Lee v Federal Commissioner of Taxation [1962] HCA 35; (1962) 107 CLR 329 (26 July 1962)

HIGH COURT OF AUSTRALIA

LEE v. COMMISSIONER OF TAXATION [1962] HCA 35; (1962) 107 CLR 329

Income Tax (Cth)

High Court of Australia
Dixon C.J.(1), Taylor(1) and Menzies(1) JJ.

CATCHWORDS

Income Tax (Cth) - Assessment - Amendment - Mistake of fact - Individual return assessed on assumption that information relating to interest of taxpayer in partnership was correct - Reference made to partnership return after payment of tax on individual income - Incorrect information in individual return - Full and true disclosure made - Income Tax Assessment Act 1936-1948 (Cth), s. 170.

HEARING

Sydney, 1962, May 11; July 26. 26:7:1962
CASE STATED

DECISION

July 26.
The COURT delivered the following written judgment:-
The Board of Review dismissed the taxpayer's appeal against an amended that such amendment, having been made to correct a mistake of fact, was authorized by s. 170 (3) of the Income Tax Assessment Act. The taxpayer appealed to this Court and Kitto J. has stated a case asking whether upon the facts stated it can or must be found that the amended assessment was made to correct a mistake of fact. The Commissioner admitted upon the appeal to the Board of Review, and his Honour accordingly found, that prior to the making of the original assessment there had been a full and true disclosure of all the material facts necessary for the assessment of the taxpayer. (at p333)

2. The mistake of fact which the Commissioner contends the amended assessment was made to correct was the assumption upon which the original assessment was made that the taxpayer's individual return correctly set forth his assessable income and, in particular, that a sum of 118 pounds included therein as an item of property income described as share in the partnership of G. W. and A. M. Lee was correct. It is this sum that it now appears was incorrect because the taxpayer, having abandoned other grounds of appeal which he unsuccessfully maintained before the Board of Review, in effect acknowledges that the figure of 118 pounds should have been 1,397 pounds. It is not necessary for the purposes of this case to do more than indicate that the explanation of this understatement of assessable income was that certain partnership receipts which had been disclosed to the Commissioner by a statement which accompanied the partnership return but had not been included as income were in law income because they were premiums within the meaning of s. 83 of the Income Tax Assessment Act. (at p333)

3. On 27th January 1949 the taxpayer made his individual return which referred to the partnership return made on the same day. The taxpayer, not having received an assessment within a year from the making of a return, made a request for assessment pursuant to s. 171 of the Act and this was complied with on 6th April 1950. The individual return was dealt with in "the partner's sub-section" of the Office of the Deputy Commissioner of Taxation, New South Wales, and was dealt with as it stood and without reference to "the partnership sub-section" where the partnership return lay and where it was dealt with later. The officer of the Commissioner who was responsible for assessing the taxpayer made the assessment in accordance with instructions to assess upon the figures disclosed by the return and marked it "A.X.M." indicating that the assessor had no knowledge whether the individual interest of the taxpayer in the net income derived by the partnership had been ascertained in the partnership sub-section or of the amount of that individual interest if it had then been so ascertained and that the assessor did not refer to the return of income lodged by the partnership. The assessor also marked the taxpayer's return "A.O.F." and "review when partnership attached". The letters "A.O.F." are recognized in the Office as an abbreviation for the expression "Assess on figures" and the words "review when partnership attached" were endorsed by the assessor to indicate that the taxable income of the appellant as ascertained by him might require amendment upon the calculation of the appellant's individual interest in the net income of the partnership by the partnership sub-section. It was only when the partnership return was considered in the partnership sub-section that it was ascertained, mainly from the information supplied therewith, that the figures in the partnership return were incorrect. After some correspondence an amended assessment was issued on 18th April 1952, which was further amended on 4th January 1954 to include as the item of property income share in partnership G. W. and A. M. Lee the sum of 1,397 pounds. The taxpayer's objection, as has been already stated, was disallowed by the Board of Review by a majority on the ground, inter alia, that the amended assessment was made to correct a mistake of fact. It is the correctness of that decision that is now before the Court. (at p334)

4. Since Kitto J. stated the case now under consideration, his decision in Federal Commissioner of Taxation v. Levy [1961] HCA 92; (1960) 106 CLR 448 has been affirmed by the Full Court (1961) 106 CLR, at p 464 . Kitto J. decided (1960) 106 CLR, at p 450 that, where as a matter of policy a partner's return was dealt with without reference to the partnership return and an assessment was made upon the figures shown in that partner's return which brought into account income from the partnership after the deduction of 17,028 pounds, forgery defalcations, which upon consideration of the partnership return was disallowed, an amended assessment increasing the taxpayer's assessable income by 8,514 pounds (the partner's share of the deduction disallowed) was not made to correct a mistake of fact. Upon the appeal Owen J., with whom Dixon C.J. and Taylor J. agreed, said: "All the material facts had been disclosed to the Commissioner months before and the partnership return was being considered in the light of those facts. Without awaiting the result of that consideration, the assessor dealing with the taxpayer's return was directed to assess the tax on the figures shown in it. In other words, the Commissioner elected to treat those figures as correct knowing full well what the true facts were and that in the light of those facts the figures might not be correct. That may have been done in the mistaken belief that if those figures turned out to be incorrect the Commissioner could avail himself of s. 170, but this was not a mistake of fact and s. 170 (3) could therefore have no application" (1961) 106 CLR, at pp 470, 471 . (at p335)

5. It seems to us that Federal Commissioner of Taxation v. Levy [1961] HCA 92; (1961) 106 CLR 448 governs this case. Mr. Reynolds (for the Commissioner) sought to distinguish that decision on the footing that there, when the original assessment was made, the partnership return was already "under query", whereas here, when the taxpayer was first assessed, there was no reason to suspect the correctness of the partnership return. This, however, is too fine a distinction and to make it would confine the earlier decision within limits that were never intended. Here it seems to us that the markings made upon the taxpayer's return at the time of the assessment indicated that the Commissioner, having had the facts fully and truly disclosed to him, elected to treat the figures in the taxpayer's return as correct for the time being although aware that examination of the partnership return might show them to be incorrect. We say that the Commissioner so elected because the acts of the various officers concerned with the two returns were the acts of the Commissioner. (at p335)

6. To amend a partner's assessment so made in consequence of the ascertainment of an error in the partnership return is not to correct a mistake of fact made in the original assessment. It is more accurately described as the amendment of an assessment made provisionally in the sense that it was always intended to amend it if the examination of the partnership return should show that the taxpayer's return was incorrect. (at p336)

7. The appeal must therefore be allowed and the question in the case stated answered No. (at p336)

ORDER

Question in case stated answered No. The respondent Commissioner to pay the appellant taxpayer's costs of the case stated.