103-NLR-NLR-V-72-D.-J.-RANAWEERA-Appellant-and-C.-B.-E.-WICKRAMASINGHE-Deputy-Commissionr-of-I.pdf
Rannuccra v. Wickramasinghc
553
[Privy Council]
.1969 Present:Lord Morris of Borth-y-Gest, Lord Donovan,Lord Wilberforce, Lord Pearson and Lord DiplockJ. RANAWEERA, Appellant, and C. B. E. WICKRAMASJNGHE(Deputy Commissioner of Inland Revenue), RespondentPrivy Council Appeal No. 16 of 196S
S.C. 317/64—Application for a Mandate in the nature of a Writ ofCertiorari under section 42 of the Courts Ordinance
Income lax—Penalty Jor making on incorrect return—Power of Commissioner ofInland Revenue to inpose such penalty—Whether the Commissioner exercisesjudicial power and requires appointment by Judicial Service Commission —Nature of his duties—Difference between administrative functions and judicialfunctions—Effect of alternative proceedings before Magistrate—Certiorari —Ceylon (Constitution) Order-in Council (Cap. 370),.Ar.liclcs.3, .53, 5.5, OS, GO—Income Tax Ordinance (Cap. 242), ss. 2, 3, 23, OS cl scq., 73, SO (1), DO, 92.
Section 80 (I) of the Income Tax Ordinance reads as follows :—
“ 80.(1) Where in an assessment made in respect of airy person tho
amount of income assessed exceeds that specified ns his income in his returnand the assessment is final and conclusive under section 79, the Commissionermay, unless that person proves to the satisfaction of the Commissioner thatthere is no fraud or wilful neglect involved in the disclosure of income madeby that porson in his return, in writing order that person to pay as a penallyfor making an incorrect return a sum not exceeding two thousand rupcos anda sum equal to twice tho tax on the amount of the excess.’*
Tho only question for decision in the present appeal was whether the.Commissioner of Inland Revenue had power to impose penalties under section80 of the Income Tax Ordinance. It was argued on behalf of tho appellant (ataxpayer) that such imposition was an exorcise of a power which is judicial aminot administrative, and that judicial power could, under the Constitution ofCeylon, be exorcised only by a judicial oflicer appointed by llio Judicial ServiceCommission. In support of tho submission that the Commissioner exercisedjudicial power, reliance was placed on the words “ unless that person provos tot he satisfaction of tho Commissioner ” in section SO and upon the alternativecourse which the Commissioner could elect by causing proceedings to boinstituted before a Magistrate under sections 90 and 92 of the Income TuxOrdinance.
Held, that where the resolution of disputes by somo Executive Oflicer can beproporly regarded as being part of tho execution of somo wider administrativefunction entrusted to him, then ho should bo regarded ns still acting in anadministrative capacity, and not us performing somo different and judicialfunction. This is particularly so in tho field of income tax though it is certainlynot confined thorct-o. Tho Commissioner, when he acts under soction SO of thoIucomo Tax Ordinance, is still performing his.administrative duties albeit thatho must act judicially in exercising tho powers conferred upon him by thesection. Tho conclusion that this is not tho same thing os the exerciso ofjudicial powor is unaffected by tho circumstance that penalties may bo imposedas on alternative by a Magistrate acting under sections 90-92 of the IncomeTax Ordinance.
lxjcii—24
!•—J 12777—2.255 (4/70)
554
LORD DONOVAN—lianaicccrd v. Wickramasinglic
.APPEAL from a judgment of the Supreme Court.
Sir Dingle Foot, Q.G., with 31. P. Solomon audJ/. /. Ilamnvi IJaniffa,for the assessee-appellant.
F. N. Gratiaen, @ .£7.,with R. K. llandoo, for the respondent (DeputyCommissioner of Inland Revenue).
Cur. adv. mill.
