Batagol v Federal Commissioner of Taxation [1963] HCA 51; (1963) 109 CLR 243 (19 November 1963)

HIGH COURT OF AUSTRALIA

BATAGOL v. FEDERAL COMMISSIONER OF TAXATION [1963] HCA 51; (1963) 109 CLR 243

Income Tax (Cth)

High Court of Australia
Kitto(1), Menzies(2) and Owen(3) JJ.

CATCHWORDS

Income Tax (Cth) - Assessment - Mistaken determination that no tax payable - Notice subsequently issued - Whether amended assessment - Income Tax and Social Services Contribution Assessment Act 1936-1956 (Cth), ss. 6 (1), 170.

HEARING

Melbourne, 1963, October 15-17;
Sydney, 1963, November 19. 19:11:1963
CASE STATED.

DECISION

November 19.
The following written judgments were delivered:
KITTO J. The appellant in June 1955 received from the respondent three payable in respect of income derived by the appellant in a year of income. The years were those which ended respectively on 30th June 1952, 30th June 1953 and 30th June 1954. In form the notices were notices of original, not amended, assessments; but the appellant says that in respect of each of the three years the Commissioner had made an earlier assessment which in the circumstances of the case he had no power to amend. (at p250)

2. What had happened earlier was this. In respect of each of the relevant years of income the appellant duly made a return showing a taxable income. He made to the Commissioner a full and true disclosure of all material facts necessary for his assessment in respect of each of those years. In the Commissioner's office the normal procedure for assessing a taxpayer such as the appellant was pursued in respect of each year, but on each occasion the officers concerned made a mistake. The appellant had made in a previous year a loss which (the case stated assumes) would have entitled him under s. 80, if that section had not contained sub-s. (4), to treat as an allowable deduction in each of the three years now in question a sum equal to the amount shown in his return as his taxable income. The assessing officers overlooked sub-s. (4), notwithstanding that facts which are said to have made it applicable had been disclosed by the appellant. Accordingly, not by any error in calculation or any mistake of fact but by a mistake of law, on each occasion they reached the conclusion that the appellant had no taxable income, recorded the conclusion on the file in a manner conforming to the practice of the office, marked the file as having been finally dealt with, and had it put away. The appellant was not informed of the conclusion in respect of either of the first two years. In the third year, however, he had suffered deductions of tax from his wages, and a cheque by way of refund was sent to him together with a "refund advice" stating that no tax was payable. (at p251)

3. The appellant takes his stand upon the undoubted fact that in respect of each of the three years of income the entire internal procedure of the Commissioner's office for dealing with a taxpayer's return was gone through, and, as the case stated says, "nothing further then remained to be done under the departmental routine and processes". He says that that being so it should be held that on each occasion an assessment was made; and on that footing he invokes the provision in s. 170(3) that 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. (at p251)

4. A difficulty in the way of the appellant's argument appears at once upon a reading of s. 170(3) itself, for according to the literal meaning of its terms it assumes that an assessment is something that imposes a liability upon the taxpayer. Indeed it goes on, after making the provision I have mentioned, to say that no such amendment shall be made after the expiration of three years from "the date upon which the tax becomes due or payable under that assessment"; and that certainly assumes that an assessment is something under which tax becomes due and payable. Relying upon these and other indications of intention in the Act the Commissioner maintains that the word "assessment" is used throughout s. 170 in a sense which makes a "nil" assessment an impossibility. (at p251)

