066-NLR-NLR-V-64-A.-H.-V.-MOHAMED-Appellant-and-COMMISSIONER-OF-INLAND-REVENUE-Respondent.pdf
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TAMBIAH, J.—Mohamad v. Commissioner of Inland Revenue
1962Present: Tambiah, J., and Herat, J.
A. H. V. MOHAMED, Appellant, and COMMISSIONER OF INI/ANT)
REVENUE, Respondent
S. C. 5(1901—Income Tax Appeal BRA 294
Income' tax—Entertainment expenses incurred by employees in connection with a•business—Right of proprietor to claim deduction—Income Tax Ordinance
. (Cap. 242), as amended by Act No. 13 of 1950, s. la (ab).
When the income of a business is assessed for purposes of taxation, section12 (ab) of the Income Tax Ordinance, as amondod by Act No. 13 of 1959,does not debar the proprietor of the business from claiming, as deductibleexpenses, monies spent by his employees on entertainment in connection withtho business.
Case stated under section 74 of the Income Tax Ordinance.
S. Nadesan, Q.G., with Desmond Fernando, for the assessee-appellant.
A. G. Alias, Solicitor-General, with H. L. de Silva, Crown Counsel,for the respondent.
Cur. adv. vult.
October 12, 1962. Tambiah, J.—
This is a case stated under section 74 of the Income Tax Ordinance(Cap. 242, as amended by Act No. 13 of 1959), in which the opinion ofthis Court is sought on the question whether the proprietor of a businesscould claim, as deductible expenses, monies spent by his employees onentertainment in connection with his business in assessing the incomeof the business for purposes of taxation.
The facts, set out in the case stated, are as follows :The assessee,
who is carrying on a partnership business with two others as wholesaledealers in textiles, appealed against the assessment for the years 1958-1959and 1959-1960, and claimed the sums of Rupees 2,110 and Rupees2,853 (being moneys spent on the entertainment of customers) asexpenses incurred in the production of income during these respectiveyears. Refreshments were purchased for customers both by thepartners of the business as well as by the salesmen employed inthe business. The money required for the purchase of these refresh-ments on each occasion was obtained by the partners or- by thesalesmen, as the occasion demanded, from the cashier and these sumswere subsequently debited to the account of the business. The em-ployees were given a free hand in the selection of customers for thepurpose of serving refreshments.
TAMBIAH, J.—Mohamed v. Commissioner of Inland Revenue
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There is agreement between the assessor and the assessee on thefollowing matters :
Seventy-five per cent, of the total expenditure for entertainmentwas incurred by the salesmen and twenty-five per cent, by the partners.
Twenty-five per cent, of entertainment expenses incurred by thepartners were not deductible expenses after the amending Act No. 13of 1959.
The salesmen, who had provided the refreshments, were notexecutive officers within the meaning of section 2 of the amendingAct (No. 13 of 1959).
The opinion of this court is sought in respect of the seventy-five percent, of the expenses incurred by the salesmen.
Under the Income Tax Ordinance (Cap. 242), before the amendingAct No. 13 of 1959 came into force, all expenses incurred in enter-tainment, on the facts of the instant case, would have been deductibleexpenses incurred in the production of income (vide section 12 ofCap. 242). The rights of an assessee to claim certain expenses spent onentertainment and travelling, as permissible deductions, were consider-ably curbed by the Income Tax (Amendment) Act (No. 13 of 1959).
Mr. S. Nadcsan Q.C., who appeared for the assessee, urged that theLegislature, by introducing the amending Act (No. 13 of 1959), neverintended to interfere with small scale entertainment provided by businessmen through their employees, such as offering aerated waters, etc., totheir prospective customers. It is a well-known fact that owners oftextile businesses often serve aerated waters to their prospective customers.Indeed, such a benevolent gesture not only quenches the thirst of theprospective customers but also induces them to buy some articles ofclothing as a matter of moral obligation. Mr. Nadesan urged that sucha practice would not only be conducive to an increase in income forbusinessmen but also enables the revenue department to reap a richerharvest by way of taxes. Be that as it may, the intention of the Legisla-ture has to be ascertained on the wording of the statute itself wheresuch wording is clear and unambiguous (vide Sussex Peerage Claim1',accepted by the Judicial Committee in Cargo ex Argos 2).
The relevant provisions of the amended Income Tax Ordinance (Cap.242, as amended by Act No. 13 of 1959), read as follows :
“ 12. For the purpose of ascertaining the profits or income of anyperson from any source no deduction shall be allowed in respect of—
{ah) the following for any year of assessment commencing on orafter April 1, 1958 :—
expenses incurred in connection with employment other thanthe expenses referred to in section 9 (i) (A);
1 (1844) 11 Cl. <b F. 85, 143 ; 6 St. Tr, (N. S.) 79.
• (1872) Is. R. 5 P.C. 134, 153.