Decembor 11, 19G9.(Delivered by Loud Donovan]—
The appellant (hereinafter called “tho taxpayer ”) owns considerablelanded property in Ceylon and has a large income. The respondent(hereinafter called “ the Commissioner ”) is the Deputy Commissionerof Inland Revenue, Colombo.
The taxpayer appealed against assessments to Income Tax made uponhim for the years of assessment 1950/51-1957/5S inclusive : and againstassessments to profits tax for the years 1950-50, also inclusive.Following negotiations the taxpayer agreed with the Commissioner thefigures of his income for these years. These agreed figures were, it seems,considerably in excess of the figures shown in the relevant returns whichtho taxpayer had made. The agreed figures were computed at the endof an examination of the increase in tho taxpayer’s wealth occurringbetween the years 1919 and 1957. As a result, tho taxpayer agreed thatlls. 2,400,OOQ. should bo included in tho assessments upon him as beingtmdiscloscd income. This agreement was reached on 27th March 1961when it was reduced to writing and signed by tho taxpayer and anAssistant Commissioner of Income Tax. The last paragraph of thedocument reads thus :
I have been informed that tho settlement of my appeals on theabove basis is without prejudice to tho powers the Commissionerhas to take action against mo under the penal provisions of tho IncomeTax Ordinance in respect of any offences committed by me in connectionwith my returns for the years 1950/51 to 1957/5S and tho informationI have furnished in connection with t lie inquiries made into tho appealsfor these years. ”
The Commissioner thereafter considered the question of penalties andon 3rd July* 1963 the taxpayer, in consideration of proceedings not beingtaken against him for the recovery of penalties, agreed in writing to payto tho Commissioner of Inland Revenue as penalties incurred for theyears 1950/51-1957/5S the sum of Rs. 450,000. The date for paymentwas first fixed at not later than 8th September 1963. Xotwithstandingan extension of this date to 27th December 1963, the money was notpaid and has not since been paid.
J,0HD DOXOVAX—Jianautera r. Wickramo/tingfie
555
Tho agreement thus dishonoured plays no further part in this case.The Commissioner instead of seeking to enforce it, turned instead to thoalternative remedy which ho considered was available to him under theIncome Tax Ordinance.
Tho relevant section is section SO (1) which reads as follows :
"SO. (1) Where in an assessment made in respect of any persontho amount of income assessed exceeds that specified as his incomein his return and the assessment is final .and conclusive under section79, tho Commissioner may, unless that person proves to thosatisfaction of tho Commissioner that there is no fraud or wilfulneglect involved in tho disclosure of income made by that personin his return, in writing order that person to jjay as a penalty formaking an. incorrect return a sum not exceeding two thousand rupeesand a sum equal to twice the tax on the amount of the excess. ”
On 10th February' 1964 tho Commissioner wrote to the taxpayer givinghim notice that tho Commissioner intended to proceed against him forpenalties under s.SO (1) for tho years of assessment 1955/56-1957/5Sinclusive, and inviting him to shew cause on or before 3rd March 1964why an order for such penalties should not bo made. The claim forpenalties was limited to these t hree years of assessment, since section 80was first enacted in 1950.
