Commissioner of Income Tax v. Rodger.
Present: Drieberg J. and Barber AJF.COMMISSIONER OF INCOME TAX t>. RODGER.
D. C. (Inty.) Colombo No. 105/1933 Special.
Income tax—Assessment of income—Change of employer but not employ-ment—Meaning of words “Commence an employment"—OrdinanceNo. 2 of 1932, s. 11 (4).
Where a person goes over to a new employer within a year precedingthe year of assessment but continues in the same kind of employment,he does not “ commence to carry on an employment" within the meaningof section 11 (4) of the Income Tax Ordinance.
ASE stated under the provisions of section 74 of the Income Tax
Ordinance of 1932 regarding the assessment of the income of theassessee for the year April 1, 1932, to March 31, 1933. The assessee,an accountant by profession, was employed by Brown & Company,on a salary of Rs. 400 per month from April 1, 1931, to February 28,1932. On March 1, 1932, he joined Walker & Greig, also as accountanton a salary of Rs. 650 a month. His income was assessed at Rs. 7,800.The question submitted was whether the assessee in entering the serviceof Walker & Greig on March 1, commenced an employment on thatdate so as to bring him within the provisions of section 11 (4) of theIncome Tax Ordinance.
L. M. D. de Silva, K.C.} S.-G. (with him Wendt, C.C.), for appellant.—Thequestion is whether the respondent ceased one employment and commencedanother within section 11 (4). It is necessary to examine the objectwhich section 11 was intended to achieve. Section 11 (1) sets out thegeneral rule. The tax is to be paid on the income of the year beforethe year of assessment. The ideal method of assessment is the actualincome earned during the year of assessment. That is not possible.Therefore the preceding year is made the test. But in certain specified-instances an attempt is made to approximate as closely as possible the!income of the year of assessment. Sub-section (6), for example, providesfor cases where a person ceases an employment during the year of assess-ment. The income for the preceding year is not considered but theactual income for the year of assessment is taxed.
[Drieberg J.—If in the same employment his salary was raisedhe would be taxed on the total income for the year ?]
[Drieberg J.—But if he changes his employer he is taxed uponanother basis ?]
Yes. The question for decision is whether the section applies onlyto cases where a person commences a business on employment in Ceylonfor the first time or whether it is applicable to cases where a personchanges an employer but continues in the same kind of employment.To determine what an employment is, one has to consider the object
DRIEBERG * J.—Commissioner of Income Tax v. Rodger.
of the section. The word ‘employment’ in England is used in anentirely different meaning, and English decisions will not be of any help.The words of the Ordinance are “ Commence to carry on an employment ”,not “ Commence employment * Employment' can be used merelyto indicate that a person is doing something, e.g., section 114 of theCriminal Procedure Code uses the word in that 'sense. The word 1 an ’takes it out of that sense in the Income Tax Ordinance. An employerfrom the point of view of ‘an’ employment is an essential ingredient.If you change employers you change an. employment. If the word isused in this specific sense then the respondent has changed his employ-ment. Suppose the respondent had been dismissed by his employer.Could it not be said that his employment had ceased ? Then if he wassubsequently re-employed would he not commence an employment?The only other change possible is a change in the nature of the employ*'ment. But they are both equally essential ingredients in the definitionof an employment.
[Barber J.—Does not the word ‘ Commence ’ mean * first engagesin’?]
No. It is true that when a man first engages in he commences. Butthat is not exhaustive. A re-commencement is also a commencement.When a man has ceased activity altogether and starts again hecommences.
Respondent in person.—My business is that of an accountant andnothing else. There cannot be a change of employment without achange in the nature of the employment. Take the case of a proctor.If a proctor practising in Kandy desides to come to Colombo, it cannotbe said that he had changed his profession. My position is preciselysimilar. There has been only a change of employers. The employmentis the same. There is no difference for example between paying a feefor an audit and employment on a monthly salary. The method ofremuneration is immaterial. Chartered Accountants are often employedby a number of firms to do their work regularly. If they are employedby another business firm they do not commence an employment. If thelegislature wanted to indicate that the test was the change of employers,it could easily have done so. There can be a change in the nature of theemployment without a change of employers.1
Solicitor-General, in reply, referred to Selden v. JohnsonAugust 28, 1933. Drieberg J.—
This is a case stated by the Board of Review under the provisions ofsection 74 of the Income Tax .Ordinance of 1932. The question isregarding the assessment of the income of the assessee for the year fromApril 1, 1932, to March 31, 1933. He is an Associate of the CharteredInstitute of Secretaries and an accountant by profession and in theyear preceding the year of assessment he was employed from April 1,1931, to February 28, 1932, by Brown & Company, Limited, asaccountant on a salary of Rs. 400 a month; on March 1, he joinedWalker & Greig, Limited, as accountant on a salary of Rs. 650 a month.
