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ΠΑΓΚΥΠΡΙΟΣ ΔΙΚΗΓΟΡΙΚΟΣ ΣΥΛΛΟΓΟΣ
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(1989) 3A CLR 293
1989 February 28
[A. LOIZOU, P.]
IN THE MATTER OF ARTICLE 146 OF THE CONSTITUTION
SAVVAS IOANNOU,
Applicant,
v.
THE REPUBLIC OF CYPRUS, THROUGH THE MINISTER OF
FINANCE AND/OR ANOTHER,
Respondents.
(Case No. 388/83
Constitutional Law - Constitutionality of statutes - Presumption of constitutionality - Rebutted, if statute is proved to be unconstitutional beyond any reasonable doubt.
Constitutional Law - Taxation - Constitution, Art. 24 and 28 of the Constitution - Whether sections 2 and 54 of the Income Tax. (Amendment) Law 40/79 contrary to any of the said provisions of the Constitution - Question determined in the negative.
Taxation - Income Tax - Capital allowances - The Assessment and Collection of Taxes Laws 1978-1979 (4/78, 23/78 and 41/79) - Matters that can be taken into consideration in exercising the discretion under section 51 - The Commissioner can have regard to the conduct of the tax payer generally in connection with the discharge of his obligations under the tax laws - A tax payer who is not forthcoming in the declaration of his income and fails to keep records to substantiate the deductions he claims can hardly expect the discretion to be exercised in his favour.
Taxation - Income Tax - Interest - The Assessment and Collection of Taxes Law 1978-1979 (4/78, 23/78 and 41/79), section 42(2) - On the facts of this case the Commissioner rightly charged interest on applicant'sincome.
Taxation - Income Tax - Assessment of -Assessment raised, but not finally disposed under the provisions of the Taxes (Quantifying and Recovery) Laws 1963 as amended by Law 61/69 - The final assessment should be made under the repealing Law, i.e. the Assessment and Collection of Taxes Laws 1978-1979(4/78,23/78 and 41/79), section 59.
Recourse dismissed. No order as to
costs.
Cases referred to:
Hadjikyriacos& Sons Ltd5 R.S.C.C. 22,
Antoniades and Others v. Republic (1979) 3 C.L.R. 641,
Matsis v. Republic (1969) 3 C.L.R. 245,
Ionides v. Republic (1980)3 C.L.R. 1,
Rainbow v. Republic (l 984) 3 C.LR. 846,
Tryfonos v. Republic (1984) .3 C.L.R. 884.
Recourse.
Recourse against the income tax assessments raised on applicants for the years of assessment 1977-1979.
C A. Hadjioannou, for the Applicant.
Y. Lazarou, Counsel of the Republic B, for the Respondent.
Cur.adv. vult.
A. LOIZOU, P. read the following judgment. By the present recourse the applicant challenges the validity of the assessments for the years of assessment 1977 to 1979 (years of income 1976 to 1979) which were raised and determined by the respondent Commissioner of Income Tax, - hereinafter to be referred to as the Commissioner, - under section 20(5) of the Assessment andCollection of Taxes Laws 1978 to 1979.
Before proceeding any further I may say here that I took over on the 25th May, 1988, the hearing of this recourse from a colleague who retired.
The applicant who comes from AkakiVillage, derives income from farming, pig breeding and the running of a rural taxi service.
As provided by section 13(2)(b) of the Taxes (Quantifying and Recovery) Law 1963 (Law No. 53 of 1963) as amended by Law No. 61 of 1969 now repealed and replaced by the Assessment and Collection of Taxes Laws 1978 to 1979, the Commissioner did not accept the return of income submitted by the applicant on the 6th June, 1977, for the year 1976 declaring an income of £1008, and on the 23rd June, 1977, raised himself an assessment on £1813. The applicant through his Taxation Consultant Mr. PhanosIonides objected to this assessment in writing on the 13th July, 1977 on the wound that it was excessive.
In October 1977, the Commissioner discovered that the applicant had acquired assets in 1976 which could not be justified compared with his financial position as at 31st December 1972, which was submitted by his Taxation Consultant on the .11th April 1974, and with other information existing in. his income tax file. The Commissioner then discharged the above mentioned assessment under objection and raised an additional assessment on the 27th October 1977, assessing the applicant with an income of £7000 before deduction of special contribution, payable.
