C. A. SPELDEWINDE (Commissioner of Income Tax ), Appellant, and J. L. D. PEIRIS

051-NLR-NLR-V-59-C.-A.-SPELDEWINDE-Commissioner-of-Income-Tax-Appellant-and-J.-L.-D.-PEIRIS-.pdf

31 it. T,. 3f. X>. DE SILVA.—Spehlcwinde v. Pciris
193
[Is tub .Privy Council.]
1957 Present:Earl Jowitt, Lord Radcliffe, Lord Tucker, Lord Denning
and Mr. L. M. D. de Silva
A. SPELDEWINDE (Commissioner of Income Tax), Appellant,and J. L. E. PETRIS (Executor of the Estate of the lateMrs. N. C. Peiris), Respondent
Pricy Council Appeal No. 20 of 1000
S. C. 27—Case, staled under Section 74 of the Income Tax' Ordinance
Income Tux Ordinance (Cap. 1SS)—Death of person carrying on a business—Assess-ment of his statutory income—Applicability oj Section 11 (£>)—Sections 5 (1)'(a) (b), 6 (1) (a), 11 (1), 11 (2), 11 (G), 11 (9).'
When a person -who carries on a business dies, section 11 (G) (b) of thoIncome Tax Ordinance is applicable for tho purpose of computing thostatutory incomo of tho deceased for the year of assessment preceding that in■u ln'ch he dies.
A’c
^APPEAL from a judgment of the Supreme Court reportedin oS X. L. P. 4.-
John Settler, Q.C., with Sir Reginald Hills, for the Commissionerof Income Tax, appellant.
‘ Roy Borneman, Q.C., with H. Major Allen, for the assesseerespondent.
.Cur. ado. vult.
October 2, 1957.[Delivered by Mr. L. jM. D. de Silva]—
Under section 5 of the Income Tax Ordinance of Ceylon (Cap. 1SSLegislative Enactments of Ceylon) “ a 3-ear of assessment ” commenceson the 1st of April each 3rear and ends on the 31st of March of thesubsequent 3-ear. The tax pa3-able for any year of assessment is computedon the income of the preceding 3*ear of assessment subject to the pro-visions of later sections which, in particular cases, prescribe anotherperiod. “Income”, “profits” and “ profits and income” are eachdefined to mean the same thing…
Section 5 reads — _ – –
, “ 5.(1) Income tax shall, subject to the provisions of this Ordinance
aiid- notwithstanding anything contained in any other written lawor in any convention, grant, or agreement, be charged at the rate orrates specified/ hereinafter or fixed by resolution under section 20A, -9-lix
2J. X. B 992—1,593 (1/58}
1DX
MR. X.. M. I>. DE SILVA—Spcldetcindc v. Pciris
for the year of assessment commencing on the first day of Aprilnineteen hundred and thirty-two, and for each subsequent year. of assessment in respect of the profits and income of every personfor tho year preceding the year of assessment—.
wherever arising, in the case of a person resident in Ceylon,
and'.'-
arising in or derived from Ceylon, in the case of every other
person,'
hut without prejudice to any provisions of this Ordinance whichenact that tax is to be charged in particular cases in respect of theprofits and income of a period other than tho year preceding the year ofassessment
The Ordinance in Chapter IV makes provision for the “ Ascertainmentof Statutory Income ”, in Chapter V provides for the ascertainment of“Assessable Income” from “Statutory Income”, and in Chapter VIprovides for the ascertainment of “ Taxable Income ” from “AssessableIncome On Taxable Income tax is levied at the appropriate rate.
It is not necessary for the purposes of this case to consider the stepsby which the amount of taxable income is ultimately ascertained ; it issufficient to note that the amount of the taxable income depends in eachcase upon the amount of the statutory income.
Section G provides
G. (1) For the purposes of this Ordinance, ‘profits and income’or ‘ profits ’ or ' income ’ means—
(a) the profits front any trade, business, profession, or vocationfor however short a period carried on or exercised.
The other provisions of the section are not relevant to this case.
