RAMAUNV.COMMISSIONER OF INLAND REVENUECOURT OF APPEAL
WIJETUNGA J. AND ANANDACOOMARASWAMY J.
A. NOS. 891/83 AND 892/83
C. COLOMBO NO. U740/TAX AND14726/TAX
Income Tax — Inland Revenue Act No, 4 of 1963. Ss. 49 and 111(1) — Liabilityof wife to pay taxes imposed on her deceased husband—Defaulter.
The executor of a deceased person's estate is chargeable with tax with whichsuch deceased person would be chargeable if he were alive; but for such liabilityto arise the executor should be charged with tax qua executor. A defaulter is aperson who having been duly assessed as being ‘chargeable with tax' hasomitted to pay such tax on or before the due date. The petitioner was not adefaulter as she had not been assessed. She was not liable therefore to pay herlate husband's taxes although she had admitted liability in court and even paidthree instalments.
Mohamed Hamza v. Commissioner of Inland Revenue CA 454/81 — C. AMinutes of 29.1.88 not followed.
Cases referred to
Philip v. Commissioner of Inland Revenue. Sri Kantha's Law Reports Vol. 1P. 133
M.Ede Silva v. The Commissioner of Income Tax 53 NLR 280
Mohamed Hamza v. Commissioner of Inland Revenue C. A. 454/81 C. AMinutes of 29.1.88
APPLICATIONS in revision of order of the District Court of Colombo.
Stanley Fernando for petitioner.
K. Sripavan, State Counsel, for respondent.
Cur. adv, vult.
August 25; 1988WUETUNQA.J.
In each of these applications, the petitioner seeks to set asidethe order made by the learned District Judge imposing the tax
due as a fine and in default, a term of six months simpleimprisonment. The certificates in respect of unpaid taxes werefiled under Section 111(1} of the Inland Revenue Act No. 4 of1963 on the basis that the petitioner had defaulted in thepayment of the said sums payable as taxes on behalf of her latehusband. Having appeared in court, the petitioner hadcommenced payment in instalments of Rs. 250/- in each casefrom 4.10.82. Three such payments had been made, thoughthere had been no admission of liability. Then, on 15.6.83(apparently with a change of Judge) the petitioner had admittedliability and the amounts due on the said certificates had beenimposed as fines, with default sentences as aforesaid. Monthlyinstalments of Rs. 1000/- and Rs. 2000/- respectively had alsobeen ordered. It is at this stage that the present applications havebeen filed in this court. The petitioner avers that the admission ofliability by her was per incuriam. that she is not liable to pay herlate husband’s taxes as no assets of her late husband had comeinto her hands, that she was not assessed in terms of Section 49(iiQ (a) of the Inland Revenue Act. No. 4 of 1963 and that she isnot a tax defaulter. The recovery procedure laid down in Section111 of the Inland Revenue Act, she submits, is not applicable toher.
Learned Counsel for the petitioner submits that noassessments had been issued on her qua executrix and thatSection 111 of the Act permits only 'defaulters’ to show causewhy further proceedings for the recovery of tax should not betaken. Section 49 of the Act, he submits, does not imposevicarious liability on an executrix unless she has first beencharged with tax, which has not been done in the instant cases.
Learned State Counsel, however, submits tthat proceedingshad rightly been taken under Section 1 1 and* that'the executrixis liable under Section 49 to pay the taxes payable by thedeceased person and that the petitioner came within thedefinition of 'executor' in Section 129 of the Act.
Counsel for the petitioner relies on the case of Philip v.Commissioner of Intend Revenue, (1) where the petitioner whowas described in the certificate as the principal officer of a limited
liability Company was held not to be a defaulter, as it was theCompany and not he who had been assessed to tax and it wasfurther held that the court had no jurisdiction to proceed againsthim under Section 111 of the Act. In that case, the court dealtwith Section 90 of the Inland Revenue Act which reads asfollows:— 'The Secretary, manager or other principal officer ofevery company or body of persons corporate or unincorporateshall be answerable for doing all such acts, matters or things asare required to be done under the provisions of this Act by suchcompany or body of persons:
Provided that any person to whom a notice has been given underthe provisions of this Act on behalf of a company or body ofpersons shall be deemed to be the principal officer thereofunless he proves that he has no connection with the company orbody of persons or that some other person resident in Ceylon isthe principal officer thereof."
