RCI Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2009] FCA 910

FEDERAL COURT OF AUSTRALIA

RCI Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2009] FCA 910

RCI PTY LTD v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

NSD 1336 of 2007

STONE J

19 AUGUST 2009

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION NSD 1336 of 2007

BETWEEN: RCI PTY LTD

Applicant

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Respondent

JUDGE: STONE J

DATE OF ORDER: 19 AUGUST 2009

WHERE MADE: SYDNEY

THE COURT ORDERS THAT:

1. The applicant be relieved from the production of each of the documents identified in the table in paragraph 27 of the affidavit of Michael Andrew Clough sworn on 26 February 2009 on the ground that the documents are subject to legal professional privilege. 2. The notice of motion filed by the applicant on 27 February 2009 be otherwise dismissed. 3. The respondent pay the applicant's costs of and in relation to the notice of motion. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

general division NSD 1336 of 2007

BETWEEN: RCI PTY LTD

Applicant

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Respondent

JUDGE: STONE J

DATE: 19 AUGUST 2009

PLACE: SYDNEY

REASONS FOR JUDGMENT

Background 1 The substantive application in this proceeding concerns an amended assessment issued by the respondent, the Commissioner of Taxation, dated 21 March 2006 in respect of the income tax year ending 31 March 1999. The amended assessment was based on the Commissioner's determination under s 177F(1) of the Income Tax Assessment Act 1936 (Cth) (1936 Act) that, by operation of Pt IVA, the amount of $478,237,746 should have been included in the assessable income of the applicant, RCI Pty Ltd, for the year of income ended 31 March 1999. The Commissioner also assessed RCI as liable to pay additional tax by way of penalty in the amount of $43,041,397. The applicant's objection to the amended assessment was disallowed on 30 May 2007. At issue in the substantive proceeding is whether Pt IVA of the 1936 Act supports theamended assessment; whether the penalty is properly payable pursuant to the 1936 Act and, if so, whether the Commissioner acted contrary to law in exercising his discretion not to remit the penalty. 2 At all relevant times prior to 31 March 2003, ABN 60 Pty Ltd, then known as James Hardie Industries Ltd, was the ultimate parent company of the James Hardie Group of companies and of the applicant. From 31 March 2003 the applicant's ultimate parent company has been James Hardie Industries NV, a Netherlands company. ABN 60 is not a member of the James Hardie Industries NV group and is not a party to this proceeding. 3 The dispute arises from RCI's transfer of its shares in James Hardie (Holdings) Inc to another member of the James Hardie Group. The transfer was part of a proposed reorganisation of the corporate group known as "Project Chelsea" which eventually did not proceed. The Commissioner contends that the sale price of the shares was depressed as a result of a dividend of almost half a billion dollars that RCI received shortly before the sale. The dividend was exempt from Australian income tax. The Commissioner contends that these transactions were part of a "scheme" to which Pt IVA of the 1936 Act applies.