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SUPREME COURTD.M.S. Fernando and AnotherVs.
S.C. Appeal No. 22 of 198) — C.A Appeal No. 1390 of 1979
'Inland Revenue Act Section 96 C (3)ld) — Requirement of Statement of'reasonsin writing — Such requirement whether Mandatory or Directory — I'ailureto state reasons — consequence.
The Respondent-Petitioner is a taxpayer who furnished a return for1975/76. In the return he declared that his income was Rs.88.915/-.However the Assessor had information that he had done business withB.C.C. and that he had earned a gross sum of Rs.961.415/-. After manyinterviews with the Assessor the taxpayer was warned that his returnwould be rejected and an assessment based on an estimate by the Assessorwould be issued. The Assessor issued an assessment on 29.4.79 drasticallyreducing the amount claimed as expenses. The taxpayer appealed againstthis assessment to the Assessor.
In the meantime the Taxpayer applied to the Court of Appeal for a Writto quash the assessment on the grounds that the Assessor had not givenhis reasons in writing for rejecting the return. The Court of Appealgranted the writ but the appellants appealed against the order.
Fernando v. Mohidien Ismail (Samarakoon CJ.)
Held (Sharvananda J & Wimalaratne. t. dissenting) The ..notice .ofassessment was null and void because the .Assessor failed joobey a mandatory order to give his reasons in writing to thetaxpayer for rejection of the' return in terms'of'settion'9ffC* (3)(d.) of the Inland Revenue Act. It is essential-that an Assessorwho rejects a return should state his reasons and communicatethem. His reasons must be communicated, at. or about the timehe sends his assessment on an estimated ’ income. Any latercommunication would defeat the rcmedf.il action intended bvthe amendment.
Appeal from judgment of the Court of Appeal.
Argued on:Decided on:
Samarakoon, Q.C., C.J.,
Wanasundera, J., andWimalaratne, J.
G.P.S. de Silva, Additional Sojicitor-GeneralwithK.C. Kamalasabayason, State Counselfor Respondent-Petitioners.
C. Sivaprakasam with M. Devasagayam forPetitioner-Respondent.
27th, 28th and 29 January, 1982.
Cur. adv. vult.
The Appellants in this case are both officers of the Inland RevenueDepartment of Sri Lanka. The first Appellant is an Assessor attachedto the Colombo North Regional Office of the Department and thesecond Appellant is the Commissioner-General of Inland Revenueand the Head of the Department. They have appealed' against anOrder of the Court of Appeal which issued a Writ of ’Certiorariquashing an Assessment of Tax made in respect of the Respondentfor the year of Assessment 1975/76. The Respondent &as a shareholderof two businesses called “Lanka Copra Stores" and. “WelcomeTraders1’; and , also the owner of immovable property of considerablevalue’in the City of Colombo and Kuliyapitiya'. As such he was, aTax Paydr’ assigried to'the Colombo North Regional Office of theInland Revenue Department. He was allotted file No. 70/6039-24/2.
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In his affidavit filed in the Court of Appeal the Respondent hasstated in paragraph 6 thereof that in or about August 1976 hefurnished a.return of income and wealth for the year of Assessment1975/76 to the Assessor Colombo North Regional Office “in theprescribed form issued to him by the Assessor”. This return hasbeen filed of record marked A and a Statement of Accounts beinghis Auditor’s computation of income and wealth has been filed alsomarked A. These facts are admitted in the affidavit filed by the firstAppellant. In this Statement of Accounts the Respondent discloseda taxable income of Rs. 88,915/- and taxable wealth at Rs.215,599.93.Admittedly this statement did not disclose his total statutory income.At an interview the Respondent and his Auditors had with theAssessor then dealing with the file (not the 1st Appellant) in theyear 1977, the Assessor disclosed material in' "his possession whichindicated that he had derived considerably more income from dealingswith the British Ceylon Corporation Ltd. Realising, no doubt, thatthe fat was in the fire, the Respondent sent a second Statement ofAccount (Document C) disclosing an additional income of Rs. 961,415.80thereby boosting the taxable Wealth. The 1st Appellant states in heraffidavit that at the interviews the Respondent and his Auditors hadwith the officials of the Inland Revenue Department in June 1978and October 1978, the Respondent was informed that “his returnand statements will not be accepted” and that “after investigatinginto the Return and the subsequent Statements” “an assessment wasmade on 30th March 1979 of the Wealth and Income for the Yearof Assessment 1975/76” (Document D). The total assessable incomewas fixed at Rs.786,480/- and the Taxable Wealth was fixed atRs.816,099.00. The total tax and penalty payable was fixed atRs.669,860.00. This Notice of Assessment has been sent by RegisteredPost on 20th April, 1979. By an appeal dated 26-4-1979 the Respondentappealed to the Commissioner of Inland Revenue against this assessment.(Document 1R2). That appeal is now pending. In addition he hasfiled this application for a Writ of Certiorari to quash the Notice ofAssessment dated 30th March, 1979.
It was contended by the Respondent before the Court of Appealthat the Notice of Assessment was “illegal, nuil and void and madewithout jurisdiction and ultra vires” the first and second Appellants.How the second Appellant conies into the picture at this stage isdifficult to comprehend as he acts in this case only in appeal. Thecontention, before us was that the assessor had failed “to communicate
Fernando v. Mohideen Ismail (Samarakoon CJ.)
(to the Respondent) in writing the reasons for not accepting thereturn”. It was argued.(that his obligation being mandatory the issueof the Notice of Assessment was without jurisdiction and null andvoid. Reference was made to the provisions of Section 96C (3) (d)of the Inland Revenue (Amendment) Law No. 30 of 1978 whichrequires the assessor to give reasons for not accepting the return.This is an amendment to the provisions Chapter XIA made by InlandRevenue (Amendment) Law No. 72 of 1972 which introduced a newconcept of “Self Assessment of Profits and Income, Net Wealth andTaxable Gifts and the Payment of Tax chargeable thereon”. ThatChapter dealt only with Payment of Tax and the Assessment of Tax,if quarterly tax has been underpaid. It did not provide for assessmentof statutory income and assessable income for payment of tax. The“return” referred to therein is probably a reference to the returnrequired to be sent at the time of payment of quarterly instalmentof tax provided in Section 96(B)(4) of Law No.30 of 1978. Howeverthe Assessor did not purport to act under the provisions of Section96(C)(3) which empowered him to call for additional tax only aftermaking an assessment of tax. I do not therefore see any need toconsider' this aspect of the case. Furthermore the appeal was arguedbefore us on the basis that this was a case of non acceptance of anAnnual Return in terms of Section 93(2) as amended by Law No.30 of 1978, Section 93 Act No. 4 of 1963 as amended by Law No.17 of 1972 and Law No. 30 of 1978 now reads as follows in ChapterXI under the Heading “Assessment" –
“93(1) Every person who is, in the opinion of an Assessor,chargeable for any year of assessment commencing on or beforeApril 1, 1971, with income tax, wealth tax or gifts tax shallbe assessed by him as soon as may be after the expiration ofthe time specified in the notice requiring him to furnish areturn of income, wealth or gifts under section 82.”; and
“(1A) For any year of assessment commencing on or afterApril. 1, 1972, an Assessor may, notwithstanding anything tothe contrary in subsection (1), assess any person at any time,whether or not such time is before the commencement of theyear of assessment to which the assessment relates, if he is ofthe opinion that such person is about to leave Sri Lanka, orthat for any other reason it is expedient to do so.”