As against this assessment the applicant through his Taxation Consultant objected by his letter dated the 10th November 1977, (Appendix "B").
Following this objection the Taxation Consultant of the applicant informed the. Commissioner by letter dated the 15th November 1977 that the applicant had acquired assets to the value of £7450 and. that he claimed capital allowances.
The applicant in his return of income for the year 1976 haddeclared that no books of accounts for ascertaining his income were kept and the Commissioner by his letter dated the 27th April, 1978, requested the applicant to submit a Statement of Assets and Liabilities as at 31st December, 1976 so that he would be enable to examine both the applicant's objection to the above assessment and his liability to tax for the period 1st January 1973 to 31st December 1976.
In reply to the aforesaid letter the applicant's Taxation Consultant by his letter of the 17th May 1978, forwarded vouchers in respect of capital expenditure incurred during 1976 and informed the Commissioner that the applicant's Statement of Assets and Liabilities as at 31st December 1977 would be submitted as soon as completed. The applicant, however, failed to submit the required Statement of Assets and Liabilities as at 31st December 1976, or as at 31st December 1977.
During the ensuing period, on various dates assessments under section 13(2)(b) of the Assessment and Collection of Taxes Laws 1978 to 1979 were raised by the Commissioner for the years 1978, 1979/78 and 1979 (years of income 1977, 1978 and 1979) against which the applicant objected on grounds that they were excessive and that a Statement of Assets and Liabilities would be forwarded in the near future.
The Taxation Consultant of the applicant by his letter of the 20th November 1978 (Appendix C), objecting against the assessment for the year of assessment 1978 (year of income 1977) informed the Commissioner that the preparation of the applicant's Statement of Assets and Liabilities as at 31st December 1976, was towards the end and that it would be submitted very soon. However, such a statement was not submitted as promised, or at any subsequent date, and so the Commissioner by his letter of the 20th September 1980, required the applicant as provided by section 20(3) of the Assessment and Collection of Taxes Laws 1978 to 1979, to submit his Statement of Assets and Liabilities as at 31st December for each of the years 1974 to 1979 within one month from the 20th September 1980. The applicant again failed to comply with this demand within the stipulated time but such Statements for the years ended 31st December, 1972, 1976, 1977, 1978 and 1979 were submitted by the applicant on the 2ndMarch 1981.
The officer dealing with the income tax affairs of the applicant requested the applicant and his Taxation Consultant to call at his office on the 21st September 1981, to discuss the points arising out of the examination of the above submitted statements of Assets and Liabilities.
In response to the aforesaid request the applicant's Taxation Consultant informed him over the telephone that they would call at his office within the week following the 21st September, 1981 and produce a statement of the applicant's stocks in trade prepared upon information supplied by the applicant and in case of their failure to reach an agreement in respect of the amount of the applicant's liability to tax for the period 1st January 1974 to 31st December 1979, then the Income Tax Office could carry out its own on the spot stock taking.
Both the applicant and his Taxation Consultant failed to call at the Income Tax Office as promised and after repeated telephone calls by the examining officer they called on the 13th October 1982.
An agreement on the estimated total assessable income amounting to £23,900 for the period 1st January 1973 to 31st December 1979, was reached, but no agreement was reached on their claim for capital allowances on the ground that proper accounts to the satisfaction of the Commissioner and a computation showing the assessable object of the tax was not produced as provided by section 51 of the Assessment and Collection of Taxes Laws 1978 to 1979.
The Commissioner decided then to raise additional assessments in accordance with the total assessable income as computed and agreed between and he informed the applicant of his decision by letter dated the 24th November, 1982 together with the relevant Notices of Assessment (Exhibit 10). The applicant's Taxation Consultant by his letter of the 8th December 1982, (Exhibit 11), objected to the said assessments, claiming inter alia, that no capital allowances were granted to the applicant in respect of assets acquired by him.