> (1932) Tax Cases 12G.2 (1932) 1 K. B. 739.
DRD5BERG J.—Commissioner of Income Tax v. Rodger.
Brown & Company, Limited, and Walker & Greig, Limited, are notconnected concerns but are independent companies. His income wasassessed at Rs. 7,800, that is, on the basis of a monthly salary of Rs. 650.It was contended by the Income Tax Commissioner that in takingservice under Walker & Greig, Limited, he had commenced an employ-ment within a year preceding the year of assessment, that is on March1, 1932, and that as provided by-section 11 (4) of the Ordinance, hisstatutory income for the year of assessment was his profits for one yearfrom that date and that he was liable to pay on an income of Rs. 7,800.The assessee contended that his statutory income for the year of assess-ment was the income actually received by him during the precedingyear; this amounted to Rs..5,050, eleven months’ salary under Brown& Company at Rs. 400 a month and one month’s salary under Walker& Greig, Limited, at Rs. 650. The Board of Review held in favour ofthe assessee and annulled the assessment under section 11 (4). At therequest of the Commissioner the Board have stated a case which isshortly this—Did the assessee in entering the service of Walker &Greig, Limited, on March 1, 1932, commence an employment in Ceylonon that day so as to bring him within the provisions of section 11 (4) ofthe Ordinance ?
Sub-section (4) of section 11 is one of several exceptions to the generalmanner of assessment laid down in sub-section (1) and it is necessaryto consider the basis of assessment.
Section 11 (1) enacts that “ Save as provided in this section, thestatutory income of every person for each year of assessment from eachsource of his profits and income in respect of which tax is charged bythis Ordinance shall be the full amount of the profits or income whichwas derived by him or arose or accrued to his benefit from such sourceduring the year preceding the year of assessment, notwithstanding thathe may have ceased to possess such source or that such source mayhave ceased to produce income. ”
We have two years to consider. The year of assessment “and thepreceding year ”. A person is not taxed on the income of the precedingyear as such but on his income for the year of assessment, and by anarbitrary rule his income for the preceding year is accepted as his incomefor the year of assessment: you do not tax the income of the precedingyear but you tax the income of the year of assessment and measurethat income by that of the preceding year.
There are exceptions to this mode of assessment; provision is madein sub-section (6) for a cessation of income, occurring during the year ofassessment or during the preceding year, where it is due to the assesseeceasing to carry on a trade, business, profession, vocation, or employ-ment in Ceylon ; sub-sections (7) and (8) deal with incomes, from sourcesother than those stated in sub-section (6), of persons who become residentor cease to be resident on a day within the year of assessment or on a>day within the preceding year. Sub-section (9) provides for death withinthe year of assessment, and sub-section (10) deals with the assessment ofincome where a person receives a capital sum from the estate of a deceasedperson within a year of assessment.
DRIEBERG J.—Commissioner of Income Tea: t). RodQer.
I have mentioned these exceptions before referring to those dealt within sub-sections (3) and (4) which deal with incomes from a certain sourceand which begin at a certain stated point of time. These are incomesderived from..a “trade, business, profession, vocation, or employment inCeylon" which a person has “commenced to carry on or exercise”on a day within a year of assessment (sub-section (3)), or on a day withinthe year preceding a year of assessment (sub-section (4) ). The Income TaxCommissioner claims that the case falls within sub-section (4) which isas follows:—“ “Where on a day within the year preceding a year ofassessment any person whether resident or non-resident has commencedto carry on or exercise a trade, business, profession, vocation, or employ-ment in Ceylon, or, being a resident person, elsewhere, his statutoryinc'ome therefrom for that year of assessment shall be the amount of theprofits for one year from such day. ” If the assessee when he entered theservice of W/alker & Greig, Limited, commenced an employment withinthe meaning of this sub-section, then his statutory income for the yearof assessment commencing on April 1, 1932, would be the profits, whichis another word for income, for one year from March 1, 1932, at the rateof Rs. 650 a month. The Commissioner contends that this is so, whilethe assessee says that he did not commence an employment when heentered the service of Walker & Greig, Limited, but that he did sowhen he first began to practice the profession or calling of an accountant.