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“(2) Where a person has furnished a return of income, wealth,or gifts, the Assessor may
either accept the return and make an assessmentaccordingly; or
if he does not accept the. retiirn,,estimate the amountof the assessable income, taxable, wealth or. taxable giftsof such person and assess him.accordingly arid communicateto such person in writing the reasons ,for not acceptingthe return.”
The Additional Solicitor-General who appeared for the Appellantsargued that this .section does, not apply to all returns. He stated thatthe return furnished with Document A was a false return and thereforeno reason need be giv6n as section 93(2) does not apply to falsereturns. He pointed to the fact that Statement of .Account C itselfgave the lie to the Statement of Account A. He further stated thatthe reason for “rejection” (that was the word he used) was patentfrom the Document C which constituted an – admission of falsity bythe Respondent. He argued that this was a case' of deliberatesuppression of income and wealth.’ The false he stated was soughtto be made to appear true. “Falsity” is a conclusion arrived at bythe Assessor. It is a conclusion arrived at by a process of reasoningbased on data available to the Assessor. The section' requires thosereasons to be stated and not the conclusion which he arrived at,though he may if he so chooses give his conclusions too. Furthermorethe section requires reasons for non-acceptance of a return which isan act of the Assessor. It is his thinking that has to be disclosed tothe Assessee. No doubt there may be cases where the reasons fornon-acceptance may be-obvious but one must bear .in mind the factthat the legislature has'made no exception to the general rule andthe duty cast on the Assessor must be carried out even though theAssessee himself accepts the obvious. In the present .case such asituation does not arise because the Assessor in making the assessmentacfcepted the figures of assessable income an.d taxable wealth set outin accounts A and C. He only rejected the claim for expenses andmade hi$: own assessment of expenses. The Assessor was then requiredto give reasons for such action. To satisfy the provisions of thesection reasons must relate to assessable income, taxable wealth andtaxable gifts, whichever is not accepted. It is not a mere conclusion
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for non-acceptance of the total return. 1 am of opinion that theAssessor is bound to give reasons for non-acceptance of a returnwithout exception. 1 therefore reject the argument of the AdditionalSolicitor-General.
At this stage it would be convenient to deal with the opinion ofPerera J. that “the amending law clearly contemplated that the noticecommunicating the reasons for not accepting of a return should bean exercise before the actual assessment of income, wealth or giftsis made for the purpose of sending the Statutory Notice of Assessmentreferred to in Section 95.” 1 have quoted him verbatim because itappears to me that he considered this communication to be a conditionprecedent to making an estimate of assessable income. Perera J. wasof the view that the intent of the provision was to give the Assesseean opportunity to meet the Assessor-so as to convince him, if possible,that his non-acceptance was erroneous. Section 93(2) is an empoweringsection. It empowers the Assessor to do one of two things. He mayaccept the return in which event he makes the assessment accordingly.Or else he may not accept the return. In such an event he is obligedto do two things-
Estimate the assessable income, taxable income or taxablegifts and assess him accordingly (the underlining is mine).
and 2. He must communicate to the Assessee ijj writing, the reasonfor not accepting the return.',,-:
To my mind these are all part of one exercise. There is nothingin the provision which indicates that the estimation of assessableincome, wealth and gifts must be postponed for some time long afterthe non-acceptance. Even if one transposes the words “and communicateto such persons in writing the reasons for not accepting the return”to the first, line of the section after the word “return” and beforethe word “estimate” it will not make it a condition precedent. Onehas still to read more words into it to have the -effect of postponingthe rest of the exercise to some time later. This would be doingviolence to the section. The section imposes a duty but does notimpose a time limit within which it should be done. To my mindthe section merely states that if the Assessor does not accept 3 returnhe may assess on an estimate. His exercise is not complete till hehas also communicated his reasons for not accepting the return. In
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effect he also justifies his act of assessing on an estimate. The plainmeaning of the section is clear. Perera J. has read into it a conditionand an additional duty which is against the accepted canons ofconstruction of statutes. Perera J. has referred to a statement of thelegal effect of the amendment to .section 93 contained in the Bill toamend the Revenue Act. No 4 of 1963 presented by the Ministerin Parliament on 7th June 1978 and published in the Gazette of 30thJune 1978. In reference to section 93 it states as follows:-
“C'lause 34:Amends section 93 of the principal enactment
and the legal effect of this Clause will be to impose aduty on an Assessor who rejects a return furnished byany person to state his reasons for rejectingthe return.
If the intention of Parliament is to be considered, as Perera J.has sought to do. this statement in Clau.se 34 alone suffices to indicatebeyond doubt that Parliament intended to impose one duty only andthht is a duty on the Assessor to communicate reasons. I cannottherefore uphold the finding that this section imposed a conditionprecedent and a duty on the Assessor to hear submissions of theAssessce before making an estimate of assessable income, taxablewealth and gifts. The assessment so made in terms of section 93(2)musr be followed by a Notice of Assessment in terms of section 95.That is the first time that the Assessee is apprised of the estimatedincome and taxable wealth and he must then know the reasons fornon-acceptance of his return. It appears to me therefore that theduty to communicate reasons can be discharged by sending the reasonssimultaneously with the Notice of Assessment.