The respondent is the executor of a Mrs. 2f. C. Pen is who had carriedon an agricultural business and had died on the 23rd October, 1951. Thequestion for decision in the ease is whether the appellant, the Com-missioner of Income Tax, has correctly determined the statutory incomeof the respondent for the year 1950/51.
Subsections 1 and 2 of Section 11 are to the following effect—
11.—(1) Save as provided in this section, the statutory income ofevery yierson for each year of assessment from each source of hisprofits and income in respect of which tax is charged by thisOrdinance shall be the full amount of the profits or-income whichwas derived by him or arose or accrued to his benefit from suchsource during the year preceding the year of assessment, notwith-standing that he may have ceased to possess such source or thatsuch source may have ceased to produce income.
MB. L. M. T>. DE SILVA—Speldewinde v. Petris
■ 195
It will be seen that under this subsection the statutory income of aperson for any year of assessment is based upon his income for thepreceding year. Other subsections of section 11 provide that in particularcases the basis is to be the income of specified periods other than thepreceding year..-
Subsection 2 of Section 11 is. one of such subsections and is to thefollowing effect—
" (2) Where the Commissioner is satisfied that any person usuallymakes.up the accounts of a trade, business, profession, vocation oremplojunent carried on or exercised by him to*some day other thanthe thirty-first day of March, he may direct that the statutory incomefrom that source be computed on the amount of the profits of the3-ear ending on that day in the jcar preceding the year of assess-ment …”
An order was made by the appellant under this subsection but as itmakes no difference to the matters which arise for consideration it willnot be referred to further.
The appellant contends that on the death of Mrs. Peiris she ceased tocarry on her business within the meaning of subsection 6 of Secton 11which is another of the subsections providing a period other than thatprescribed by subsection 1. It is to the following effect—
“ Where a person whether resident or non-resident ceases to carryon or exercise a trade, business, profession, vocation, or employmentin Ceylon, or, being a resident person, elsewhere, his statutory incometherefrom shall be—
(«) as regards the year of assessment in which the cessation• occurs, the amount of the profits of the period beginning on thefirst day of April in that year and ending on the date of cessation ;and
as regards the year of assessment preceding that in whichthe cessation occurs, the amount of the statutory income as com-puted in accordance until the foregoing subsections, or the amountof the profits of such year, whichever is the greater,
and lie shall not be deemed to derive statutory income from suchtrade, business, profession, vocation, or employment for the year ofassessment following that in which the cessation occurs *
There is a proviso to the subsection which has no bearing on this case.
Por the year of assessment 1950/51 the appellant has assessed therespondent under subsection 6 (b) on the income of the year 1950-51 as ’this income was greater than the income for the year 1949/50.
The respondent contends that subsection 6 has no application to a caseof death and that the consequences of death are covered by subsection 9which is to the following effect—■-’ – .
Where any person dies on a day within a year of assessment, hisstatutory income for such year shall be the amount of profits and
19G
JIR. 11. M. D. DE SILVA—Spcldewinde r. Peiris
income of tlic period beginning on the first day of April in thatyear and ending on that day, and the profits and income arisingfrom his estate from such day to the end of the year of assessmentshall be statutory income of his executor for that year of assessment, •and for the following year of assessment the statutory income ofhis executor from the estate shall be the profits and income of oneyear from that day'
Subsection 9 makes no special provision (as subsection G does) for theyear preceding the year of assessment in which a person dies and, if therespondent is right, the assessment for 1950/51 would, as he contends, beon the income for the year preceding the year of assessment namely1040/50.■.
Their Lordships have had some difficulty in deciding which of thesecontentions should be upheld. The respondent contends that the words“ person ceases to cany on a business ” (to be found among others insubsection G) would he language unusual, if not inappropriate, to describean occasion where a cessation of business is caused by death. Thisargument has some weight. But in their Lordships’ opinion it mustgive way to the consideration that a person on death undoubtedly ceasesto carry on business. Tt was said in the case of Hunter v. Deichurst1that “you cannot vacate an office better than by dying in it”. Itappears to their Lordships that on death a person does vacate hisoffice, and, equally, that on death a person ceases to carry on a businesswhich he had been carrying on previous to death.