5. The word "assessment" is defined in s. 6 to mean, unless the contrary intention appears, the ascertainment of the amount of taxable income and of the tax payable thereon. There is nothing in s. 170 to show the contrary intention. But the definition is not sufficient by itself to answer the question before us, because "ascertainment" is a word the force of which depends upon the context. It is here used in an Act under which the service of a notice of assessment is the levying of the tax. Assessment in the sense of mere calculation produces no legal effect. No step that the Commissioner may take, even to the point of satisfying himself of the amount of the taxable income and of the tax thereon, has under the Act any legal significance. But if the Commissioner, having gone through the process of calculation, serves on the taxpayer a notice that he has assessed the taxable income and the tax at specified amounts, the tax becomes by force of the Act due and payable on the date specified in the notice or (if no date is specified) on the thirtieth day after the service of the notice: s. 204. Thus, and thus only, there is brought about an "ascertainment" of the taxable income and of the tax, in the sense that thereafter it is possible to say what could not have been said before: that amounts have been fixed so that they are to be taken for all purposes (except those of appeal: see s. 177) to be the result flowing from the application of the Act in the particular case. The respective amounts of the taxable income and the tax have been rendered certain. The word "ascertainment" being understood in this sense, the definition of "assessment" means, in my opinion, the completion of the process by which the provisions of the Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case. The idea coincides with that which Isaacs J. expressed in Federal Commissioner of Taxation v. Hoffnung & Co. Ltd. (1928) 42 CLR 39 in relation to war-time profits tax when he said: "If an assessment definitive in character is made, it assumes that, so far as can there be seen, a fixed and certain sum is definitely due, neither more nor less. In short, it ascertains a precise indebtedness of the taxpayer to the Crown" (1928) 42 CLR, at p 55 On this construction of the Act nothing done in the Commissioner's office can amount to more than steps which will form part of an assessment if, but only if, they lead to and are followed by the service of a notice of assessment. (at p252)

6. When the group of sections which includes s. 170 is examined, it becomes, I think, quite clear that this is the concept which "assessment" in s. 170 is intended to express. The making of assessments by the Commissioner is the subject of provisions in ss. 166, 167, 168 and 169, and from these it is clear that assessment is a process which by force of the Act is definitive of the amount of the taxpayer's liability, though subject of course to review and appeal. Another section, s. 171, oddly enough by its very infelicity of expression shows that a notice of assessment is essential to the existence of an assessment. It speaks of "any assessment issued". Then the next section, s. 172, by describing an amendment in the taxpayer's favour as one by which his liability is reduced, emphasises the essential character of an assessment as the creation of a tax liability of specific amount. See also the proviso to s. 185. (at p252)

7. There is, it is true, a lack of harmony between the view I have expressed and the language of s. 174, which provides that as soon as conveniently may be after any assessment is made, the Commissioner shall serve notice thereof upon the person liable to pay the tax. The provision is taken from sub-s. (1) of s. 40 of the Income Tax Assessment Act 1922 (Cth). Sub-section (2) of s. 40 enacted that the omission to give any such notice should not invalidate the assessment. There was no definition of "assessment". Thus the scheme of the Act of 1922 as regards assessment was much less clearly marked than is the scheme of the present Act. It would, I think, be unsound to allow the form of words carried over into s. 174 a dominating effect on the present question. Rather is it necessary on proper principles of construction to give the section a meaning which fits the context. Accordingly it should, I think, be understood to mean that the Commissioner shall serve a notice of assessment as soon as conveniently may be after his work for the making of the assessment has been done. (at p253)

8. The next section, s. 175, though doubts have sometimes been expressed as to its application, at least shows that "assessment" is regarded as a process producing a legal effect. The provision is that the "validity" of any assessment shall not be affected by reason that any of the provisions of the Act have not been complied with. I shall not refer in detail to ss. 185 to 202 inclusive, which deal with reviews and appeals, but the language of those sections cannot, I think, be reconciled with any other view than that without a notice of assessment fixing a taxable income and a tax there is no assessment. Indeed it would be hard to find clearer indications of this then s. 170 itself provides. The topic of the section is the power of the Commissioner to amend assessments, a concept which pre-supposes that an assessment is something creating a legal obligation, so that any amendment of it must depend upon a positive grant of power to alter that obligation. Throughout the section an assessment is referred to as a specific, identifiable thing, which, unless amended (or of course affected on review or appeal), will stand as decisive of liability. To speak, as does sub-s. (1), of tax being paid in respect of the assessment, or to speak, as do sub-ss. (2)(b), (3), (4), (5) and (6), of tax having become due and payable under the assessment, would be impossible unless "assessment" meant the whole process which comes to a head in the service of a notice of assessment and thereby becomes, as a whole, an act in the law. If this be correct, it follows that until a notice of assessment has been served on the taxpayer the Commissioner and his officers neither need statutory authority to go back over any or all of the steps that have been taken in the office, and correct anything they consider to be erroneous, nor are disabled from doing so by anything in s. 170. (at p253)