Upon tho taxpayer’s request, an extension of time of one month wasgranted, but cause was not shewn. Tho Commissioner accordinglyproceeded on 21st April 1964 to mako an order under section80(1) thefinal paragraph of which order reads—
“ As the assessee has not satisfied mo that there was no fraud orwilful neglect involved in the disclosure of income in his returns fortho years of assessment 1955/56, 1956/57 and 1957/58, I order himunder section SO (1) of the Income Tax Ordinance to pay the followingsums as penalties for making incorrect returns :
For 1955/56….Rs.ISO,000
For 1956/57. …Rs.50,000
For 1957/58….Rs.120,000 ”
Under the terms of section SO (2) of the Income Tax Ordinance, thetaxpayer was entitled to appeal from this order to the Board of Reviewset up under section 74 of the Ordinance and did so. One ground ofappeal was that the Commissioner was without jurisdiction to imposethe penalties in question. Another was that a proper opportunity forhim to show cause why these penalties should not bo inflicted had notboon afforded, and thus that the rules of natural justice had been broken.Both theso pleas failed. Other matters wero canvassed by tho taxpayerbofore tho Board of Reviow but theso are no longer in issue. Tho Boarddismissed the taxpayer’s appeal and confirmed the penalties on Gtfi
556
LORD DONOVAN—ftanau-eera v. Vickramasmghe
October 1964. Shortly before this, namely on. 19th September 1964 thetaxpayer presented a petition to the Supreme Court of Ceylon prayingthat a Mandate in the nature of a Writ of Certiorari be issued directingthe Commissioner to forward to the Supreme Court the record of theproceedings imposing the aforesaid penalties, and that the order bequashod. The petition again alleged that the order, was a nullity in thatthe Commissioner was without jurisdiction to make it, and further wasmade in violation of the principles of natural justice on the groundalready indicated above. The petition made no mention of the taxpayer’sappeal to the Board of Review. That Board’s decision of 6th October1964 was made the subject of a later petition to the Supreme Court on23rd November 19G4.
The 2>roceedings on this latter petition form the subject of a separateappeal to their Lordships which will be dealt with presently.*
The petition of 19th September 1964 which sought the quashing of theCommissioner’s order imposing penalties was dismissed, by the SupremeCourt on 29th September I960. Final leave to appeal to their Lordshipswas granted on 3rd June 1967.
The allegation of a breach of the rules of natural justice is not .nowpmrsued. The sole ground of appeal is that the Commissioner was notentitled in law to impose penalties under section SO of the Income TaxOrdinance. It is said that such imposition is an exercise of judicialpower: that judicial power can, under the Constitution of Ceylon, beexercised only by a judicial officer appointed by the Judicial ServiceCommission : and that the Commissioner is not such an officer.
The Supreme Court of Ceylon gave no reasoned judgment dismissingthis contention. The exjilanation is that counsel for the taxpayerpresented no argument to the Court in view of a previous decision whichit had recently pronouneed, and the reasoning of which was conclusiveagainst him. This was tlie decision In Xavier v. Wijeyekoon and Others1delivered on 22nd July 19CG. In that case Xavier had sought a writ ofprohibition against the Ceylon Commissioner of Inland Revenue torestrain him from recovering a penalty' also imposed by section SO of theIncome Tax Ordinance. The petition for the writ was likewise foundedupon the contention that such penalties could be inqjosed only by theholder of a judicial office. This contention was unanimously rejectedby the Court which held that an executive officer could lawfully imposethem. The taxpayer in the present case argues that this decision waswrong.
The issue now presented involves considering the Constitution ofCeylon, the Income Tax Ordinance of Ceylon and the nature of theCommissioner's duties under that Ordinance.
* -t'ci'Je GG'J {i rtf fit).
■ 1 (10GG) Gy X. L. li. ]<J7.
T.ORD DOXOVANT—Rcmairctra r. IT'icAratnasingfic
557
■ The Constitution of Ceylon brought into forco by tho Ceylon(Constitution) Order in Council 1046 deals in Part VI thereof with thejudicature. It provides by Article 53 that thero shall bo a JudicialService Commission consisting of the Chief Justico (as Chairman), aJudge of tho Supreme Court, and one other person who is, or has been ajudge ol tho Supremo Court. The members of the Commission, otherthan the Chairman, are to be appointed by the Governor-General.Article 55 then provides that the appointment dismissal and disciplinarycontrol of judicial officers is vested in tho Judicial Service Commission.“ Judicial Officer ” is dofined by tho same article as meaning tho holderof any judicial office but tho term is not to includo a Judgo of tho SupremeCourt or a Commissioner of Assize. ‘Judicial Office” is defined byArticle 3 of the Constitution as meaning any paid judicial office.
