Commissioner General of Internal Revenue v Bougainville Copper Limited (2009) N3857

• Jurisdiction: Papua New Guinea
• Judge: Lay J
• Judgment Date: 13 August 2009
• Court: National Court
• Citation: (2009) N3857
• Docket Number: WS1344 of 2007
• Year: 2009
• Judgement Number: N3857

Full Title: WS1344 of 2007; Commissioner General of Internal Revenue v Bougainville Copper Limited (2009) N3857

National Court: Lay J

Judgment Delivered: 13 August 2009

N3857

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

WS1344 of 2007

BETWEEN

COMMISSIONER GENERAL OF INTERNAL REVENUE

Plaintiff

AND

BOUGAINVILLE COPPER LIMITED

Respondent

Waigani: Lay J

2008: 10th & 11th September

2009: 13th August

CIVIL - Income Tax Act - application for summary judgment to enforce Notices of Assessment - whether particular defences available to resist judgment.

Facts

The defendant operated a copper mine on Bougainville which closed due to the war there. From 1990 and for the next 13 years the defendant filed tax returns based on the concept that it was still the owner of the mine assets and it claimed a deduction from taxable income of depreciation and of capital expenditure on assets held at the mine in reserve for production. The result was, on the calculation of the self-assessment contained in the defendant's tax returns, no tax was payable for those years. In 2002 the plaintiff conducted an audit and thereafter maintained that all of the assets of the defendant were lost in 1990. The plaintiff issued assessments on the basis that the defendant could claim loss of the assets for 7 years (Income Tax Act Section 101) and thereafter any remaining balance of the loss could not be offset against income. Some of the tax due as shown in the assessments was recovered by way of section 272 notices. The plaintiff sued for summary judgement for the balance being K42, 564,175 and additional tax of 20% on K17,902, 395. The defendant has resisted judgement on the basis that it has defences which ought to go to trial. Alternatively the defendant argued that if judgement was entered it was entitled to a stay of judgement pending appeal.

Held

1. The only basis on which an enforcement of a tax assessment can be stayed or restrained is restricted to cases of the Commissioner General of Internal Revenue abusing his discretion or making an assessment in bad faith and or where the enforcement would result in great personal hardship to the taxpayer;

2. The observation of Kirby J in the Australian High Court case of Commissioner of Taxation v Futuris Corporation Ltd (2008) HCA 32 at [126] is not authority for the proposition that the categories of case which would render an assessment not an assessment, is not closed;

3. Although "bad faith" may be, but is not always, "harsh and oppressive" within the meaning of section 41 of the Constitution, not every harsh and oppressive situation will amount to "bad faith";

4. In the absence of pleading of "bad faith" and supporting evidence, the following defences are not available to resist an application for summary judgement by the plaintiff;

a) that sections 260 and 361 of the Income Tax Assessment Act are unconstitutional;

b) that clause 6.2 of the Facility Agreement signed between the defendant and the State has the effect that BCL could not be rendered liable for taxation until mining operations resumed after the war;

c) that the assessments are in breach of the Bougainville, Agreement;

d) that the assessments issued by the plaintiff constitute " amended" assessments;

5. The words in the Facility Agreement " and any other liabilities determined by reference to that tax (the 1989 tax)" cannot include all taxable years after 1989 because the liability to taxation for a year of income is determined primarily by reference to the taxable income of that year, and not by reference to the tax liability or income from a prior year;

6. Taxation Adjustment Sheets cannot be characterised as assessments because they are provisional in nature and make no reference to the amount of tax due or the due date for payment;

7. until assessments within the meaning of the law are issued and served, the Commissioner General is entitled to review of all or any of the steps taken in his office in relation to the return of income and correct anything considered erroneous;

8. A "nil" assessment is not an assessment within the meaning of the Income Tax Act because there is no date upon which the tax became due and payable;

9. Where the only purpose of raising estoppel is to attack the correctness of an assessment, it cannot be argued to resist summary judgement because to do so would be to give no effect to the conclusiveness of the assessment pursuant to section 232 of the Income Tax Act;

10. Bad faith on the part of the Commissioner General is the only basis on which a stay of judgement to enforce taxation assessments might be granted;