On this point the following is stated in paragraph 13 of the opposition:
"The Commissioner after considering the contents of the letter (Exhibit 11), and taking into consideration the following facts and reasons, decided to offer applicant concessionally to reduce the said total assessable income of applicant amounting to £23,900 by a deduction of £4000 in lieu of capital allowances so as to relieve the applicant from "harsh treatment" as the applicant considered it:-
(a) As provided under section 51 of the Assessment and Collection of Taxes Laws 1978 to 1979 proper accounts to Respondent's Commissioner's satisfaction and computation showing the assessable object of the tax were not produced to him.
(b). Applicant had failed' to produce to the Respondent Commissioner returns of income and the required Capital Statement as at 31.12.1976 in the appropriate time which would inevitably contain, points that would have been within his immediate and exclusive knowledge which could be duly investigated by the Respondent Commissioner. Such points were the valuation and physical stock takings, living expenses, salaries paid or payable to Applicant's wife for her alleged services rendered in Applicant's business and certain capital or revenue expenditure which were not supported by documentary evidence. Had Applicant produced the required Capital Statement in the appropriate time i.e. in 1977/78 and the question of capital allowances was discussed Applicant could have decided to keep proper accounts so as to quality for the grant of capital allowances for years thereafter.
The figures stated in the Capital Statement submitted were estimated and this is evidenced owing to the fact that:-
(i) Applicant agreed to increase his valuation of the stock in trade as at 31.12.79 from £8034 to £11,030.-
(ii) The amount of £4070 claimed as salaries payable to his wife was agreed to be reduced to £2800 and
(iii) For living expenses for the period 1.1.73 to 3 1.12.79. Applicant reluctantly agreed to a sum of £9,500 always claiming that his living expenses were low."
During a meeting between the applicant and his Taxation Consultant on the one part and the Officers examining the applicant's liability to tax for the said period, on the other part, the decision to reduce the total assessable income of £23,900 by £4,000 was communicated to them and the whole case was discussed at length but no agreement was reached.
The effect of this reduction of £4000, would reduce the applicant's liability to income tax and special contribution from £4356 to £2787. The applicant's Taxation Consultant by his letter dated the 31st March, 1983 (Exhibit 12), offered to pay £1500 in full and final settlement of the applicant's liability to income tax and special contribution for the years under examination.
This offer was not accepted by the Commissioner and he decided to determine the sub-judice assessments (Exhibit 10) as raised and communicated to the applicant on the 24th November 1982. This decision was communicated to the applicant by letter dated the 13th July 1983, (Exhibit 13), together with the relevant Notices of Assessment. In fact they were those contained in his previous letter of the 24th November 1982.
Before proceeding any further it may be stated here that the Commissioner abandoned and withdrew his preliminary objection to the effect that the letter of the 13th July 1983 was of a confirmatory nature of an earlier decision and that as a result the recourse was out of time.
Section 2 of the Income Tax (Amendment) Law of 1979 (Law No. 40 of 1979) has repealed and substituted Section 6 of the Income Tax Laws 1961-1979 (Law No. 58 of 1961 as amended up to and including Law No 8 of 1979) so that the new section 6 provided as follows:-"6. Subject to the provisions of section 54, for the year of assessment 1979 and for every subsequent year of assessment, tax shall be charged, levied and collected upon the chargeable income of any person derived in that year of assessment."
The Greek text reads as follows:
"6. Τηρουμένων των διατάξεων του άρθρου 54 διά το φορολογίαν έτος 1979 και δι' έκαστον επόμενον φορολογικόν έτος επιβάλλεται και εισπράττεται φόρος επί του φορολογητέου εισοδήματος παντός προσώπου όπερ εκτήθη κατά το φορολογικόν τούτο έτος."