Part VII of the Constitution deals with tho public service. By Article58 it provides that there shall bo a Public Service Commission of threepersons appointed by tho Govomor-General-—Article GO enaets_that_tlieappointment transfer dismissal and disciplinary control of public officoreis vested in the Public Service Commission. Article 3 of the Constitutiondefines a “ public officer ” as meaning any person'' who holds apaid office, other than a judicial office, as a servant of the Crown in respectof the Government of the Island, but with certain named exceptions.The Commissioner is admittedly a “public officer ” within this definition.
The argument for the taxpayer is that if section 80 of the Income TaxOrdinance involves the exercise of judicial power then a judicial officer,appointed by the Judicial Service Commission, can alone exercise it.On the other hand, it would not be disputed that if the section does notinvolve the exercise of judicial power, but instead the doing of anadministrative act, then the Commissioner in tho present case hadjurisdiction to make the order for the payment of penalties by thetaxpayer.
The provisions of the Income Tax Ordinance may bo convenientlyconsidered at this point. By section 2, the term “Commissioner"includes the Commissioner of Inland Revenue and any Deputy Com-missioner, so that nothing turns upon the fact that the respondent in thiscase was the Deputy Commissioner. Section 23 indicates that IncomoTax in Ceylon is a yearly tax imposed at rates fixed each year by theHouse of Representatives ; and it may be presumed that it is intendedfor the service of each such year. For the administration of the Act,section 3 provides, inter alia, that there may be appointed a Commissioner,
' a Deputy Commissioner, Assistant Commissioner and Assessors. Returnsof income are to be made in a prescribed form to tliQ Assessors (section. 58et seq.) and the same persons are to make the assessment. Any personaggrieved by tho assessment made upon him may appeal to the Com.missionor requesting him to review' and revise the assessment, pooction73). The Commissioner hears the appeal (unless it is disposed of by—J 12777 (4/70)
558J LORD DONOVAN—-Kanaweera v. Wickramasinghe
agreement beforehand) and may confirm, reduce, increase, or. annulthe assessment. Any person dissatisfied with the Commissioner’sdetermination may appeal to the aforesaid Board of Review.
– Then come the provisions of section 80 which have already beenquoted. The taxpayer argues that here, at the vorv least, the Com-missioner is given a power which is judicial and not administrative. Hohas to make up his mind whether a taxpayer has ‘‘proved ” the absenceof fraud or ivilful neglect, which is essentially a judicial function, ancl onewhich, when performed leads either to his discharge from all liability forpenalties, or the infliction of them upon him. Reliance is also placedupon the provisions of sections 90 and 92 of the Income Tax Ordinance,which provide, as an alternative to proceedings under section 80, aprosecution for making incorrect returns etc. before a Magistrate whocan inflict a fine or imprisonment or both. This it is said would clearlybe an exercise of judicial power : and in essence the Commissioner, if heelects to proceed undor section 80 instead, exercises the same kind ofpower.
t
The problem thus posed has confronted Courts in a number of countries,particularly those with written constitutions embodying a separation ofpowers. In those countries, as in the United Kingdom, Governmentagencies have been created for the dischai-ge of some particular function,and for the task thus imposed upon thorn Executive Officers have beennecessarily entrusted with the resolution of differences which may arisebetween the subject and the particular agency in the course of theagency’s work. This is particularly so in the field of income tax thoughit is certainly not confined thereto. Accordingly officers appointed bythe Executive may find themselves hearing ovidence, weighing it, testingit, and coming to a conclusion upon it : and all the time having to dot-hoir best, to be fair and impartial, In a word they have to act judicially.Yet in ordinary everyday language they would not bo called “ Judges ”or “ members of the Judiciary ” or “ holders of judicial office ”. Whatis it then which distinguishes them from those who do hold and exorcisesuch an office, seeing that tho nature of the task which these ExecutiveOfficers have to perform and tho qualities they must bring to bear uponit correspond on such occasions so closely, if not exactly, with theexercise of his office by a judge ? The answer which has generally beengiven is that where the resolution of disputes by some Executive Officercan be properly regarded as being part of the execution of some wideradministrative function entrusted to him, then he should be regarded asstill acting in an administrative capacity, and not as performing somedifferent and judicial function.