The decision depends on the meaning of the word employment in thissub-section. According to ordinary usage it may mean that on whicha person is employed and is synonymous with business or occupation ;it is also used to indicate a particular contract of service under a particularmaster.
In the English Income Tax Act the word is used in both senses.Schedule D deals with “The annual profits or gains arising or accruingfrom any trade, profession, employment, or vocation”, and Schedule Edeals with the incomes of persons “having or exercising an office oremployment of profit”. The distinction in the use of the word employ-ment was explained by Rowlatt J. in Davies v. Braithwaite The wordas used in Schedule D means the way in which a man employs himself,and in Schedule E it means something analogous to an office. We areasked to apply the latter meaning to the word in sub-section (4).
Little help can be obtained by considering the meaning given to theword in other statutes, and, as I have said, acccording to ordinary usageboth meanings are possible. The learned Solicitor-General pointed outthe reasonableness of the construction he contended for. He said thatif the assessee had taken employment under Walker & Greig, Limited,not on a higher but on a reduced salary, let us say of Rs. 200 a month,he would have been assessed on a statutory income of Rs. 2,400, thoughthe income actually received by him during the preceding year wouldhave been Rs. 4,600. While I agree with him that there is nothingunfair or unreasonable if the assessment is made on that basis, I do notthink that is the right construction of this sub-section. There can beno question when a person commences to carry on or exercise a trade,business, profession, or vocation; in the case of a doctor, for example,
» (1931) 2 K. B. 634.
DRIEBERG J.—Commissioner of Income Tax v. Rodger.
it would be the time when he first treats patients. It is contended,however, that a person may begin to practice a profession and later,while continuing to do so, “ commence an employment ” in the senseof an office of profit; for example, a doctor might follow his professionprivately and while doing so accept a salaried office as a doctor, fiecan rightly be said to Commence an employment when he accepts thatpost. But I do not think the word ‘employment’ is here used in thatsense to indicate a particular contract of service but that it refers tooccupations other than trades, businesses, professions, or vocations. Theassessee must be regarded as having commenced an employment as anaccountant not when he took an appointment as such under Walker& Greig, Limited, but when he first began to do the work of an accountanttaking remuneration for his services, and this he had begun to do beforethe year preceding the year of assessment.
The members of the Board of Review were of opinion that section11 (4) only applied to the case of persons who had come out to Ceylonand commenced employment in Ceylon, for the first time, within theyear preceding the year of assessment. This is not correct, for thesection deals with the commencement of employment by a person, whetherresident in Ceylon or not.
This sub-section and sub-section (3), which deals with commencementon a day within the year of assessment, provide for trades and otheractivities, regarded as sources of income, when they “first sail withinthe ambit of the Income Tax Act, ” to use the words of Rowlatt J. inFry (H. M. Inspector of Taxes) v. Burma Corporation, Limited.1
Sub-section (5) deals with the same source of income as sub-sections(3) and (4) and provides that, where the “commencement” was withintwo years preceding the year of assessment, the Commissioner, onapplication made to him within twelve months of the year of assessment,shall reduce the assessment to the actual income earned during theyear of assessment. It appears to me that this is based on a recognitionof the fact that the stability of incomes from such sources cannot beassumed and that the income of the preceding year is not as safe asan estimate of that of the year of assessment as in the case of occupationsfollowed for a longer period before the year of assessment. I do notthink this sub-section was intended to apply to persons who have for along period been engaged on an occupation of a certain nature but who,within two years of the year of assessment, had a variation in income ongoing over to a new employer.
The assessment by the Board of Review of the assessee’s income forthe year 1932—1933 on the basis of his income for the year preceding theyear of assessment is confirmed.
I make no order regarding costs.
Barber A.J.—I agree.
115 Tax Cases 113 at page 118.