The next question to be considered is whether the duty imposedon the Assessor to communicate reasons is a mandatory one whichrenders the Notice of Assessment null and void. The statute itselfcontains no sanction for a failure to communicate reasons. If it hadthe matter would be easy of decision. But the matter does not restthere. One has to make'further inquiry. “If it appears that Parliamentintended disobedience to render the Act invalid, the provision inquestion is described as ‘mandatory’, ‘absolute’, ‘imperative’ or‘obligatory’; if on the other hand compliance was not intended togovern the validity of what is done, the provision is said to be‘directory’ ’’ (Halsbury’s Laws of England, Ed.3 Vol.36 page 434s.656). Absolute provisions must be obeyed absolutely whereas dir^c'ory
Fernando v. Mohideen Ismail (Samarakoon CJ.)
provisions may be fulfilled substantially. Vide Woodward vs. Sarsons(1875) (L.R. 10 CP 733 at 746). No universal rule can be laid downfor determining whether a provision is mandatory or directory. "Itis the duty of Courts of Justice to try to get at the real intentionof the Legislature by carefully attending to the whole sc«pe of, theStatute to be construed — per Lord Campbell in Liverpool BoroughBank vs. Turner (1860)(2 Dc G F & J 502 at 508) Vita Food Productsvs. Unus Shipping Co. (1939] A.C. 277 at 293. Each Statute mustbe considered separately and in determining whether a particularprovision of it is mandatory or directory one must have regard "tothe general scheme and to the other sections of the Statute". TheQueen vs. Justices of the County of London and London CountyCouncil  2 Q.B. 476 at 479. It is also stated that considerationsof convenience and justice must be considered. Pope vs. Clarke'(1953] 2 All E.R. 704 at 705. Then again it is said that to discoverthe intention of the Legislature it is necessary to consider — (1)The Law as it stood before the Statute was passed. (2) The mischiefif any under the old law which the Statute sought to remedy and(3) The remedy itself. (Maxwell on Interpretation of Statutes 12thEdition page 160). These are all guidelines for determining whetherParliament intended that the failure to observe any provision of aStatute should render an act in question null and void. They are byno means easy of application and opinions are bound to differ.Indeed some cases there may be where the dividing line betweenmandatory and directory is very thin. But the decision has to bemade. I will therefore examine the Statute bearing in mind theseguidelines.
As 1 mentioned earlier the law in regard to Taxation now hasprovisions for self assessment by the Assessee and provisions forassessment by the Assessor upon a return made by the Assessee.The former does not concern us in deciding this appeal though- itmay be necessary to refer to some of the provisions of Chapter XIA.It is the latter that requires examination. Income Tax laws were firstintroduced by the Income Tax Ordinance No.2 of 1932 (Chapter242). Subsequently a Wealth Tax and a Gift Tax was imposed andthese were consolidated in the Inla/td Revenue Act No.4 of 1963.All persons chargeable with tax were bound to furnish a return tothe Commissioner within a stipulated period (section 81) if he hasnot already been required to do so by the Assessor in terms ofsection 82. By virtue of powers vested in him by section 93 the
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Assessor proceeds to assess that person. Where a person has furnisheda return the Assessor may if he accepts the return make an assessmentaccordingly (section 93(2)(a)). Or if he does not accept the return,he may make an estimate of the assessable income, taxable wealthor taxable gifts and assess him accordingly. (Section 93(2)(b)). Ineither case he must, if he is to recover Tax, send a Notice ofAssessment to the Assessee (section 95). There is also provision foradditional assessment (section 94). Prior to the Act of 1963 theassessment was sent by the Assessor to the Assistant Commissionerand he after approval sent the Notice of Assessment to the Assessee(section 70, section 71 Chapter. 242)., After 1963 the Assessor wasgiven power to send the Notice of Assessment without first havinghis assessment vetted by an Assistant Commissioner. If the Assesseewas aggrieved by the amount of assessment .he could appeal to theCommissioner within 30 days of the,-.i Notice of Appeal and theCommissioner decided such appeal (section 97). If the Assessee wasdissatisfied with the Commissioner’s determination he had a right ofappeal to the Board of Review (section 99). The onus of provingthat the assessment was excessiye-or erroneous was on the Assessee(section 101(3)). Therejis alsQ^proyisioo for Appeal to the SupremeCourt on a case stated., by the Board (section. 102). Then came theamendment by Inland Revenue (Amendment) Law No.17 of 1972which was mainly concerned with self assessments. This was concernedonly with quarterly taxes, the recovery of taxes and the assessmentof quarterly tax in case of non-payment or under payment. As statedearlier the provisions of this law do not concern this appeal. Onesignificant fact is that the Assessor was not bound to and gave noreasons for non-acceptance of a return nor was he called upon tojustify his estimated assessment. In this state of the Law came theamendment by the Inland Revenue (Amendment) Law No. 30 of1978 which inter alia required the Assessor to communicate his reasonsfor not accepting the return. This is a duty cast on the Assessor.Whereas earlier he had no duty to .-justify his non-acceptance of areturn now he was required to do so.
The problem here is one of construction of the Statute with theobject of discovering the intention of Parliament. “This problem ofconstruction has arisen before in a number of cases. It was dealtwith by Winn J. in his judgment in the Divisional Court in Bray head(Ascot), Ltd. vs Berkshire County Council.  1 AH E.R. 149“The learned Judge (if I may use a colloquialism) ‘broke down’ andanalysed the relevant provisions there in question and considered in
Hernando v. Mohideen Ismail (Sanuirtikoon CJ.)
relation to each whether it was mandatory in the sense that a failureto comply nullified the resultant document, or whether the Tailureto' comply was merely a failure to comply with a procedural matter.I' Would adopt the same approach” per Stamp L.J. in Howard e.v.Secretary of State [1974| 1 All Ei.R. 644 at 649. i myself will adoptthe same mode of analysis. In Brayhead (Ascot) Ltd vs. BerkshireCounty Council (1964) 1 All E.R. 149 (supra), the Court was calledon to construe certain provisions of the Town and Country PlanningAct 1947 and the Development Order 1980 made by the Ministerunder the provisions of section 14 of the Act of 1947. By a documentdated February IS*,1 1957.' dhd headed "Notice of Consent" the Councilinformed the Company that the Council in pursuance of their powersunder the Town and Country Planning Act 1947 thereby permittedthe erection of factory premises to be carried out on the named sitein accordance with the application that' had been made and planssubmitted with it subject to compliance with a specified condition,viz., that “use of the premises be limited to Clause 3 of the Townand Country Planning (uses classes) Order 1950 (l ight Industry).”No reason was stated in 'thef'idocument for the imposition of thecondition. Sometime later the Windsor Rural District Council actingon behalf of the Berkshire Council served three enforcement noticeson the Company alleging that the" u's<6! &f • the factory* premises hadnot been limited to the uses set out‘ Tn Clause 3 of (hi? Order of1950 which was a breach of condition stipulatc'cl 'ih the “Notice ofConsent”. The Company contended thait t'bc cb'nditldh m the'“Noticeof Consent” was rendered null and void by 'reason of the' absenceof reasons for imposing the condition'.''Fia'ragfapH 9 Of Article 5 ofthe Development Order of 1950 reads thus'in its relevant portion —
“Every such notice shall be in writing and (a) in the case of
an application for planning where the local
planning authority decides to grant such permission
subject to conditions or to refuse it, they shall state theirreasons in writing, and send with the decision a notificationin the terms (for substantially in the terms) set out in Part 2of Sch. 2 hereto
In his reasoning Winn j. stated as follows:
“As a matter of construction it seems clear that art’.5 (9)(a)requires (A) that the notice of decision be in writing; ’(B) thereasons be stated in writing; (C) that the notice be accompanied
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by a notification in the prescribed form; these requirementscan be satisfied by a single document or by three physicallyseparate documents. Should requirement (A) not be compliedwith, disputes might well arise as to the calculation of thetime limit for appeal to the Minister fixed by s.16(1) of theAct of 1947; should requirement (C) not be satisfied an applicantmight be left in ignorance of his rights. Each of those requirementsis, therefore, essential to the statutory purposes. The interpositionof requirement (B) militates strongly against any view that itcan be regarded as merely directory; all three requirementsappear to be mandatory.”