402TAMBIAH, J.—Mohamed v. Commissioner of Inland Revenue
any travelling expenditure in excess of two thousand rupeesa year incurred in connection with any trade, business,profession or vocation carried on or exercised by such personother than any such expenditure so incurred by an employee ofsuch person who is not an executive officer ;
entertainment expenses incurred by such person in connectionwith any trade, business, or profession or vocation carriedon or exercised by him ;
entertainment expenses incurred by an executive officer ofsuch person in connection with a trade,' business, professionor vocation carried on or exercised by such person ;
entertainment or travelling allowance paid by such personto his executive officer.”
Mr. Nadesan contended that the intention of the Legislature in passingthe amending Act was to minimise some of the abuses of the assesseesand their executives, who entertained people lavishly and became globe-trotters, under the guise of travelling in connection with their .trade orbusiness, and then claiming large sums as deductible expenses inassessing their income for purposes of taxation.
The learned Solicitor-General, appearing for the respondent, submitted,on the other hand, that the seventy-five per cent, of the expenses incurredby the salesmen in providing refreshments would really come undersection 12 (ab) (iii) of the amending Act and that this sub-section em-braces all forms of entertainment not only by a proprietor but also by anexecutive officer and an employee. The learned Solicitor-General invitedthis Court to hold that section 12 (ab) (iv) and (v) were enacted out ofabundance of caution, as sub-section (iii) of the same section was wideenough to bring within its ambit the subsequent two sub-sections.
Although the word * incurred ’ has been used in section 12 (ab) (i) insomewhat of a wider sense, nevertheless the same word is used in a restric-tive sense in sub-section (iii) to mean entertainment expenses incurredonly by the proprietor of a business. It is not possible for us to give theword * incurred’, as it occurs in sub-section (iii), a wider meaning toinclude entertainment expenses incurred not only by the proprietor butalso by his executives and his employees, for the reason that specificprovisions have been made regarding entertainment expenses incurredby the proprietors in sub-section (iii) and executives in sub-section (iv).If the contention of the learned Solicitor-General is to be accepted, thenthere was no necessity for the Legislature to have enacted sub-sections
and (v) abovementioned. It is a cardinal rule of construction that,wherever possible, the words of an Act of Parliament must be construedso as to give a sensible meaning to them (vide per Bowen L.J. in Curtisv. Stovin 2). There is a presumption against the Legislature using surpluswords in a statute. The reasons urged by the learned Solicitor-Generalare not adequate for us to depart from this presumption and his argumentmust therefore fail.
1 [1889) 22 Q. B. D..512, 517. '
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TAMBIAH, J.—Mohamed v. Commissioner of Inland Revenue
Section 12 (ab) (ii) of the amended Income Tax Ordinance (supra)allows only the sum of Rupees two thousand-as travelling expenses tohe deducted as expenses incurred in the production of income of a tradeoV business. Sub-sections (in) and (iv) impose absolute prohibitions onany entertainment expenses which may be incurred by the proprietor oran executive in connection with the trade or business ; sub-section (v)debars a proprietor from paying his executive officer any travelling orentertainment allowance. No restrictions, however, have been placedon the travelling or entertainment expenses, which may be incurredby an employee in connection with the trade or business.
. I • 1..
‘ The learned Solicitor-General also contended that Mr. Nadesan’sargument is based on the maxim “ expressio unius exclusio alterius ”.Citing the observations of Lopes J., in Colquhoun v. Brooks*, the learnedSolicitor-General pointed out that while this maxim is a good master,it has proved to be a bad servant and should therefore be cautiouslyapplied. Mr. Nadesan’s argument, in our opinion, is not based on thismaxim. Mr. Nadesan contended that where a taxing statute changesthe ^aw, and introduces certain restrictions, it must be strictly construedand the restricting statute must only be allowed to operate to the extentto, which it applies and no further.
i
Express and unambiguous language is absolutely indispensable instatutes passed for the purpose of imposing a tax (vide Craies on StatuteLaw (5th Ed.) (1952) by Sir Charles Odgers p. 106), for such a statute isalways strictly construed (vide Maxwell on Interpretation of Statutes,{9th Ed.), (1946) by- Sir Gilbert Jackson p. 126). In a taxing statute,therefore, if two constructions are possible, one in favour of the assesseeand the other in favour of the assessor, the Court must adopt thatconstruction which is favourable to the assessee.
We hold that the word ‘ incurred ’ in section 12 (ab) (iii) of the amendedIncome Tax Ordinance (supra) does not cover the entertainment expensesincurred by the employees of the assessee in the instant case. Such afinding, no doubt, opens the floodgate to many malpractices, but that isa matter for the Legislature to remedy. Courts of law cannot arrogateto themselves the functions of the Legislature.
For these reasons, we are of opinion that the assessee is entitled todeduct as permissible deductions, the expenses incurred by his employeesin entertaining the customers under section 12 of the amended IncomeTax Ordinance (supra), for the years of assessment 1958-1959 and1959:::1960, respectively. The respondent must pay costs fixed at Rs. 105to the appellant.
!'H- I ' ■
Herat; J.—I agree.
Appeal allowed.
••«t •*
•* (1888) 21 Q. B. PI 52 at 55.