LIMITED DISTRIBUTION CATCHWORDS TAXATION ~- Income tax - Appeal from Administrative Appeals Tribunal arising out of operation of Taxation (Unpaid Company Tax) Assessment Act 1982 - Application for adjournment of directions hearing - Claim of oppression arising out of uncertain interrelation of Income Tax Assessment Act 1936 and Taxation (Unpaid Company Tax) Assessment Act 1982 - Threat of Commissioner to issue assessment under s.260, regardless of outcome of instant appeal - Whether hearing of appeal should be stayed pending determination of question whether assessment will be issued in reliance on s.260 - Application refused. Income Tax Assessment Act 1936 s.260 Taxation (Unpaid Company Tax) Assessment Act 1982 s.15 NSW G.407 of 1986 CRIPPS & JONES HOLDINGS PTY LIMITED v_ COMMISSIONER. OF TAXATION —_—_— NSS sss. Wr he ms RECEIVED 1TéNGY fds FEBERAL Sauat 62 IRN i PAR? A, Hearse Ay ee 097 ff Te z S sol Wilcox J Sydney 29 October 1986 ee pe a TTT Ua aaar ie we Sp ee) ae ene gow ee ee L ar 2 ers, eis be LIMITED DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION BETWEEN: AND: No. G.407 of 1986 CRIPPS & JONES HOLDINGS PTY LIMITED Applicant COMMISSIONER OF TAXATION CORAM : WILCOX J PLACE: SYDNEY DATE: 29 OCTOBER 1986 MINUTES OF ORDER THE COURT ORDERS THAT: Respondent 1. The Notice of Motion be dismissed. 2. The applicant pay the respondent's costs of the motion. Note; Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. ree crea ee tee r GENERAL DIVISION LIMITED DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY No. G.407 of 1986 ~~ PTY LIMITED Applicant é COMMISSIONER OF TAXATION Respondent CORAM: WILCOX J PLACE: SYDNEY DATE: 29 OCTOBER 1986 EXTEMPORE REASONS FOR JUDGMENT On 19 September 1986, the applicant, Cripps & Jones Holdings Pty Limited filed in this Court a Notice of Appeal against a decision given by the Administrative Appeals Tribunal in relation to certain objections to taxation assessments. The relevant assessments were issued against two = BETWEEN: CRIPPS & JONES HOLDINGS ' wae leat tet Bae biter ie i oF ens eee, . _— companies, Mainbar Pty Limited and_Shiprock Pty Limited, which were at one time substantially owned by Cripps & Jones. The assessments related to the taxation year ended 30 June 1974, and included assessments both to company tax and to Division 7 tax. It appears to be common ground, at least for the purposes of this application, that, in or about May 1974, the present applicant and the other shareholders in Mainbar and in Shiprock sold all of the issued shares to a third party. At some later stage the two companies ceased to exist. They were, eventually, struck off the register of companies. Apparently no tax assessments in relation to the year ended June 1974 were issued at about the time of the liability arising; this, presumably, was because of the change in control of the companies and their ceasing to be operated. The present proceedings arise only because of the enactment of the Taxation (Unpaid Company Tax) Assessment Act 1982. But for the enactment of that legislation, there would be no point in the Commissioner pursuing the question of the liability of Mainbar and Shiprock in respect of the year ended June 1974, and there would be no way in which any relevant assessments could be served. fo tree ne arene a pte Droree 't ae pee ee epee @ wy wee mew see ye ee gee anes = ee ~ae However, the Commissioner has taken advantage of the 1982 Act to serve upon Cripps & Jones the relevant notices of assessment. Pursuant to the rights given to it by that legislation, Cripps & Jones objected to the assessments but the objections failed before the Tribunal; hence the appeal to this Court. The present application is brought on Notice of Motion filed by Cripps & Jones. The application seeks an "adjournment of the directions hearing in respect of the appeal until the first directions hearing in April 1987. The basis of the application is that it is said that it would be oppressive to require Cripps & Jones to proceed with the hearing of its appeal at this stage, having regard to the likelihood that the Commissioner will, in any event and regardless of the outcome of this appeal, issue an assessment against the company pursuant to s.260 of the Income Tax Assessment Act 1936. In support of that case reference is made to various press releases which have been issued by the Commissioner of Taxation over the last year or so in which the Commissioner speaks of his intention to issue s.260 assessments in cases such as the present one. It appears from the press releases that the Commissioner has received legal advice that, in circumstances such as these, the vendors of shares are or may be liable to pay tax; s.260 operating to render void as against the Commissioner the sales of the shares. The Commissioner's confidence in that decision aes appears to_have strengthened over the last twelve months, no -~— doubt as a result of decisions which have been given in the High Court during that period. The current position -~- I am informed -- is that there are pending in the courts some 27 cases in which the Commissioner has issued notices of assessment relying upon s.260. One of these appeals was recently heard by Lee J in the Supreme Court of New South Wales and decision has been reserved. Two other appeals are listed for hearing next March. No doubt the other appeals will be heard in due course, unless they are disposed of by agreement in the meantime. The submission put on behalf of the present applicant is that, if it turns out as a result of the current litigation in relation to s.260 that Cripps & Jones is liable to pay tax pursuant to the 1936 Act by reason of the application to the transaction of s.260, the amount involved in the current appeal is likely to be quite small. According to the calculations of counsel for the applicant, the amount for which his client would be liable pursuant to an assessment against it under the Taxation (Unpaid Company Tax) Assessment Act as a vendor of the shares would be $16,804. He calculates that the amount which the company would be liable to pay under the 1936 Act, and by the application to the case of s.260 of that Act, would be $11,881. He points out that, if the company is likely to be an TY Pa erm pres Spe ne Sr er ng me wr fixed with liability under the later Act, there is a question whether it is worth its while to spend further money in an endeavour to rid itself of liability under the former Act. The situation referred to by counsel is clouded by the fact that no information is yet available as to the means by, or the extent to, which the government will ensure against double