Counsel for the respondent was constrained to concede that section11 (G) woidd apply to a case where cessation was not voluntary as forinstance when cessation of business is caused by an illness necessitatingcessation. Death may supervene in such an instance. It would be acurious result if in the cases of death preceded by an illness necessitatingcessation of business section 11 (6) was applicable and in eases .of deathwithout such an illness it was not. Death not infrequently occurs soonafter an illness lias commenced.
The learned judge of the Supreme Court who delivered the mainjudgment said :—.
“ I agree with the Board of Review that section 11 (G) is intendedonly to deal with cases where an assessce docs not cease to be“ a person ” when he ceases to carry on his trade, business, professionor vocation. Section 11 (6) appears to me to contemplate a personwho, at the moment of cessation, continues to have a place of“ residence ” (either in Ceylon or elsewhere) and continues to be apotential income-earner liable to further taxation under theOrdinance. ”•
This view appears to adopt the argument discussed above which theirLordships have been unable to accept.
It was argued further that subsections G and 9 of Section 11 shouldbe regarded as containing- mutually exclusive sets of provisions each
1 JG Tax Cases, p. G05.
•MB. L. M. D. DE SILVA-^Speidewinde v. Petris,197
constituting an exception or exceptions to the general rule that assess-ment for any particular year should be computed on the profits of the1previous year. It was argued that subsection 6 "was not applicable tocases of death. Subsection 6, however, does not in terms exclude casesof death and subsection 9 does not in terms purport to deal exhaustivelywith cases of death. It was necessary to enact subsection 9 to providefor the consequences of death in a jmar of assessment on the computationof statutory income from sources other than the sources “ trade, business,profession or vocation or employment ” provided for by Section 11 (6),but the necessary provision has been made, broadly and the languageused has caught up the provisions of Section II (G) (a) in so far as itrelates to cases of death, The last mentioned fact no doubt lends somesupport to the argument that neither 11 (6) (a) nor 11 (6) (b) is applicableto a case of death, but in their Lordships’ opinion it is not strong'enough to defeat the view already expressed. Their Lordships do notthink that subsection 9 deals with all the consequences of death.
The Supreme Court also said :—,
“Let it be conceded that section 11 (6) prima facie covers a case .of ‘cessation’ by death. Even on that assumption, section 11 (9)is clearly an exception to paragraph (a) of secton 11 (6) because itprovides for a special computation of the deceased’s entire incomeduring the year of assessment, and not merely of his income fromone particular source. If, therefore, paragraph (a) of section. 11 (6)does not apply in respect of the year in which the death occurred,paragraph (b) of section 11 (6) must also be ruled out as far as thepreceding year is concerned. ”
Their Lordships are unable to agree.
Section 11 (9) is not an exception to paragraph (a) of section 11 (6). . ‘Undoubtedly section 11 (9) overlaps paragraph (a) of section 11 (6) butit is not an exception to the provision in the paragraph. Section 11 (9)makes the same provision in respect of income from all sources on theoccurrence of death in a year of assessment as paragraph (a) of section11 (6) does in respect of income from a business and certain otherspecified sources on a’cessation of those sources in a year of assessment.
It would be possible to apply the provision so made to the . year ofassessment in wliich a person dies under either of the two subsections.Some confusion could have been avoided if the sources covered byparagraph (a) of section II (6) had been excepted from section 11 (9)as those sources had already been provided for. But, in their Lordships!view, the failure to do so on the part of the legislature does not makesection 11 (G) inapplicable to cases of death. ■.
Their Lordships will humbly advise Her Majesty that the appeal boallowed and the order of the Commissioner restored. The respondentmust pay the costs of this appeal and of the proceedings in the SupremoCourt.- '•' ?
-‘•*… – VAppeal allowed, -r
2*—— J. X. B. 902 (1 /5S)