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31 Jul 08 High Court allows Commissioner's "double counting" appeal - Futuris

The High Court (Gummow, Kirby, Hayne, Heydon and Crennan JJ) has allowed the Commissioner's appeal against the decision of the Full Federal Court, (Heerey, Stone and Edmonds JJ), which upheld the taxpayer's appeal from the decision of Finn J, who had dismissed an application made by the taxpayer (Futuris) under s 39B of the Judiciary Act 1903 (Cth) that an amended assessment issued by the Commissioner in pursuance of Part IVA was invalid and ought to be quashed.

As a result of a Part IVA determination, a (second) amended assessment was issued by the Commissioner that included an amount that had previously been included in the taxpayer's assessable income by an earlier amended assessment. The Commissioner was aware of the "double counting" when he issued the assessment. However, assuming that the Part IVA assessment was ultimately upheld in objection and appeal proceedings, the Commissioner took the view that the "double counting" could be corrected by a compensating adjustment under s 177F(3) ITAA 1936.

In upholding the taxpayer's appeal, the Full Federal Court had made a declaration as to the invalidity of the second amended assessment. It held that the Commissioner had deliberately issued the second amended assessment, knowing that it represented an application of the law to facts which were untrue.

The High Court held that the Commissioner did not fall into "jurisdictional error" by issuing the second amended assessment. In the joint judgment of Gummow, Hayne, Heydon and Crennan JJ, the following is said at para 45 of the Commissioner's powers generally (leaving aside questions of lack of bona fides on the part of the Commissioner):

"In the process of the making of the Second Amended Assessment errors by the Commissioner of this nature (if indeed there were errors) fell within the scope of s 175 ['The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with']. They could not found a complaint of jurisdictional error attracting the exercise of jurisdiction to issue constitutional writs which is conferred by s 75(v) of the Constitution on this Court and by s 39B of the Judiciary Act upon the Federal Court. If there were errors they occurred within, not beyond, the exercise of the powers of assessment given by the Act to the Commissioner and would be for consideration in the Pt IVC proceedings."

As to the assertions that the Commissioner's actions were "deliberately done by the Commissioner", and that he had "applied provisions of the Act to facts which he knew to be untrue", the joint judgment dismissed the assertions, stating that there was no failure of due administration with respect to the issue of the second amended assessment. The course of action taken by the Commissioner was one that he was entitled to believe was open to him. The joint judgment said, at para 59:

"That s 177F(3) might be differently construed in a subsequent Pt IVC proceeding (and the allowing of this appeal leaves open that possibility in the pending Pt IVC litigation in the Federal Court) does not support any conclusion that the Commissioner engaged in 'double counting' with any knowledge or belief that there was a failure in compliance with the provisions of the Act."

Although not necessary for the decision, the joint judgment also commented on the relationship between s 175 and s 177(1) of ITAA 1936: FCT v Futuris Corporation Limited [2008] HCA 32 (High Court; Gummow, Kirby, Hayne, Heydon and Crennan JJ; 31 July 2008).

For a copy of the decision, go here

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