Nevertheless he held non-compliance with the duty to give reasons
did not render the Notice null in law. As far as I can gather his
reasons for this decision are threefold:-
The Company '‘could undoubtedly demand as of right a statement
of reasons and by threat or effect of an order of mandamussecure them ”
The “extreme result is not required for the effective achievementof the purposes of the Statute ■ nor intended as a matter -ofconstruction by Parliament”.
“Even if the Notice be null the enforcement powers under section23(1) of the Act of 1947” could in this case still be “effectivelyexcercised on the ground that permission was de facto grantedonly subject to a condition, albeit that condition was not notifiedin the prescribed manner to the applicant.”
Let us “break down” the provisions of section 93(2) of (Amendment)
Act No.30 of 1978, in the same way. ■ 1 2 3
1.There is first a decision made not to accept a return. This isindeed an important decision which could entail seriousconsequences for the assessee.
2.There is next the requirement of making an estimate. This mustnecessarily be done, otherwise no tax could be collected'and theState would suffer. There is no doubt that this is a mandatoryprovision. For the imposition of tax this is a sine qua non.Without it an imposition of a tax will be illegal.
3.The third is a requirement to communicate reasons for thenon-acceptance of the return. This is a duty coupled to the
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power of making an estimate and taxing thereon. It is a directionof Parliament contained in its legislation requiring obedience ofa kind. I have no doubt that this provision is a mandatory one.
The next question to consider is whether the failure to observethe stipulation renders the Notice of Assessment null and void. Nodoubt the requirement can be enforced by a Writ of Mandamus oran effective threat of it. But that is a matter of choice for theAsscssee. It cannot by any kind of reasoning be said that at thetime Parliament passed the amending act it had in mind the enforcementof duties imposed by it by means of a Writ of Mandamus. I do notthink such a procedure even engaged the mind of the Legislature.On the other hand it is quite clear that when it imposed a duty onstale employees it expected obedience from them. Furthermore onehas to consider this amendment in the light of the law as it thenexisted. The Assessor was then not bound to disclose any reasonseither on the file or by communication to the Assessee. All was leftto the good sense of the Assessor and his sense of justice andfairness. The Assessee could only appeal against the quantum ofassessment and the onus of proof lay on the Asscssee. He couldonly speculate on the reasons for such assessment for the purposesof his appeal. The picture is now different. A duty is now imposedon the Assessor not only to give reasons for non-acceptance of areturn but also to communicate them to the Asscssee.
The primary purpose of the amending legislation is to ensure thatthe Assessor will bring his mind to bear on the return and come toa definite determination whether or not to accept it. It was intendedto prevent arbitrary and grossly unfair assessments which manyAssessors had been making as " a protective measure". An unfortunatepractice had developed where some Assessors, due to pressure ofwork and other reasons, tended to delay looking at a return till thelast moment and then without a proper scrutiny of the return, madea grossly exaggerated assessment. The law, I think, enabled thedepartment to make recoveries pending any appeal on such assessments.The overall effect of this unhappy practice was to pressurise the taxpayer to such an extent that he was placed virtually at the mercyof the tax authorities. The new law was a measure intended to doaway with this practice. Under the amendment when an Assessordoes not accept a return, it must mean that at the relevant pointof time he has brought his mind to bear on the return and has come
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to a decision'rejecting the return-. Consequent to this rejection, thereasons must be communicated to the Assessce. The provision forthe’giving of reasons and the‘written communication of,the reasons,contained inn-thc amendment . is to ensure that in fact the newprocedure wOCild he fVillowed.i-More particularly the communicationof the rcaS(HV'at the relevant time itf'thc indication of its compliance.The ncwi:prbcfiidtire;,v<Yiiild also have the effect of fixing the Assessorto a-'dCfiniTC-position anil not give him latitude: to-chop and changethereafter. H"Wil$!!therefore essential that an Assessor- who rejects arctuT#f;,sh'mdd -state his reasons and communicate them. His reasonsmust-'bivcommunicated at or about the time he sends his assessmentonfan-estimated income. Any later communication would defeat theremedial action intended by the amendment.
Such an rmport'a,ht/and far reaching change cannot be lightly treated.I: httvC’-'tlouiddubt that by this change the Legislature intended thenatural''Consequences that attach to the disobedience of a mandatoryprovision-. To – hold' otherwise would result in the proliferation ofapplications lor Writs of Mandamus. I cannot for a moment acceptthe-contention that the legislature intended this provision to be asource of litigation of that kind. I therefore hold that the Notice ofAssessment dated 20th April. 1979, is null and void.
There was another-matter' that was raised incidentally. It wascontended by the Deputy Solicitor-General that the Respondent wasnot entitled to maintain this application for Writ because an alternativeremedy by way of appeal was available to him under the InlandRevenue Act: Those provisions confine him to an appeal against thequantum of assessment. The Commissioner has not been given powerto order the Assessor to communicate reasons. He may, or may not,do so as an administrative act. The Assessor may. or may not, obey.The Assessce is powerless to enforce the execution of such administrativeacts. The present objection goes to the very root of the matter andis independent of quantum. It concerns the very exercise of powerand is a fit matter for Writ jurisdiction. An application for Writ ofCertiorari is the proper remedy.
For the reasons hereinbefore given I dismiss the appeal with costshere and in the Court of Appeal.
WANASUNDKRA. J. — 1 agree.
.SCFernando r Mohidccn Ismail (Wcrrararm'. J.)
I have, had the advantage of reading the order proposed by theChief Justice, and whilst I am in agreement with the conclusionreached by him on the grounds stated in his order. I desire to outlinemy reasons.
