T. S. FERNANDO, J.—Mallows v. Commissioner of Income Tax
Present: T. S. Fernando, JM and Tambiah, J.D. F. R. MALLOWS, Appellant, and COMMISSIONEROF INCOME TAX, Respondent
8. C. 3 of 1961—Income Tax Case Stated, BRA 1289
.Income tax—Place of residence provided rent free by an employer—Determination ofits rental value—“ In the opinion of the Commissioner ”—Income Tax Ordinance(Cap. 242), as. 5, 6 (1), 6 (2) (a), 6 (2) (b), 6 (2) (c).
Where a person is liable under section 8 (2) (a) of the Income Tax Ordinanceto pay income tax in respect of the rental value of a place of residence providedrent free to him by his employer, the rental value of the place of residenceshould be determined on the basis of the annual value as assessed by the localauthority, unless an opinion has been expressed by the Commissioner, in termsof section 6 (2) (6), that the assessment by the local authority does not accuratelyrepresent the annual value of the premises.
vJase stated under the Income Tax Ordinance.
S. V. Perera, Q.C., with &. Ambalavanar, for the Assessee-Appellant
M. Kanagasunderam, Crown Counsel, for the Commissioner.
Cur. adv. vult.
June 15, 1962. T. S. Fernando, J.— –
The Assessee-Appellant, during the years of assessment 1955-56,1956-57, 1957-58 and 1958-59, was provided by his employer with aplace of residence free of rent. The employer had for the purpose of.so providing a place of residence for the appellant entered into a leasewith one landlord for a period of three years commencing from 1stFebruary 1952 paying him a rent ofRs. 5,580/- per annum in respect of•one place of residence and into another lease with another landlord,for a period of 5 years commencing from 1st October 1955 paying him arent of Rs. 9,300/- per annum in respect of the other place of residence."These respective places of residence had been assessed for rating purposesby the Colombo Municipal Council and the annual values so assessedwere much lower, being Rs. 2,500, 2,667, 3,173 and 3,690 respectivelyfor the years of assessment referred to above.
Under section 5 of the Income Tax Ordinance, income tax for anyyear of assessment becomes chargeable in respect of the profits andincome of every person for the year preceding the year of assessment.•Section 6 (1) of the Ordinance defines profits and income as meaning,■inter alia, the profits from any employment, while section 6 (2) (a) defines
322T. S. FERNANDO, J.—Mallows v. Commissioner of Income, Tax
“ profits from any employment ” as including the rental value of anyplace of residence provided rent free by the employer. The appellantbecame liable, therefore, to pay income tax in respect of the rental valueof the place of residence provided rent free by his employer. That,,of course, is undisputed.
Dispute arose in regard to the manner in which the rental value wasto be computed. It was the appellant’s contention that, as the annualvalue of the two places of residence concerned have both been assessedfor rating purposes by a local authority, section 6 (2) (6) of the Ordinancerequires that the annual value so assessed, adjusted as specified in thesaid section and in section 6 (2) (c), shall be considered to be the rentalvalue for the purpose of the section. For the Commissioner, it wascontended that inasmuch as section 6 (2) (b) enacts that for the purposes-of section 6 the net annual value of a place of residence shall be deter-mined on the basis of the rent, which a tenant migh reasonably be expected rtaking one year with another, to pay for such a place of residence (thetenanjb paying rates and the owner bearing the cost of repairs), subject-to a deduction of twenty per centum for repairs and other expenses,the appellant was liable to be assessed for income tax on the basis ofthe rent actually paid with suitable adjustment depending on .the inci-dence of the payments for rates and repairs. The Board of Reviewagreed with the contention advanced on behalf of the Commissionerand held that the rental values of the two places of residence had been,correctly fixed at Rs. 5,580/- and Rs. 9,300/- per annum.
. Before we could enter upon a consideration of the merits of the respectivecontentions we were called upon to address our minds to the-following question which has been raised as a question of law :—
“ Whether there was any evidence of the opinion of the Commissionerthat the assessment made by the local authority does not accuratelyrepresent the annual value of the premises in question and, if themwas, whether there was any evidence on which the Commissionercould have properly formed such opinion? ”
In regard to the first part of this question, no document embodyingan opinion of the Commissioner to the effect indicated above was made-available to us. As the case stated contains a paragraph (paragraph 10)which reads that “ as the rent paid by the employer in respect of 43,Galle Face Court and 49, Turret Road was considerably in excess of the-armual value assessed under the Municipal Councils Ordinance theCommissioner of Inland Revenue was of opinion that the assessment-by the Colombo Municipal Council did not accurately represent theannual value of the two premises for the years of assessment 1955-56 to1958-59 ” we requested learned counsel for the Commissioner to inform us-whether such an opinion has in fact been expressed by the Commissioner.Learned Crown Counsel informed us, after the conclusion of the argument-and after reference to the office of the Commissioner, that no such opinion
T. S. FERNANDO, J.—Mallows v. Commissioner 6/ Income Tax
has been expressed in connection with the present case, but that theCommissioner is. generally of opinion that where the assessments ofannual values made by local authorities are much lower than rent®actually paid by tenants the local authorities’ assessments do notaccurately represent the annual values of the places of residence.I do not think that this kind of general opinion entertained by theCommissioner is included in the expression “ the opinion of theCommissioner ” specified in section 6 (2) (6). The opinion must not onlybe entertained generally, so to say, in the mind of the Commissioner,but the matter must be taken a step further and translated into wordsin a document so as to serve as evidence to guide those functionarieswho have the legal duty cast on them to determine “ net annual value ”for the purposes of the section 6 of the Income Tax Ordinance. In thisstate of affairs it does not appear to me to be necessary to enter upon aconsideration of the respective contentions in regard to the manner ofassessment. The rental value of the places of residence provided bythe employer should, in my opinion, in the circumstances here present,be determined on the basis of the annual value as assessed by theColombo Municipal Council.■■
Although this appeal calls to be disposed of on the ground that thereis no evidence here of any opinion of the Commissioner which is a condi-tion precedent for not equating the net annual value of a place of residencefor the purposes of section 6 to its annual value as assessed for ratingpurposes by a local authority, Mr. Perera invited us to express ouropinion on the merits of the respective contentions advanced on behalfof the parties in regard to the manner of assessment. I have givenconsideration .to this request of learned counsel, but as any opinionwe may express on that question in the present circumstances would notbe so much a decision but a mere obiter dictum, I think the better courseto take would be to permit that question of law to be decided in anothercase in the future when perhaps there may be (a) fuller argument thanwas had before us and (6) more evidence presented by the parties thanwas placed in this case before the Board of Review.
In view of the decision we have reached and expressed above on one ofthe questions of law raised, I would set aside the order made by theBoard of Review and remit the case to the Board so that a revisedassessment in accordance with our opinion may be made.
The appellant is entitled to his costs in this Court and to the returnof the fee paid by him in terms of section 78 (1) of the Ordinance.
Tambiah, J.—J agree.
Order of Board of Review set aside.
D. F. R. MALLOWS, Appellant, and COMMISSIONER OF INCOME TAX, Repspondent