows:- (a) The provisions of s. 170 (3) of the Income Tax Assessment Act 1936-1947 precluded the amendment of the assessment of which notice was given by the notice of amended assessment dated 12th March 1948. (b) A rebate under s. 107 of the said Act was allowable in respect of the dividend of 2,934 pounds received by the appellant from the North Australian Pastoral Company Limited. Costs of the case stated to be dealt with by the Justice disposing of the appeal. (at p619)

McTIERNAN J. I agree with the reasons for judgment of my brother Dixon and his answers to the questions. (at p619)

WILLIAMS J. I agree with the reasons for judgment of the Chief Justice and Dixon J. In my opinion the questions asked in the case stated should be answered as proposed by Dixon J. (at p620)

WEBB J. I agree with the judgments of the Chief Justice and Dixon J. (at p620)

FULLAGAR J. In this case I agree with the judgment of my brother Dixon and I have nothing to add. (at p620)

ORDER

Questions in case stated answered:-

(a) The provisions of s. 170 (3) of the Income Tax
Assessment Act 1936-1947 precluded the amendment
of the assessment of which notice of amended
assessment was given by the notice of amended
assessment dated 12th March 1948.

(b) A rebate under s. 107 of the said Act was allowable
in respect of the dividend of 2,934 pounds received
by the appellant from the North Australian
Pastoral Company Limited.

Costs of the case stated to be dealt with by the Justice disposing of the appeal.