As stated by learned Counsel appearing before us. this case raisesthe important question in income tax Law as to the rights of ataxpayer whose return of income, wealth or gifts has not beenaccepted by the assessor, to know the reasons which have inducedthe.. Assessor to reject the taxpayer's return. Although, the presentappeal-,is concerned with an assessment made in respect of the incomeand tuxahlc-wealth of the respondent for the year of Assessment1975/76,,and is governed by the provisions of Section ‘>3(2) of .theInland Revenue Act No. 4 of I%3. which Act has now beensuperseded by the Inland Revenue Act No. .28 of 1979. the questionraised before us in appeal continues to be of interest and importanceto both the taxpayer -and- the Department of,.Inland Revenue bvreason of the fact-that-the provisions of Section 93(2) of Act No. 4of 1963 have, been re-enacted in similar terms in Section 115(3) ofthe Act No. 28 of-1979.
Section 93(2) of the Inland Revenue Act No. 4 of 1963 reads as follows:
“(2) Where a person has furnished a return of income, wealth orgifts, the Assessor may either-
accept the return and make an assessment accordingly; or
if he1-does not accept the return, estimate the amount ofthe assessable income taxable wealth or taxable gifts ofsuch person and assess him accordingly.”
Section 93(2) as amended by the Amending Act No 30 of 1978is as follows:-
“Whcre a person has furnished a return of income, wealth or gifts,the Assessor may —
(a) either accept the return and make an assessment accordingly:
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(b) if he docs not accept the return, estimate the amount ofthe assessable income taxable wealth or taxable gifts ofsuch person and assess him accordingly, and communicateto such person in writing the reasons for not accepting thereturn.''
It was contended before us on appeal for the Assessor and theCommissioner General of Inland Revenue that the requirement tocommunicate to the asscssec in writing the reasons for not acceptinga return did not apply to all returns. The learned Additional SolicitorGeneral submitted that no statutory obligation was cast upon theAssessor to inform the assessee of his reasons where the taxpayerhad submitted a false return. He urged that the duty cast by Section93(2) (b) to state reasons was confined only to instances where thereturn was not accepted for reasons other than the falsity of thereturn. In the present ease, inasmuch as the asscssce’s return wasnot accepted as being a false return, he contended that the Assessorwas lawfully entitled not to accept the return without stating hisreasons and to proceed to assess the assessable income, taxablewealth or taxable gifts of such person. The contention on the otherside was that the duty to state reasons existed in every instancewhere an Assessor decides not to accept a return made to him. thatsuch duty is mandatory, and that the failure to state reasons, renderedthe notice of assessment made by he Assessor ultra vires and liableto be quashed in writ proceedings. I
I am unable to agree with the contention advanced for the Stale.The language of Section 93(2)(b) is plain, admitting of only themeaning, that where an Assessor decides to reject a return made tohim and to make his own estimate of the assessable income, taxablewealth or taxable gifts of the taxpayer, he must make known to theassessee the reasons why the asscssee’s return has not commendeditself to him. The legislature must be taken to have meant andintended that which it has plainly expressed, and whatever it has inclear terms enacted, cannot be restricted by judicial interpretationunless such course is rendered necessary upon a reading of the statuteas a whole. An analysis of the scheme of Section 93 would indeedbe helpful. Section 93(1) and 93(1)(A) contemplate, inter alia,assessments being made by the Assessor without his first havingreceived the return made by the assessee. In such instances, theAssessor proceeds to issue a notice of assessment based on his own
Fernando r. Mohiilcen Ismail (Wccraratne. J I
estimate. arrived upon whatever material may he available to him.Section 93(2). however, stands on a different footing. This sub-sectionrelates to eases where a taxpayer has furnished a return.
When such a return is received, the Assessor can cither accept itand make an assessment accordingly, or reject the return and thenproceed to make his own assessment. The legislature has consideredit fair and reasonable that when the taxpayer has complied with hisobligation of making a return to the Department of Inland Revenue,that he should then be entitled to be informed of reasons when theAssessor decides not to accept the return and rejects the same. Ifthe Assessor decides to reject a return on the ground that it is afalse return, then the matter becomes all the more serious from thepoint of view of the asscssce, and quite apart from exempting theAssessor from the requirement to suite reasons, makes it all themore obligatory on him to do so and thus make known to thetaxpayer why his return docs not find favour. When the legislaturerequires the Department to make known to the subject why thestatutory return furnished by the subject is being rejected and theDepartment’s own assessment substituted, it becomes the duty ofthis Court to enforce observance of such requirement.
It is also relevant to note that the assessce is granted by Section97. the right to appeal to the Commissioner against the amount ofthe assessment made on him. Section 97(2)(a) requires every appealto he preferred by a petition in writing addressed to the Commissionerand to set out the grounds of appeal. An asscssec who has made areturn which has been rejected, and is confronted with a notice ofassessment made by the Assessor, will be at a disadvantage andunable to fulfill the statutory requirement of stating the grounds forhis appeal unless he is made aware of why his own estimate of hisincome, as appearing in his return has been rejected.
The reasons set out above, coupled with the further fact that therequirement to state reasons was brought into the Section by theamendment of 1978, (Inland Revenue Amendment l,aw No 30'of1978) compel me to conclude that the requirement to state reasonsis a mandatory provision and is not merely directory. It seems tome that such a construction fulfills the legislative purpose underliningthis Section. Failure to comply therefore renders the impugned actof the Assessor liable to be quashed by certiorari. 1 therefore concurin the order proposed by my Lord the Chief Justice.
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I have read the judgment of Hon’ble the Chief Justice. I regretmy inability to agree with it.
The Petitioner-Respondent filed an application for a mandate inthe nature of Writ of Certiorari and/or Prohibition to quash theassessment of tax made by the 1st Respondent-Petitioner for theYear of Assessment 1975/76 on the Petitioner-Respondent under theprovisions of the Inland Revenue Act, No.4 of 1963, as amendedby Inland Revenue (Amendment) Laws, Nos. 17 of 1972 and 30 of 1978.
The Petitioner-Respondent (tax-payer) is a partner of the firmcalled ‘Lanka Copra Stores*. By his final return dated 11th August
he furnished return ‘A* of his income and wealth for the Yearof Assessment 1975/76. In the last paragraph of the return, he madethe declaration: “1 declare that the above particulars are in everyrespect fully and truly stated according to the best of my knowledgeand Relief’. In his return he stated that his total statutory incomefor 1975/76 was Rs. 89,034/-, which included an income of Rs. 35,172/-for the period 1.4.74 to 31.3.75 on account of Lanka Copra Storcs,andthat his net wealth was Rs. 369,099/-.