Section 54 of the Income Tax Laws as amended by section of the aforesaid Law No. 40 of 1979 reads as follows:-
"54. Notwithstanding the provisions of section 6 -
(a) the income of any person derived in 1978 other than from emoluments shall be subject to separate assessment for the year of assessment 1979, which shall be based on such income for the year 1978. In such cases however, the provision of section 41 of the Assessment and Collection of Taxes Laws, regarding the collection of tax shall not apply and the tax shall be payable by not more than five equal annual instalments the first instalment being payable on the 1st December, 1979;
(b) an individual who in 1978 derives income other than from emoluments and in 1979 derives income from emoluments, shall be subject to separate assessment for the year of assessment 1979 based on such incomes of 1978 and 1979, but the tax payable by such person shall consist of the part of the amount of tax which is in the same ratio to the total amount of tax as the income of such person from sources other than emoluments is to the total amount of his income:
Provided that the provisions of paragraph (a) shall not apply where any person proves to the entire satisfaction of the Commissioner that he has paid tax regularly since theyear of assessment 1941 and thereafter. In such a case and provided that that person derives in 1978 income grater than the income of 1977, such person shall be subject to separate assessment for the year of assessment 1979 based on such income of the year 1978, but the tax paid such person for the year of assessment 1978 shall be allowed as a credit against the tax so payable."
The Greek text reads as follows:
"54. Ανεξαρτήτως των διατάξεων του άρθρου 6 -
(α) το κατά το έτος 1978 κτηθέν άλλο ή εξ αποδοχών εισόδημα προσώπου τινός υπόκειται εις κεχωρισμένην φορολογίαν δια το φορολογικόν έτος 1979 βασιζομένην επί του τοιούτου εισοδήματος του έτους 1978. Εις τοιαύτας περιπτώσεις όμως η πρόνοια του άρθρου 41 των περί Βεβαιώσεως και Εισπράξεως Φόρων Νόμων, η αφορώσα εις την είσπραξιν του φόρου, δεν θα εφαρ-μόζηται, ο δε φόρος θα είναι πληρωτέος εις ουχί περισσοτέρας των πέντε ίσων ετησίων δόσεων της πρώτης δόσεως ούσης πληρωτέας την 1ην Δεκεμβρίου. 1979.
(β) φυσικόν πρόσωπον το οποίον κτάται κατά το έτος 1978εισόδημα άλλο ή εξ αποδοχών, κατά δε το έτος 1978 κτάται εισόδημα εξ αποδοχών, υπόκειται εις κεχωρισμένην φορολογίαν δια το φορολογικόν έτος 1979 βασιζομένην επί των τοιούτων εισοδημάτων του 1978 και 1979 αλλ' ο υπό του προσώπου τούτου καταβλητέος φόρος θα συνίσταται εις το μέρος του ποσού του φόρου το οποίον έχει τον αυτόν λόγον προς το ολικόν ποσόν του φόρου οίον και το ποσόν του εισοδήματος του προσώπου τούτου το προερχόμενον εκ πηγών άλλων ή εξ αποδοχών προς το ολικόν ποσόν του εισοδήματος αυτού:
Νοείται ότι εις περίπτωσιν καθ' ην πρόσωπον τι ήθελεν αποδείξει προς πλήρη ικανοποίησιν του Εφόρου ότι κατέβαλεν ανελλιπώς φόρον από του φορολογικού έτους 1941 και εντεύθεν, αι διατάξεις των παραγράφων (α) και (β) δεν εφαρμόζονται. Εν τοιαύτη περιπτώσει και εφ όσον το πρόσωπον τούτο κέκτηται κατά το έτος 1978 εισόδημα μεγαλύτερον του εισοδήματος του έτους 1977, το πρόσωπον τούτο υπόκειται εις κεχωρισμένην φορολογίαν διά το φορολογικόν έτος 1979 βασιζομένην επί του τοιούτου εισοδήματος του έτους 1978, αλλ' ο υπό του προσώπου τούτου καταβληθείς φόρος διά το φορολογικόν έτος 1978 εκπίπτεται υπό μορφήν πιστώσεων έναντι του ούτω πληρωτέου φόρου."
The effect of the above amendments was to change the basis of assessment from the preceding year basis to the current year basis. Until the enactment of Law No. 40 of 1979 on the 11th May 1979, income, other than income from emoluments, was assessed on the preceding year basis and income from emoluments was assessed on the current year basis.
