Haritopoulos Pty Ltd v Deputy Commissioner of Taxation

• Jurisdiction: Australia Federal only
• Court: Federal Court
• Judgment Date: 23 March 2007
• Neutral Citation: [2007] FCA 394

FEDERAL COURT OF AUSTRALIA

Haritopoulos Pty Ltd v Deputy Commissioner of Taxation [2007] FCA 394

TAXATION – income tax assessment – where applicant company trustee for family trust – where trust realised capital gain from the sale of real property – where respondent issued assessment and penalty assessment – where the applicant challenges the assessment and penalty assessment – where applicant claims to have provided package of information to respondent prior to assessment – where applicant claims respondent did not take information into account – where applicant lodged notice of objection with respondent – where respondent disallowed objection and upheld assessment – where applicant claims respondent failed to provide particulars of assessment and penalty assessment – where applicant claims failure to consider package of information amounted to bad faith or breach of rules of procedural fairness – where applicant makes other claims – application by respondent for summary dismissal of proceeding – whether applicant’s claims arguable – whether respondent under an obligation to accord procedural fairness before making assessment – whether breach of rules of procedural fairness a basis for relief under s 39B of Judiciary Act 1903 (Cth) in circumstances – effect of ss 175 and 177 of Income Tax Assessment Act 1936 (Cth).

Held: no obligation on respondent to provide particulars – no arguable case of bad faith – none of the matters identified in R v Hickman; Ex parte Fox and Clinton (1945) 70 CLR 598established – no basis to challenge assessment outside Hickman provisos – applicant’s other claims not arguable – application allowed – proceeding dismissed.

Federal Court of Australia Act 1976 (Cth) s 31A

Freedom of Information Act 1982 (Cth) s 15

Income Tax Assessment Act 1997 (Cth) ss 102-5, 104-10

Income Tax Assessment Act 1936 (Cth) ss 97, 99A, 101, 166, 167, 175, 177

Judiciary Act 1903 (Cth) s 39B

Taxation Administration Act 1953 (Cth) Part IVC

Australia and New Zealand Banking Group Limited v Commissioner of Taxation (2003) 137 FCR 1 cited

Briglia v Commissioner of Taxation (2000) 44 ATR 166 cited

Deputy Commissioner v Richard Walter Pty Ltd (1995) 183 CLR 168 applied

Deputy Commissioner of Taxation v Warrick (No 2) (2004) 56 ATR 371 cited

Engler v Commissioner of Taxation (No 2) (2003) 52 ATR 642 cited

General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 applied

Plaintiff S157/2002 v The Commonwealth of Australia (2003) 211 CLR 476 considered

R v Hickman; Ex parte Fox and Clinton (1945) 70 CLR 598 applied

HARITOPOULOS PTY LTD v DEPUTY COMMISSIONER OF TAXATION

SAD 54 OF 2006

BESANKO J

23 MARCH 2007

ADELAIDE

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SAD 54 OF 2006

BETWEEN:	HARITOPOULOS PTY LTD Applicant
AND:	DEPUTY COMMISSIONER OF TAXATION Respondent

JUDGE:	BESANKO J
DATE OF ORDER:	23 MARCH 2007
WHERE MADE:	ADELAIDE

THE COURT ORDERS THAT:

1. The proceeding be dismissed.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SAD 54 OF 2006

BETWEEN:	HARITOPOULOS PTY LTD Applicant
AND:	DEPUTY COMMISSIONER OF TAXATION Respondent

JUDGE:	BESANKO J
DATE:	23 MARCH 2007
PLACE:	ADELAIDE

REASONS FOR JUDGMENT

1 On 30 March 2006 Haritopoulos Pty Ltd issued an application in this Court seeking relief under s 39B of the Judiciary Act 1903 (Cth) (‘Judiciary Act’) in relation to an assessment and penalty assessment made by the Deputy Commissioner of Taxation. The relief sought includes an order which would have the effect of extending the time by which the tax assessed is to be paid, various declarations of breaches of obligations by the respondent and an injunction restraining the respondent from seeking to enforce the assessment or the penalty assessment or both.

2 On 25 May 2006 the respondent by motion sought the following orders:

‘1. Striking out the application filed by the applicant on 30 March 2006 in the herein action;

2. Alternatively, that the application be summarily dismissed.’

3 The respondent’s application is brought under O 20 r 2 of the Federal Court Rules which provides as follows:

‘(1) Where in any proceeding it appears to the Court that in relation to the proceeding generally or in relation to any claim for relief in the proceeding –

(a) no reasonable cause of action is disclosed;

(b) the proceeding is frivolous or vexatious; or

(c) the proceeding is an abuse of the process of the Court,

the Court may order the proceeding be stayed or dismissed generally or in relation to any claim for relief in the proceeding.