This is the reasoning which appears to their Lordships to underlie the'decision of the Supreme Court of Ceylon in Xavier and Wijeyekoon (supra)and it is matched by decisions in other jurisdictions.
I/O HD DOXO VAX—Ranatveera v. Wickrnmasinghe
559
Tlius in Oceanic Navigation Company t*. Stranahan 1 the Supreme Courtof tho United Stato3 upheld tlio imposition upon tho company of apenalty which it had incurred for an infringement of section 9 of astatute entitled “ An Act to regulate the immigration of alieiis into theUnited States.” It was argued for the Company that section 9 of theAct which empowered an executive officer to inflict a penalt3r for suchinfringement and to refuse clearance of the vessel while it remainedunpaid, violated tho constitution since it was an exercise of judicial
power. The Court rejected the argument, saying “tho legislation
of Congress from the boginning, not only as to tariff but os to internal
revenue,has proceeded oil the conception that it was within the
competency of Congress, when legislating as to matters exclusivelywithin its control, to impose appropriate obligations and sanction theirenforcement by reasonable money penalties, giving to executive officersthe power to enforce such penalties without the necessity^ of invoking thejudicial power.”
A similar conclusion was reached in Helve ring ^-Commissioner of InternalsRevenue v. Mitchell 2, which concerned the imposition of a monetaryponalty by such Commissioner upon a taxpa3*er for committing a fraudwith intent to evade tax.
In 1930 their Lordships considered an appeal b>' the Shell Company ofAustralia Ltd, against the Federal Commissioner of Taxation for Australia s.In an earlier case the Company, then known as British Imperial OilCompany, had successfully contended that a Board of Appeal createdunder the Australian Income Tax Assessment Act of 1922 to considerincome tax appeals, exercised part of the judicial power of the Common-wealth contrar3' to sections 71 and 72 of the Constitution of Australia.Not being established in accordance with these provisions the Board ofAppeal was invalidly constituted and its decisions wore of no effect. Thisruling was given by the High'Court of Australia and it was not appealedagainst. Instead, an amending Federal Statute was passed abolishingthe Board of Appeal. A new Board was created called the Board ofReview and its constitution was altered so that it not merely heard incometax appeals but its powers were closely equated with those of the Com-missioner of Taxes himself. The Shell Company nevertheless objectedto the Board of Review contending that it also exercised judicial powerand was therefore as invalid as had been the superseded Board of Appeal.The High Court of Australia rejected that contention, and its decisionwas upheld by their Lordships on appeal. The following extracts fromthe judgment delivered b# Lord Sankey may be quoted :
“ The authorities aro clear to show that there are tribunals withmany of the trappings of a Court which, nevertheless, are not Courtsin tho strict sense of exercising judicial power. It is conceded in thepresent case that the Commissioner himself exercised no judicial
(1908) United States Reports, Vol. 214, p. 320.
(7937) United States Reports, Vol. 303, p. 39J.
» 0931) A. C. p. 276.
600
JjOKD DONOVAN—liarutweern v. I Vi ckra mnainghe
power. The exercise of such power in connection with an assessmentcommenced, it was said, with tho Board of Review, which was in trutha Court.
In that connection it may be useful to enumerate some negativepropositions on this subject :
A tribunal is not necessarily a Court in this strict sensebecause it gives a final decision. 2. Nor because it hears witnesseson oath. 3. Nor because two or more contending parties appearbefore it between whom it has to decide. 4. Nor because it givesdecisions which affect* tho rights of subjects. f>. Nor because thereis an appeal to a Court. G. Nor because it is a body to which amatter is referred by another body. See Bex v. Electricity Com-missioners (1924) 1 K. B. 171.
Their Lordships are of opinion that it* is not- impossible under theAustralian Constitution for Parliament to provide that the fixing ofassessments shall rest- with an administrative officer, subject to review,if the taxpayer prefers, either by another administrative body, or by aCourt strictly so called, or, to put it- more briefly, to say to the tax-payer c If you want to have the assessment reviewed judicially, go tothe Court-. If you want to havo it reviewed by business men, go to theBoard of Review.’ ” (pp. 296-7).