The constitutionality of this method of differentiation of assessment was considered in the case of Hadjikyriacos& Sons Ltd 5 R.S.C.C. 22 and it was found that such differentiation was not arbitrary but based on reasonable considerations in view of the intrinsic nature of the two sources of income. Later, however, it was thought that another method of computing income should be followed and in 1979 Law. No. 40 of 1979 was enacted, whereby it amended section 6 of the then existing Law so that all incomes whether derived from emoluments or otherwise should be assessed on the current year basis. This, as we have seen above, was done by section 2 of Law No. 40 of 1979 which in the absence of section 15 of Law No. 40 of 1979 clearly would not give rise to question of unconstitutionality. The Problem, as it appears from the written address of learned counsel for the applicant is created by section 15 of Law No. 40 of 1979 which amended section 54 of the income Tax Laws.
The reason why the provisions of section 15 of Law No. 40 of 1979 were introduced, which provisions are merely transitional, was to cover cases so that no income would he left untaxed because otherwise incomes which were derived from sources other than emoluments would be left untaxed for the year 1978.
Learned counsel for the Commissioner has given a number of examples in order to make his point dear, which I find usefulto set out in this judgment. Suppose, he said, a person commenced business or started his profession in 1978. In 1978 he earns income but he does not pay tax despite the existence of the obligation to pay tax according to the Income Tax Laws, because until then his tax was computed on the preceding year basis. In 1979 had it not been for this amendment, he would have paid tax in 1979 on the basis of the income of 1978, but because of the enactment of this Law the basis of assessment changed and he would pay tax in 1979 on the basis of his income in 1979, thus leaving the 1978 income untaxed, but in view of section 54 the 1978 income was covered, otherwise it would not have been covered and this would actually create a discrimination between persons deriving income from the same sources.
These two incomes up to 1979 could be treated separately because of the intrinsic nature of the two sources. It seems therefore that in order to avoid discrimination between people deriving income from the same sources, this section 54 was enacted. And, it can be seen from. the proviso to section 54, that if a person commenced business in 1974 and. paid tax all along until 1978 then a different method again is used in computing his income.
In any event, by the aforesaid provisions there are not two assessments in. respect of the same year for this person who started business as early as 1941. Another example given is that of somebody who commences his business or profession in 1970. In 1971 he pays tax for 1970, in 1972 for 1971 and we come to 1978 when he pays for 1977. In 19.79 normally he should have paid for 1978 but because of the amendment of the Law by section 2 of Law No.40 of 1979 he does not pay for the income of 1978.
It is because of section 54 that such a tax payer pays tax in respect of 1978. So, it would have been discriminatory between persons deriving income from the same source had it not been for section 54. A further example as to the taxability of two persons has been given. A, who gets employment in 1978 in the Government service, and B, who commences business or starts a profession in 1978. A, who gets employment in the Government Service pays tax immediately, i.e. in 1978 and in1979. B, who started business in 1978 does not pay tax in 1978 for 1978 and pays in 1979 for 1979, so he pays only once unless the provision of section 54, as amended by section 15 of Law No. 40 of 1979 comes into play. With the above in mind it can safely be concluded that section 54 is a well balanced section to cover all these cases and it is further clear that section 15 of Law No. 40 of 1979 does not offend Article 28 of the Constitution.
On the contrary such contravention possibly would arise had this section not been enacted in that it would lead to leaving out from taxation the income of 1978 for persons who derived income otherwise than from employment.
Moreover I cannot agree with the submission of learned counsel for the applicant, that by this amendment in effect one is asked to pay tax twice in contravention of Article 24 of the Constitution as by this enactment a person is only asked to pay in the same year the taxes for two different years, i.e. for the year of income 1978 and year of income 1979, and because of that a facility for the payment of the taxes in question up to five annual instalments from the 1st December 1979 is provided by section 54(a) of the Law.
From the very provisions of section 54 as amended by section 15, it is clear that the differentiation is between sources of income and not persons which differentiation has already been decided that is not arbitrary, Hadjikyriacos (supra). (See also the case of Antoniades and Others v. The Republic (1979) 3 C.L.R. 641 at p. 655.)
In view of the presumption of constitutionality of statutes the provisions of sections 2 and 15 of Law No. 40 of 1979 are presumed to be constitutional unless the applicant proves the contrary and the standard of proof is that of beyond reasonable doubt. See Matsis v.The Republic (1969) 3 C.L.R. 245; Antoniades and Others v.The Republic (1979) 3 C.L.R. 641 at p. 655, and lonides v. The Republic (1980) 3 C.L.R. 1 at p. 8.