Subsequent to the furnishing of the aforesaid return dated 4thAugust 1976, the Petitioner-Respondent and his Auditors wereinterviewed on several dates by the Assessor in charge of the.Respondent’s file. At the interviews, it was realised that thePetitioner-Respondent had not disclosed and accounted in his returnpart of the sale proceeds of copra received by his firm from theBritish Ceylon Corporation Ltd. After being confronted with certaintell-tale material from the British Ceylon Corporation Ltd, thePetitioner-Respondent furnished the statement ‘C’ dated 10th August
wherein he acknowledged that he had been paid a sum of Rs.1,270,234/59 by the British Ceylon Corporation Ltd. on account of“difference in prices for copra purchases by it". From this sum thePetitioner-Respondent apportioned Rs. 96,415/80 as representing theamount of his income relating to the. year ended 31st March 1975from that source. Out of this gross ipcqnpe ,,of.Rs. 961,415/80, hesought to deduct a sum of Rs. 404,^00/-, .on. account of “estimatedexpenses, incurred by me out of the moneys received from the B.C.CLtd. and unaccounted in my books”. In IC’—Jie., disclosed that his
Fernando v. Mohideen Ismail (Sharvananda. J.)
additional net income was Rs. 248,359/- after credit being given forhis alleged expenditure. This sum was not reflected in the return.This letter ‘C' ex facie, amounted to an acknowledgment on the partof the Petitioner-Respondent that he had grossly under-stated hisincome in his annual return ‘A1 and that the return was incorrect,if not false. In the light of ‘C” the Petitioner-Respondent could notconceivably have expected his return ‘A' to be accepted by theAssessor—the letter militated against the acceptance of his return ‘A’.
The Petitioner-Respondent was served with notice of assessment‘D’ dated 30th March 1979, assessing his total statutory income ina sum of Rs. 786,480/-. On this basis, his gross income tax wascomputed to be Rs. 558,145/-. After the sum of Rs. 27,0421- beingincome tax paid on self-assessment was set off. the income tax payableby him was stated to be Rs. 531,103/-. He was also notified thatthe penalty payable by him was Rs. 132,776/-. According to thenotice, the income tax and penalty payable by him aggregated toRs. 663,879/-. Further, his net wealth was assessed at Rs. 916.099/-and the total wealth tax payable by him was computed to be Rs.5,190/-. After a sum of Rs. 1,125/- was set off as wealth tax paidon self assessment, the Petitioner-Respondent was called upon topay as wealth tax and penalty a sum of Rs. 5.981/-.
According to the Respondent-Petitioners, the Petitioner-Respondentwas served with letter dated 4th April 1979 marked IRI. informinghim of the reasons for the Assessor rejecting his return. 1R1 stated,inter alia: “The books of account tor the years 1975/76 were farfrom satisfactory. The reasons for rejecting the return and accountshave already been intimated to you. In particular, the amount ofprice difference paid by the B.C.C. Ltd. In respect of copra.deliveredwere not brought into account”. The Petitioner-Respondent, however,has denied the receipt of this letter.
The assessment of the Petitioner-Respondent's income and wealthby the Assessor was based on the date furnished in the letter ‘C*and return ‘A’. The Petitioner-Respondent’s claim for estimatedexpenses alleged to have been incurred by him out of the moneysreceived from B.C.C. Ltd. and admittedly unaccounted in his bookswas quite understandably not accepted. The basis of assessment waselucidated by the Additional Solicitor-General as follows:
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Basis of Assessment .
A.M. Ismail – Year of Assessment 75/76
: Price difference received from
C.C. (as per document C),961,4,15
■ Less amount brought into the books215,008
Amount not disclosed746,407
Less – Expenses claimed – Rs. 498,048
Income from Trade
As per return – LankaCopra Stores,35.172
Additional as above697,446
Welcome Traders – as per return51,612
Net wealth as per return316,099
Accretion to capital arising from non-
disclosed income of Rs. 697,446600,000(estimate)
The Petitioner-Respondent thereupon appealedtothe2nd
Respondent-Petitioner on 26th April 1979 against the assessmentmade on him and also, by his petition dated 7th May 1979, movedthe Court of Appeal for the issue of a mandate in the nature of aWrit of Certiorari and/or Prohibition quashing the assessment conveyedin the said notice of assessment ‘D' dated 30th March 1979 anddeclaring the said assessment null and void and without jurisdictionand ultra vires, on the ground that the said notice contravened theprovision of sections 93(2)/94/96(c)(3) of the Inland Revenue Act asamended by the Inland Revenue (Amendment) Laws, Nos. 17 of1972 and 30 of 1978. His contention was that the failure- of theAssessor to comply with the mandatory provisions of section93(2)/94/96(c)(3) of he Inland Revenue Act as amended which imposed
SCFernando i Mahideen Ismail (Sharvananda. J.)
a duty on the Assessor to communicate his Reasons in writing fornot accepting his return rendered the said assessment 'D' invalid andultra vires.
By judgment dated 29.1.81. a Divisional Bench of the Cou|;t ofAppeal held that the relevant provisions of the Amendment Law.No. 30 of 1978, were mandatory and that the non observance ofsame deprived the Assessor of jurisdiction to issue the notice ofassessment ‘D’ and that hence the Petitioner was entitled to an orderquashing the assessment dated 30th March 1979. The Petitioner'sapplication for writ was thus allowed with costs. Against the saidorder, the Respondents-Petitioners have preferred this appeal to thisCourt.
At the hearing of the appeal, it was contended that the sectionswhich applied to the matter in issue in this case were the amendedsection 93(2)(b), 94 proviso (c) and 96(c)(3) proviso (d). But sincethe question in controyersy is basically the same, whichever of thethree sections is considered, it was finally accepted by the partiesthat the amended section 93(2)(B) of the Inland Revenue Act asamended by Law No. 30 of 1978 is the one applicable to the factsof this case. Hence it is not necessary to consider the other sectionsor the impact of self-assessment on the question in issue.
The original section 93(2) of the Inland Revenue Act. No. 4 of1963, reads as follows:
“Where a person has furnished a return of income, wealth or gift,the Assessor may either-
accept the return and make an assessment accordingly;
if he does not accept the return, estimate the amount ofthe assessable income, taxable wealth or taxable gifts ofsuch person and assess him accordingly.”
Section 34 of the Inland Revenue (Amendment) Law. No.j50 of1978 provided:
“Section 93 of the principal enactment is hereby amended by therepeal of sub-section (2) of that section and the substitution thereforof the following new sub-section:
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‘(2) Where a person has furnished a return of income, wealthor gifts, the Assessor may-
fa) either accept the return and make an assessment accordingly;or
(b) if he does not accept the return, estimate the amount ofthe assessable income, taxable wealth or taxable gifts ofsuch person and assess him accordingly and communicateto such person in writing the reasons for not accepting thereturn.”