9. In my opinion the proper conclusion in the present case is that in respect of the 1952, 1953 and 1954 years the Commissioner made no assessment before June 1955, and therefore had power under s. 166 to make the assessments which are the subject of this appeal. (at p254)

10. I would answer the questions in the stated case accordingly. (at p254)

MENZIES J. I agree with Kitto J. and Owen J. that the assessments in question are original and not amended assessments so that the questions asked in the case stated should be answered as they propose. I would only add that I stated the case submitted to the Court on the footing, but without deciding, that the appellant had been released from his debts by operation of the Bankruptcy Act so that s. 80, sub-s. (4), applied. (at p254)

OWEN J. This case stated by Menzies J. relates to assessments of income tax for the years ended 30th June 1952, 1953 and 1954. In his income tax return for each of those years the appellant made a full and true disclosure of all the material facts necessary for the assessment of the amount of his taxable income and of the tax payable thereon and in each year the officers of the Department whose duty it was to deal with the return concluded that no tax was payable and noted this in the departmental records. The stated case sets out in some detail the reasons which led the officers concerned to that conclusion and it is unnecessary to repeat them. (at p254)

2. Section 174 of the Act provides that as soon as conveniently may be after any assessment is made the Commissioner shall serve notice of assessment upon the person liable to pay the tax and, by s. 204, any tax assessed becomes due and payable on the date specified in the notice as the date upon which tax is due and payable, not being less than thirty days after the service of the notice or, if no date is so specified, on the thirtieth day after the service of the notice. Since no tax was thought to be payable by the appellant, no notice of assessment was required to be or was in fact issued in respect of the years 1952 and 1953. For the year ending 30th June 1954, however, the appellant's return showed that tax deductions amounting to 442 pounds 13s. 0d. had been made from his salary. The officers whose duty it was to calculate the amount of the taxable income and the tax payable thereon again reached the conclusion that no tax was payable and accordingly a "refund advice", together with a cheque for 442 pounds 13s. 0d., was sent to the taxpayer by the Commissioner in April 1955. It contained the statement that no tax was payable on the income shown in the return. In each year the decision that no tax was payable was reached and the notations to that effect in the departmental records were made after the officers concerned had "pursued and completed the normal routine and processes, both physical and mental, for the purposes of deciding whether or not there was a taxable income and tax payable for the relevant year . . . and nothing further then remained to be done under the departmental routine and processes". It was, however, later discovered that in each of the years in question the decision that no tax was payable was mistaken and that tax was payable. The amounts having been ascertained, a notice of assessment, dated 14th June 1955, was issued and served on the appellant in respect of each year and to each of these notices objection was made by him. The ground upon which the objections were taken was that the assessments of which notice had been given were in fact amended assessments; that the appellant had made full and true disclosure of all the material facts necessary for his assessment; that the Commissioner had made assessments after that disclosure and that the amendment of those assessments was not made to correct an error in calculation or a mistake of fact. In other words, the appellant relied upon s. 170 of the Act and the first question that arises is whether the completion of the calculations made by the departmental officers which resulted in the decision that no tax was payable in each of the years in question and the notations to that effect made by them in the departmental records was an "assessment" within the meaning of s. 170(3). If there was no such assessment, the appellant's objections relating to the years ending 30th June 1952 and 1953 must fail, although the objection relating to the year ending 30th June 1954 may stand upon a different footing. If what occurred on each occasion was an "assessment" within the meaning of the sub-section, further questions arise as to the nature of the mistakes made by the officers of the Department. (at p255)