The provisions of section 51 of the Assessment and Collection of Taxes Laws 1978-1979 (4/78, 23/78 and 41/79)were explained in two recent decisions of this Court.(See Nina Rainbow v. The Republic (1984) 3 C.L.R. 846 at pp.850, 851;Tryfonos v.The Republic (1984) 3 C.L.R. 884 at pp. 886, 887.) In these cases it was held that the Commissioner in exercising his discretion under section 51 of the Law can have regard to the conduct of the tax-payer generally in connection with the discharge of his obligations under the Tax Laws and that a taxpayer who is less than forthcoming in the declaration of his income and fails to keep records to substantiate deductions from his taxable income can hardly expect the Commissioner to exercise his discretion under the aforesaid section in his favour.
In our case it is an admitted fact that the applicant derived income from three sources, i.e. farming, pig breeding and running of a rural taxi service, and that he did not keep proper accounts. When the applicant submitted a return for the year of assessment 1977 (year of income 1976) on the 6th June 1977, he declared only an income of £1,008.- without disclosing that he acquired assets in 1976 to the value of £7,450.-which fact was discovered by the Commissioner. Then we see that for three years the applicant was delaying to submit his statement of Assets and Liabilities despite repeated requests on behalf of the Commissioner and repeated promises by the applicant and his Taxation Consultant. But he raised the question of capital allowances after the Commissioner discovered the aforesaid acquisition of assets of £7.450,- which the applicant had a duty to disclose from the very beginning.
From the facts of the present case as outlined above, it can safely be concluded that the delay in raising and determining the sub judice assessments was due to the applicant's unreasonable default. Consequently the demand of interest under section 42(2) of the Assessment of Collection of Taxes Laws 1978-1979 was also reasonably open to the Commissioner.
Although the assessment for the year of assessment 1977 was made when, the provisions of The Taxes (Quantifying and Recovery) Laws 1963 as amended by Law No. 61 of 1969, were in force, yet it was not finally disposed of till the date when the aforesaid Laws were repealed and replaced by the Assessment and Collection of Taxes Laws 1978 to 1979. Therefore, inaccordance with the provisions of section 59 of the Assessment and Collection of Taxes Laws 1978 to 1979, particularly subsections (3) and (4) thereof, any further action in disposing finally the said assessment and collection of the tax thereon would be taken under the provisions of the Assessment and Collection of Taxes Laws, 1978 to 1979. Thus the Commissioner in accordance with the provisions of section 42(2) of the Assessment and Collection of Taxes Laws 1978 to 1979 and owing to the applicant's unreasonable default in the delay in making the assessments for the said years, demanded, and rightly so, the payment of interest at the rate of 6% per centum per annum from 1st December 1977,for the tax payable in respect of the assessment for the year of assessment 1977 and at the rate of 9% per centum per annum from 1st December 1978 and from 1st December 1979 for the: tax payable in respect of the years of assessment 1978 and 1979/78. respectively and at 9% per centum per annum from 1st July 1980 for tax payable in respect of the assessment for the year of assessment 1979 (year of income 1979).
The Commissioner's demand for interest under section 42(2) of the Assessment and Collection of Taxes Laws 1978 to 1979 does not lead to retrospective taxation as the applicant had the use of the money payable in respect of the taxes due for the years of assessment under recourse at theft respective due dates.
Before concluding it may be repeated here what is said in paragraph 22 of the Opposition:
"The 10% per centum increase of the tax assessed on the income of the year 1979 was made inadvertently by mistake and as a temporary assessment was not raised on the applicant in accordance with the provisions of Part IV of the Assessment and Collection of Taxes Laws 1978 to 1979 therefore the provisions of section 28(1) of the aforesaid part cannot be invoked in final ascertainment of the object of the tax, in the applicant's assessment for the year 1979 will be amended accordingly."
In view of all the above the recourse fails subject to the undertaking contained, in the paragraph just quoted, and ishereby dismissed. The sub judice decisions are confirmed but in the circumstances there will be no order as to costs.
Recourse dismissed. No order as to costs.