Under the original section 93(2), the Assessor was not obliged togive his reasons for not accepting the return made by the taxpayer.By the amendment effected by the Amendment Law, No. 30 of1978, the Assessor was required, if he did not accept the return ofthe taxpayer, to estimate the amount of his assessable income, etc.and assess him accordingly and communicate to such person in writingthe reasons for not accepting his return. An obligation has now beencast on the Assessor to communicate to the taxpayer in writing thereasons for not accepting the return made by him. The object ofthis Amendment appears to be to make a taxpayer who has, accordingto him, made a correct return and is therefore reasonably entitledto expect his return to be accepted, aware, if the Assessor does notaccept his return, of the reasons for the non-acceptance of his returnso as to enable him to demonstrate the untenability of the saidreasons at the hearing of any appeal that may be preferred by himagainst the assessment. The return referred to is the return requiredby section 82 of the Inland Revenue Act. Under the Amendment,what the taxpayer should be informed of are only the reasons inwriting for non-acceptance of his return, but not the ground or basisof the estimate of the assessable income made by the Assessor. Ifthe Assessor accepts the return made by the taxpayer, the Assessorhas no alternative but to make the assessment accordingly. But ifhe does not accept the return, or where the taxpayer has not furnisheda return, then it is competent for the Assessor to estimate the amountof the assessable income, etc. of the taxpayer and assess him accordingly.
In the present case, the Assessor has admittedly not accepted thereturn ‘A’ dated 11.8.76 made by the Petitioner-Respondent for theyear of assessment 1975/76. Since the Assessor did not accept thereturn, he, in the exercise of his powers under section 93(2)(b) of
Fernando r. Mohideen Ismail iSharvtinanda. J.)
the Inland Revenue Act as amended by Inland Revenue Law' No.30 of 1978. was entitled to estimate the income, etc. and make theassessment embodied in the notice of assessment D" dated 30thMarch 1979. According to the Respondents-Petitioners. the reasonsfor the non-acceptance of the Petitioner-Respondent's return werecommunicated to the Petitioner-Respondent by letter 1RI datedJ4thMarch 1979. The Petitioner-Respondent hits denied the receipt ofthe letter 1R i. He has stated in his affidavit dated 31st October1979 that'^a photostat of 1RI was sent to him by the DeputyCommissioner Of Inland Revenue under cover of his letter dated22nd June 1929 only after this application was made to'tfie''Courtof Appeal. The Respondents-Petitioners have however “not furnishedsatisfactory proof of the posting of the letter IR1 to (hePetitioner-Respondent and hence 1 proceed on the basis that theAssessor has failed to communicate to the Petitioner-Respondent inwriting the reasons for not accepting his return and has thus failedto comply with the statutory requirement of section 93(2)(b) of theInland Revenue (Amendment) Law ."No. 30 of 1978. The importantquestion raised in this appeal is: what'is the effect of such non-complianceor omission? It has been held by the majority of the Judges of theCourt of Appeal (viz. Victor Percra .1. with whom Ranasinghe J.agreed) that the communication of reasons must precede the assessmentof income and is a condition precedent to such assessment. On theother hand. Abdul Cadcr .1. did not agree with the above view ofthe majority, but held that, as the Assessor had failed to communicatethe reasons, he had failed to perform a mandatory duty cast on himand the assessment was hence void.
No statutory provisions are intended by Parliament to be disregarded,but where the consequences of not complying with r them in everyparticular are not prescribed, the Courts must''judicially determinethem. In doing so, they must necessarily consider'lhc importance ofthe literal observance of the provisions in question to the objectParliament intended to achieve. If 'it is essential,' it is mandatory,and any deviation from the prescribed course is fatal and rendersinvalid the act done. The difference between'a mandatory anddirectory statute is one of effect only. Whether a statute is mandatoryor directory depends on whether the thing directed to be done is 'ofthe essence of the thing required or is a mere matter of form. “Nouniversal rule can be laid down as to whether mandatory enactmentsshall he considered directory only of obligatory with an implied
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nullification for disobedience. It is the duty of Courts of Justice totry to get the real intention of the Legislature by carefully attendingto. the whole scope of the statute .to be construed.”. – per LordCampbell in Liverpool Rorrouf>h Bank v. Turner (1861) 30 L.J. CH.379 at 380. The fact that a statutory provision is mandatory in formneed not necessarily indicate that any violation of it would implynullification. If the Legislature intended to exact strict and literalcompliance with its terms as a condition precedent to the validity ofthe act or proceeding to which the statute relates, the provisions ofthe Act are mandatory. Generally speaking, a condition laid by theLegislature is mandatory and cannot be dispensed with. Acts donewithout complying with the condition are invalid. Should it bedetermined that the Legislature intended to give mere instructionsand directions as to the mode of the performance of the act inquestion, the statute is considered directory only and precise compliancewith the directions of the statute is not essential to give validity tothe act done. In the ultimate analysis, the intention of the Legislatureas manisfested in the statute is the controlling factor in determiningthe imperative or directive character of the statutory provision. InHoward v. Rodington ((1877) 2 P.D. 203 AT211), Lord Penzance said:
‘‘I believe, as far as any rule is concerned, you cannot safelygo further than that. In each case you must look to the subjectmatter; consider the importance of the provision that has beendisregarded and the' relation of the provision to the generalobject intended to be secured by the Act; and upon a reviewof life case in that aspect, decide whether the matter is whatis called imperative or directory."
“When Parliament enjoins something to be done as a step towardssome transaction of legal significance, it is frequently questionablewhat effect failure to comply with the statutory injunction has onthe validity of the subsequent transaction. In some of the olderauthorities, it seems to have been envisaged that there were onlytwo possible outcomcs-cithcr the transaction was void, or it wasvalid. Mandatory provisions have, therefore, frequently been classifiedas either ‘imperative’ (when failure to comply renders all subsequentproceedings void) or ‘directory’ (when the subsequent proceedingsare valid, although the person’s failure to carry out the action enjoinedby Parliament may sometimes be punishable), (sec Maxwell onInterpretation of Statutes (llth lid) 362-373; C’raes on Statute Law
Fernando i Mohideen Ismail iSharvananda. J.)
(6th Ed) 249-251; Howard t*. Bodington (1877) 2 P.D. 203 at 210.211 – per Lord Penzance). This terminology has, however, not beenconsistently used. Moreover, it is now clear that there are not onlytwo possible consequences of non-compliance with a statutory orother legal stipulation, but three – the subsequent transactions piaybe neither void nor valid, but voidable.'— per Sir Joeclvn Simon P.in F. v. F [1970J 1 All E.R. 200 at 204.