liability for taxation. This matter is referred to in a number of the press releases and it seems to be accepted by the Commissioner that something would have to be done to avoid a situation in which s.260 notices, if I may call them that, are issued which pay no regard to tax already paid by vendor shareholders under the Taxation (Unpaid Company Tax) Assessment Act. The suggestion which emerges from the press releases is that some steps will be taken, presumably} by way of legislation, to allow the Commissioner to give a ckedit in the assessment made under the 1936 Act, relying on s.260, for any tax already paid by the vendor under the taxation' (Unpaid Company Tax) Assessment Act. However, as I have said, the details have not yet been worked out. In the present case, if counsel's estimates are correct ~- and there seems to be no serious challenge in principle, although counsel for the Commissioner has not assented to the actual figures -- the amount payable under the Taxation (Unpaid Company Tax) Assessment Act is greater than that which would be paid if there were liability pursuant to . a ee _ in ° s.260. The application of a principle against doubling up would therefore seem to involve the result that the Commissioner would not issue any assessment under the 1936 Act, in reliance on s.260, or, if he did, that he would issue a nil assessment. At this stage it is quite uncertain when the pending s.260 cases will be finally resolved. It seems likely that there will be appeals in relation to some or all of them. It may be expected that there will be considerable delay before the situation is finally clarified. In essence, the application put to the Court is that the present applicant should not have to make up its mind whether to proceed with its appeal until it is able to resolve its possible liability under $-260.— It may be a couple of years before that situation is reached. ; I am of the opinion that the application for an adjournment of the matter should be refused. I am not without some sympathy for the dilemma of the applicant in not knowing at this stage how the matter of s.260 will be resolved; but it seems to me that its liability under each of the two taxation Acts is a separate liability which has to be separately addressed. wen ae 2 te? Oe ew me er ees eee : : ; sens oot ne Seer pee we oe —_ If the assessments which have been issued against Mainbar and Shiprock are valid assessments, and that is the matter which is presently before this Court, then that is merely a first step in recovery by the Commissioner of Taxation pursuant to the Taxation (Unpaid Company Tax) Assessment Act from Cripps & Jones. If the assessments were upheld but the tax were not paid, the next_step, as I understand the scheme of the Act, would be for the Commissioner to issue assessments against Cripps & Jones and the other shareholders for what is called in the Act "vendors recoupment tax". Cripps & Jones would have its usual right to object against such assessments; although it could not, of course, recontest the liability of Mainbar and Shiprock to pay tax under the 1936 Act. If, for any reason, the Commissioner failed to recover tax against the vendors, then -- it would seem -- he could move against the promoters. However, none of those steps can be taken until the current litigation is disposed of and, contrary to the submissions put on behalf of the applicant, there is prejudice caused to the Commissioner, and beyond him the revenue, in being postponed from taking the steps envisaged by the Taxation (Unpaid Company Tax) Assessment Act. I bear in mind that the tax has not been paid. It is true, as counsel says, that interest accrues at the rate of 20% per annum, which is a high rate, but the Commissioner has an interest in actually collecting the tax. I think that a very extensive deferment operates to prejudice a his carrying out that task. ~~ scm. "Ss Tat meeyree pre oe eee amc tes Dard wt y a agne ney eee eee -mee— Serpe coe . In any event, as it seems to me, the resolution of the s.260 question does not resolve the proceedings which are before the Court. The merits of the current appeal have not been investigated, but its merits are quite independent of the question whether s.260 operates in the way suggested by the Commissioner in his recent press releases. Essentially, the case put by the applicant is that an adjournment would be beneficial to it in order to allow it to make a commercial judgment as to whether it would be better to prosecute, or to abandon, the present appeal. I can understand the applicant not wishing to expose itself to unnecessary legal costs for what is a relatively small amount of tax liability but I think that, in this case as in many others, the applicant as a litigant has to make up its own mind about the prospects of other action being taken, and its liability under some other provision, and make a judgment as to whether or not it should pursue the current litigation. It is not uncommon for litigants to have to make judgments about the desirability of pursuing a particular course, which judgments involve a question as to whether or not some other party will take a particular step, and, if so, with what result. I do not think there is anything exceptional about the present case which requires the Court, as a matter of fairness to the applicant, to allow the appeal to remain on foot but unprosecuted for what may turn out to be a significant period of time. more mire: eet yg ie are see een wos se a a, Srna ene aap a oy oa "6 >. n an * eo em pTarrinoeys Fe so an va -- --4ee The applicant will have to consider the current situation, including the liability which it would face under s.260 and the likelihood that the promise to prevent double taxation will be honoured and any other relevant matters, and make up its mind whether it wishes to pursue the appeal. Having regard to the time of the year, it is unlikely that the "appeal would, in any event, be heard until after the Christmas vacation but I think that it is appropriate for directions to be made to ensure that it can be brought on for hearing fairly soon after that time. Consequently, I refuse the orders sought in the Notice of Motion. I certify this and the eight (8) preceding pages to be a true copy of the Reasons for Judgment of his Honour Mr Justice Wilcox. : > os Associate: a a arte Lite CP? Co - Date: 7 November 1986 Counsel for the Applicant: Solicitors for the Applicant: Counsel for the Respondent: Solicitors for the Respondent: Date of hearing: Mr J W Durack Momsen Eager & Co Mr S Gibb Australian Government Solicitor 29 October 1986 wt wee ne nr eee ae teenie oe