PNG Cases Cited

William Duma v Eric Meier (2007) SC898; PGSC 34

Chief Collector of Taxes v Bougainville Copper Ltd (2/2/07) SC853

The Commissioner General of Internal Revenue and Chief Collector of Taxes v Bougainville Copper Ltd (2008) SC 920; [2008] PGSC 13

OS No. 79 of 2004 Bougainville Copper Ltd v Chief Collector of Taxes, unpublished unreported decision of 29 April 2005 Salika J

Kenn Norae Mondiai & anor v Wawoi Guavi Timbers (PNG) Ltd & Ors (2007) SC886

McHardy v Prosec Security & Communications Ltd [2000] PNGLR 279

Overseas Cases Cited

Home and Overseas Insurance Code Ltd v Mentor Insurance Co (UK) Ltd [1983] 3 All ER 74

Swain v Hillman & Anor [1999] EWCA Crim 2251

F. J. Bloeman Pty. Ltd v Federal Commissioner for Taxation [1981] HCA 27

Commissioner of Taxation v Futuris Corporation Limited (2008) HCA 32

Marjancevic v Mann [2008] FCAFC 161

Thai v DCT [1994] FCA 1287

Batagol v The Commissioner of Taxation of the Commonwealth of Australia (1963) 109 CLR 243

Federal Commissioner of Taxation v Ryan 2000 ATC 4079, 74A LJR 47

Ellison v Deputy Commissioner of Taxation [1997] WASCA 5

Federal Commissioner of Taxation v Wade (1990) 168 CLR 620

Wilson v Austral Motors [1983] 2 QdR 774

BBLT Pty Ltd & Ors v Chief Commissioner of State Revenue (NSW) [2003] NSWSC 1003

Federal Commissioner of Taxation v Winters & Anor 97 ATC 4967

Commonwealth v Verweyen (1990) 170 CLR 394

Mochkin v Deputy Commissioner of Taxation [2000] FCA 1503

References

Income Tax Act

Mining (Bougainville Copper Agreement) Act

National Court Rules

Counsel

N.M.Cooke, with M.M. Varitimos & K. Frank, for the plaintiff

J.A. Griffin, with D.H. Katter & N. Pitoi, for the defendant

13th August, 2009

1. LAY J: The Commissioner General of Internal Revenue (“Commissioner General”) has applied for summary judgment pursuant to National Court Rules O12 r38 for the outstanding balance of income tax assessments raised against Bougainville Copper Ltd ("BCL"), which amounts to in excess of K42,564,175.58 and 20% additional tax from 9 September 2008 calculated on K17,902,395.50.

2. BCL opposes the application and has cross applied for a stay of the judgment if I enter judgment against it.

3. The Defendant BCL operated a copper mine on Bougainville, which due to the war on Bougainville, closed, and BCL lost control of the physical assets of the mine in 1990. BCL has a sum of money (from insurance payments and other sources) which has been invested and has earned income after 1990.

4. In each of the years from 1990 up to 2005 BCL submitted tax returns on the basis that it was still the owner of the mine assets and in which it claimed as a deduction from its income, a sum for depreciation and capital expenditure from capital assets at the mine held in reserve for production; resulting in BCL's contention that there was no taxable income for each of those years. In 1997 the Commissioner General's office issued Income Tax Adjustment Sheets showing "no change" to the self-assessment of the tax due and payable contained in the tax returns submitted by BCL.

5. The Commissioner General conducted an audit in 2002 and thereafter contended that BCL was not entitled to claim depreciation and capital expenditure each year. After the audit the Commissioner General has maintained that the assets were all lost in 1990. The Commissioner General has assessed BCL’s taxation obligations on the basis that BCL could claim the total loss in 1990 and the loss could be carried forward for seven years (Income-Tax Act ("ITA") s101, before it was amended to provide that losses can be carried forward for 20 years) offsetting the loss against income, and any remaining balance of the 1990 loss after 1997 would not be available as a deduction from income. Notices of Assessment were issued in 2003 on that basis.

6. The Commissioner General issued assessments for the years 1999 to 2001 and BCL’s appeals from those assessments...