(2) The Court may receive evidence on the hearing of an application for an order under subrule (1).’

4 Section 31A of the Federal Court of Australia Act 1976 (Cth) is also relevant. It provides, among other things, that the Court may give judgment for a respondent against an applicant if it is satisfied that the applicant has no reasonable prospect of successfully prosecuting the proceeding. It provides that a proceeding need not be hopeless or bound to fail for it to have no reasonable prospect of success.

5 It is not necessary for me to consider the extent, if any, to which this section relaxes the well-established test enunciated in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 because I have reached the conclusion, by a reference to that test, that this proceeding must be dismissed. In my opinion, no reasonable cause of action is disclosed in the proceeding.

6 To date, the action has proceeded on affidavits (O 4 r 6). On the hearing of the respondent’s application I received affidavits filed and served on behalf of the applicant and affidavits filed and served on behalf of the respondent. I have treated the statements made by the applicant in his affidavits in a similar way to allegations in a statement of claim. In other words, on this application I have taken them to be correct. I have not attempted to resolve any disputed issues of fact, and the respondent did not suggest that it was appropriate that I do that.

The plaintiff’s case

7 I start by summarising the key allegations made by the applicant as set out in two affidavits of Mr Pantelis Charitopoulos, who is a director of the applicant. He was appointed to that position on 18 November 2005. The other directors of the applicant have been directors for a number of years. They are Mr George Charitopoulos and Ms Rosa Charitopoulos. I will refer to them as Mr Charitopoulos’ parents.

8 The applicant is the trustee of the Charitopoulos Family Trust. It filed an income tax return in respect of the year ended 30 June 2002 within the time prescribed by the respondent. It disclosed in that return that the trust made a capital gain as a result of the sale of property situated at 91 Exeter Terrace, Dudley Park, South Australia (‘the property’). The property was owned by the trust. It was acquired by the trust in 1994 and sold by it on 16 May 2002. In its return, the applicant disclosed the fact that it had made a capital gain of $4.4 million as a result of the sale of the property (s 104-10 of the Income Tax Assessment Act 1997 (Cth) (‘the 1997 Act’). The capital gain was calculated as follows:

Capital proceeds from the disposal of the property $5,900,000.00

- cost base of the property $1,500,000.00

= capital gain calculated under 104-10(4) $4,400,000.00

9 In its return the applicant made a calculation of the net capital gain for the purposes of the assessable income of the trust. It used the method set out in s 102-5 of the 1997 Act. The capital gain of $4.4 million was reduced by 50 per cent under step 3 of the method statement. The resulting figure was reduced by a further 50 per cent under Subdivision 152-C. The resulting figure was then rolled over under Subdivision 152-A. By reason of the above matters, it was said by the applicant that there was no assessable capital gain required to be included in the assessable income of the trust for the year, and the return was correctly prepared on that basis.

10 In its capacity as trustee of the trust, the applicant made a resolution that any income of the trust for the year ended 30 June 2002 would be distributed to beneficiaries of the trust.

11 Between November 2004 and November 2005 the respondent carried out an audit of the applicant’s affairs for taxation purposes. Mr Charitopoulos’ parents were involved in a group of companies known as ‘the Golden Chef Group’. Mr Charitopoulos became involved with the respondent on behalf of the group shortly prior to becoming a director of the applicant on 18 November 2005. He had a telephone conversation with Mr Zoumaras on 17 October 2005. On 20 October 2005, he met with Mr Steven Zoumaras who was a representative of the respondent so that he could deal with any outstanding compliance issues arising between the applicant and the respondent. At the meeting, Mr Charitopoulos agreed to supply to the respondent all matters that were outstanding. He was told by Mr Zoumaras that the respondent would receive the information and would issue an assessment in any event and hold any information provided in the event that the applicant lodged an objection to the notice of assessment.

12 Mr Charitopoulos sent emails to Mr Zoumaras on 26 October and 7 November 2005 respectively. In the email of 7 November 2005 he advised Mr Zoumaras that a package of information was lodged at the Australian Taxation Office at Waymouth Street on 3 November 2005. On 8 November 2005 Mr Zoumaras, on behalf of the...