3. "Assessment" is defined by s. 6(1) to mean "the ascertainment of the amount of the taxable income and of the tax payable thereon" unless the contrary intention appears, but the mere ascertainment by the Commissioner or his officers of the amount of a taxpayer's taxable income and of the tax payable thereon itself imposes no liability on the taxpayer to pay the tax so ascertained. It is merely a step towards that end. Section 174 requires written notice of the assessment to be given to the taxpayer and, under s. 204, the amount of the tax so notified becomes due and payable only after the notice has been given and the date for payment specified in it has arrived or, if no such date is specified, on the thirtieth day after service of the notice. Bearing these matters in mind, an examination of the relevant sub-sections of s. 170 seems to me to show that they are concerned only with cases in which the calculation of the amount of taxable income and the amount of tax payable thereon has been completed and, at least, the notice required by s. 174 has been given. There are, I think, two considerations which lead to this result. In the first place, the amendment of an assessment which s. 170 permits the Commissioner to make is one which either increases or reduces the taxpayer's liability and sub-sections (1) to (6) proceed upon the basis that a liability to pay tax has arisen. In the second place, sub-sections (2) to (6) set limits on the times within which the power to amend must be exercised. In cases to which sub-s. (2)(b) applies, the amendment must be made "within six years from the date upon which the tax became due and payable under the assessment" intended to be amended. In cases falling within sub-s. (3) and (4), the power must be exercised "within three years from the date upon which the tax became due and payable under the assessment" to be amended. The same limit is set where the Commissioner wishes to amend assessment under sub-s. (5). And where the taxpayer applies, under sub-s. (6), for an amendment in his assessment the Commissioner's power to grant the application and amend the assessment is limited by the requirements that the taxpayer shall make his application within three years from the date upon which the tax became due and payable under the assessment and shall, within that period, supply all information needed by the Commissioner. These provisions all show that the assessment of which s. 170(1) to (6) speak is something more than the completion inside the Taxation Department of the routines and processes necessary for the purpose of deciding whether or not in a particular case there is a taxable income and tax payable thereon. It includes the taking of all such further steps as are necessary to create a liability to pay the tax so calculated. (at p256)

4. For these reasons, therefore, the objections made by the appellant to the assessments of tax for the years 1952 and 1953, of which notice was given on 14th June 1955, must fail. In the case of the year ending 30th June 1954, the "refund advice" sent to the appellant contained a statement that no tax was payable in respect of that year. But this was not a notice of assessment: it was merely to explain why it was that the whole of the tax deductions made during the year was being refunded. Here again I think the taxpayer's objection fails since, for the reasons stated above, what occurred did not create any liability to pay tax. (at p256)

5. These conclusions do not, I think, run counter to the statement of Isaacs J. in The King v. Deputy Federal Commissioner of Taxation (S.A.); Ex parte Hooper [1926] HCA 3; (1926) 37 C.L.R. 368 that "An 'assessment' is not a piece of paper: it is an official act or operation; it is the Commissioner's ascertainment, on consideration of all relevant circumstances . . . of the amount of tax chargeable to a given taxpayer. When he has completed his ascertainment of the amount, he sends by post a notification thereof called 'a notice of assessment' . . . But neither the paper sent nor the notification it gives is the 'assessment'. That is and remains the act or operation of the Commissioner" (1926) 37 CLR, at p 373 The distinction which his Honour drew is, of course, a valid one but the present case is concerned with the use of the word "assessment" not in its defined sense but as conveying the meaning that every necessary step has been taken to create a debt due and payable by the taxpayer to the Crown. This was the view taken by Thurlow J. in the Exchequer Court of Canada in Scott v. The Minister of National Revenue (1961) Exch CR 120 After referring to the passage from the judgment of Isaacs J. set out above, he went on: "But it does not, in my opinion, follow from the foregoing that the giving of a notice of assessment is not itself part of the fixation operation or procedure which is compendiously referred to in the statute as an 'assessment', or if the giving of notice is not strictly part of the assessment itself that the assessment itself is complete until the notice has been effectively given" (1961) Exch CR, at pp 131, 132 With that statement I agree and in these circumstances it is unnecessary to consider the further questions which arise only if it be held that the assessments of which notices were given on 14th June 1955 were in truth amended assessments. (at p257)

6. In my opinion the questions asked should be answered as follows:

1. (a)No. (b)No. 2. (a)No. (b)No. (c)No. 3. (a)Yes.
(b)Yes. (c)Yes. (at p257)

ORDER

Questions in the case stated answered as follows:

1. (a) No.
(b) No.
2. (a) No.
(b) No.
(c) No.
3. (a) Yes.
(b) Yes.
(c) Yes.

Order that the costs of the case stated be costs in the appeal.