* * *
" An administrative tribunal may act judicially, but still remain anadministrative tribunal as distinguished from a Court, strictly so-called.Mere externals do not make a direction to an administrative officer byan ad hoc tribunal an exorcise by a Court of judicial power.
Their Lordships find themsolvos in agreement with Isaacs J.. where. he says : ‘There are many functions which are cither inconsistent withstrict judicial action . . . or are consistent with either strict judicialor executive action . . . If consistent with either strictly judicial orexecutive action, tho matter must bo examined further . . . Thedecisions of the Board of Review may vory appropriately ho designated… "administrative awards", but thev are bv no means of thecharacter of decisions of tho Judicature of the Commonwealth.’ Theyagree with him also when he savs that ‘unloss … it becomes clearbeyond reasonable doubt that the legislation in question transgressesthe limits laid down by the organic law of the Constitution, it must beallowed to stand as the truo expression of the national will.’
LORD DOXOVAX—J'anawccra v. Wickramaainghe
361
. In that view they have come to the conclusion that the legislation inthis case does not transgress the limits laid down by the Constitution,because the Board of Review aro not oxercising judicial powers, butaro merely in the same position as the Commissioner himself—namely,thoy are another administrative tribunal which is reviewing thedetermination of the Commissioner who admittedly is not- judicial, butexecutive.”
Their Lordships now turn to a consideration of the Commissioner’sfunctions under tho Ce3‘lon Income Tax Ordinance. By section 3 he isappointed “ for tho purpose of this Ordinance and by subsequentsections a variety of duties are laid upon him. Thoy concern thoascertainment of the taxpayer’s statutory income, and the due collectionof tho proper tax. A number of powers and discretions are conferredupon the Commissioner to assist him in his work : power to compel theproduction of documents: power to restrict liability'—in certain-cases -powor to make repayments of over-paid tax : certain discretions inrelation to the taxation of non-residents : a discretion to alter the basisof assessment in cortain cases : to determine the allowances to bo madefor depreciation in plant and machinery, and so on. All this is clearlypart and parcel of the Commissioner’s administrative function. He isalso given power to hear t he appeals of persons aggrieved by the assess-ments made upon them : and though, when hearing such appeals theCommissioner must act judicially in the sense of being fair and impartial,this work is simply another step in the process of ascertaining the trueamount of tax to be collected, and as such, should be regarded asadministrative in character, and not as the exorcise of judicial power.
Then come tho provisions of section SO of tho Ordinance which havealready been sot out : and it is clear that before imposing a penalty underthis section the Commissioner must give tho taxpayer concerned anopportunity of proving tho absence of fraud or wilful neglect. A tax-payer will no doubt generally plead an honest mistako or venial careless-noss ; and tho Commissioner will have to make up his mind whether sucha plea has been established. This question of fact should ordinarily beno more. difficult than others upon which, under tho Ordinance, theCommissioner is directed to come to a conclusion ; and their Lordships donot see such a marked differentiation between the Commissioner’s otherduties and his duties under section SO as to cnablo them to say that tholat-tor involve the excrciso of judicial power. The better view, in theiropinion, is that under section SO tho Commissioner is still performing hisadministrative duties alboit that he must act judicially in exercising thopowers conferred upon him by the section. Their conclusion that this ispot the same thing as tho excrciso of judicial power is unaffected by tho
663Ranctweera v. Ramachandran
circumstance that pori'alties may be imposed as an alternative by aMagistrate acting under sections 90-92 of the Ordinance. Indeed the
fact that this procedure is'an alternative niight bo said to support it .
. „ – .
For these reasons their Lordships will humbly advise Her Majesty that-this appeal should bo dismissed. The taxpayer appellant must pay thecosts of the appeal.
Appeal dismissed.