He also cited the case of M. £ de Silva v. the Commissioner ofIncome Tax, (2) where income tax due from a limited liabilityCompany was in default and the Commssionec of Income Tax.purporting to initiate proceedings under Section 30 of theIncome Tax Ordinance, sought to recover, the tax from theManaging Director of the .Company and not from the Companyitself and it was held:—
that the certificate issued by the Commissioner of IncomeTax did not preclude the Managing Director from takingobjection that he was not the 'defaulter' within themeaning of Section 80 of the Income Tax Ordinance. Adefaulter, for the purpose of Section 80. is a person whohaving been duly assessed under Section 64 as being'chargeable with -tax', has omitted, in contravention ofSection 76, to pay such tax on or before the datespecified in the notice of assessment served on him asthe person so chargeable, and
that the provisions of Section 62 of the Income TaxOrdinance do not make the principal officer of a Companychargeable out of his personal assets with income taxlevied on the Company's assessable income.
However, in that case, Gratiaen, J. dealing with the words "fordoing all such acts, matters and things as would be required tobe done under the provisions of the Ordinance by an individualacting in such capacity" in Section 61(1) went on to make thefollowing observations at page 284; “I regard it as significant andindeed conclusive that, notwithstanding this provision, it wasconsidered necessary to add express words in other parts of theOrdinance imposing vicarious 'Chargeability' on trustees,executors and partners, whereas no such special provision hadbeen made in the case of the principal officer of a limited liabilityCompany in respect of tax for which the Company is primarilyliable." As similar provision has been made in Section 49 of theInland .Revenue Act. these observations are applicable tp thatSection and indicate that vicarious ’chargeability' has therebybeen imposed on an executor. Thus, the position of an executoris not the same as that of a principal officer of a Company inregard to chargeability'. Unlike the principal officer of aCompany, the executor is 'chargeable' with tax with which suchdeceased person would be chargeable if he were alive, subject tothe provisions of that Section. But. the matter does not end there.For proceedings to be initiated under Section 111 of the Act. theexecutor should also be a defaulter'. Gratiaen. J. in M. £. de Silvav. The Commissioner of Income Tax. (supra) dealing with asimilar provision under the earlier Income Tax Ordinance
expresses the opinion that "a defaulteris a person who.
having being duly assessed …. as being ‘chargeable with tax,'has omitted …. to pay such tax on or before the date specifiedin the notice of assessment served on him as the person sochargeable." I would respectfully adopt these words for thepurposes of the instant cases. Applying this definition, could it besaid that the petitioner in these cases is a defaulter?
Learned State Counsel relied on the case of Mohamed Hamzav. Commissioner of Inland Revenue. (3) where it was held byRamanathan. J. that the administrator of the estate of thedeceased steps into the shoes of the deceased and is madechargeable with tax and that the words of Section 49 are of wideimport and are sufficient to impose liability on the petitionerdespite the fact that he was not duly assessed.' With greatrespect. I am unable to agree with this view. The executor of adeceased person is no doubt chargeable with tax with whichsuch deceased person would be chargeable if he were alive. But,in my opinion, for such liability to arise, the executor should firstbe charged with tax qua executor. In this connection it isimportant to bear in mind that the provisos to that Section placecertain limitations in regard to penal liability, assessability. aswell as the quantum of liability of an executor. Once again, theobservations of Gratiaen. J. in De Silva's case (supra) becomerelevant. Having set down the successive stages contemplated bythe Income Tax Ordinance in the assessment and recovery ofincome tax, he states that "no person can or should be exposedto the drastic penalties provided by Section 80 unless and untilhe has previously received a notice of.assessment charging himwith liability which, if disputed, could have been challenged inappropriate proceedings under the Ordinance." This judgmentwas cited with approval by G. P. S. de Silva, J. in Philip v.Commissioner of Inland Revenue (supra) when he held that thepetitioner in that case was not a defaulter as it was the Companyand not the petitioner who had been assessed to tax.
In the instant cases, the certificates filed in the District Court inrespect of unpaid taxes do not even indicate the capacity inwhich tjie petitioner is sought to be made liable, other thanstating that the amounts were 'payable as taxes on behalf of lateMr. D. William.’ Nor do the affidavits filed by the Commissioner-General of Inland Revenue in this court disclose that thepetitioner had. at any stage prior to proceedings being initiatedagainst her as a 'defaulter', been charged with tax. Thoughundoubtedly the petitioner comes within the definition of'executor' in Section 129 of the Act. that by itself does not makeher a 'defaulter' in respect of whom proceedings could havebeen taken by the Commissioner General for recovery underSection 111 of the Act. The court would not have jurisdiction toproceed against her for recovery of tax due from the deceasedperson, unless it is established that she is a 'defaulter' within themeaning of that Section. 'Chargeability' with tax does notnecessarily result in liability to pay such tax. against whom proceedings could have been initiated underSection H 1 of the Act. Consequently, the orders made by thelearned District Judge cannot be sustained in law.
Ranjit Wijemarme v. Commissioner of Income Tax. Ceylon TaxCases. Volume 1 page 437 is sufficient precedent for this courtto act in the exercise of its revisionary powers in circumstancessuch as these.
RAMALIN V. COMMISSIONER OF INLAND REVENUE