Parliament’s intention is as evinced by the words used. The decisivequestion is, what is the intention expressed by the words used? Weshould give the words the literal interpretation, heedless of whatParliament intended.
The, jural, act authorised by the amended section 93 (2) ot% theInland Revenue Act is the assessment of the tax-paver's income bythe Assessor. If he accepts the return of the taxpayer, he is boundto make an' assessment according to the said return. Hut if he doesnot accept the taxpayer’s return, then he has to take the next stepof estimating the amount of his assessable income, etc. and assessthe taxpayer accordingly. Phis exercise is not dependent on thetaxpayer being informed, in advance, of the non-acceptance of hisreturn and of the reasons for such non-acceptance. There is norequirement of having to give any such prior notice so as to enablerepresentations to be made against the non-acceptance of the return.In construing the corresponding provisions of the Income Tax Ordinance,i.c. section 64(2) which are identical with the amended section 93(2)of the Inland Revenue Act. Viscount Simon, in delivering the judgmentof the Privy Council in (jointni Bus Co. Ltd. r. Commissioner ofIncome Tax (54 N.L.R. 97 at 98). observed:
“The Assessor did not accept the returns made by theappcIlant-Company and estimated the amount of-assessableincome of the appcIlant-Company in each of the four years atsubstantially larger sums. He was. of course, entitled to dothis according to the best of his judgment and it was notnecessary for him to give his reasons for rejecting the appellant sreturns for arriving at his own estimates.”
The Amendment Law, No.30 of 1978, hits now provided for thecoummunication to such person in writing the reasons for not acceptingthe tax-payer’s return. But. the significant thing is that the notification
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is to be only after the Assesssor has made his assessment accordingto the best of his judgment. According to the scheme of the section,the communication of the reasons for not accepting the tax-payer’sreturn is a procedural step following on, and not preceding, theAssessor’s exercise of his power of assessment; it is not a step relatedto or essjeijttjal to the act of assessment. Reasons for not acceptingthe return need not set out the basis of the estimated assessableincome from which the assessment stems. The Amendment docs not. postulate .apy. notice of the estimate on which the assessment isfounded. Since the subsequent communication of- reasons fornon-acceptance of the return docs .not form part of the process ofassessment and is not essential to the act of assessment, which is theobject of the provision, compliance with that term is, in my view,a matter of form rather than of (Substance and cannot ; vitiate theassessment. The provision is, dirpetgry only; “There is a numerousclass of cases in which it hashe,en hqld.,that certain provisions inActs of Parliament are directory,, in the sense.. that .they■.were,• notmeant to be a condition precedent to a grant,- or whatever it maybe, but a condition subsequent; a condition as, to. which the responsible,persons may be blamable. -and-punishable if they do not act upon if,but their not acting, upon it shall not invalidate what they havedone." – per Lord Blackburn in Justices of Middlesex v. The Queen|1884] 9 A.C. 757 at 778.
In my view, failure to comply with the direction.as to communicationof reasons, unless it results in injury-or prejudice to the substantialrights of the taxpayer, will not affect the validity of the assessment.Disregard by the Assessor of the direction, to him to communicatein the end, after his assessment, the reasons' for not- accepting thetaxpayer’s return docs not, ipso facto, render void or nullify theantecedent assessment made under section 93.(2)(b). It only makesthe assessment-voidable if the- tax-payer is substantially prejudicedby such disobedience. The: tax-payer,-however, has the right to callfor the reasons at any time,.
In the instant case, the Petitioner-Respondent cannot complain ofany prejudice by the failure, as on his own showing the return ‘A’sent by him was not a true return and could not be accepted formanifest reasons. He could not conceivably have expected his return‘A’ to be accepted. By no stretch of imagination can it be said thatthe Petitioner-Respondent has suffered any prejudice by the Assessor’s
SCFernando r. Mohideen Ismail (Shareananda. J.)247
omission to inform him iri writing the reasons for not accepting hisreturn. Hence the assessment in notice D' cannot be avoided. Itsefficacy is not affected by the Assessor s aforesajd neglect tocommunicate in writing the reasons for not accepting his return.
No doubt, the non-complaince may often be inconvenient for atax-payer; he may find it necessary to specify in his notice of appealto the Commissioner’of Inland Revenue the grounds why the Assessorwas not justified in not accepting his return. Section 97 requires anaggrieved taxpayer to appeal to the Commissioner against suchassessment setting out the grounds of such appeal within a periodof 30 days of the date of the notice of assessment. The requirementthat a notice of appeal should specify the grounds of appeal isdirectory only, and failure to comply with that requirement does notbar an appeal — vide Howard r. Secretary of State for Environment 1 All E.R. A64. However, the taxpayer can undoubtedlydemand, as of right, a statement of reasons and by threat or effectof an order of mandamus to secure them; further, it would be strangeif the Commissioner does not adjourn the hearing of the appeal untilthe reasons have been delivered to enable the appellant to criticiseor controvert the Assessor’s reasons for rejecting his return.
In the case of Bravhead Ltd v. Berkshire Country Council (|1%4|1 All E.R. 149). a Queen's Bench Division consisting of Lord ParkerCJ, Winn and Fenton Atkinson J. had to consider the effect of abreach of statutory duty to give reasons for the decision. Theappellants were granted planning permission by the respondents forthe erection of a factory, subject to the condition that the premisesshould be limited to light industrial use. In breach of Article 5(9)(a)of the Town and Country Planning General Development Order(1950) which provided as follows:
“Every such notice shall be in writing, and (a) in the case of
an application for planning permission where the
local planning authority decides to grant that permission
subject to conditions or to refuse it, they shall state their reasonsin writing and send with the decision a notification in the terms(or substantially in the terms) set out in paragraph 2 of Schedule2 hereto.”
The notice of decision notifying this permission did not state anyreason for the imposition of the condition. An enforcement notice
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under section 23 of the Town and Country Planning Act (1947) wasserved on the appellants alleging that they had contravened theconditions. The appellants appealed to the Minister to quash thenotice, but the Minister dismissed the appeal. The appellants contendedthat the enforcement notice was invalid because it was based on abreach of condition that had not existed as a valid conditon becauseof the omission of reasons from the notice of planning permission.On appeal, the Queen’s Bench Division upheld the Minister's decisionand held that, although the requirement of Article 5(9)(a) of theOrder of 1950 that the reasons for imposing a condition should bestated in writing was mandatory, it did not follow that non-compliancethereof rendered void the notice of the planning authority’s decision.It is relevant to note that section 16 of the Act of 1947 providedfor an appeal to the Minister against the conditional grant or refusalof planning permission.
In the case of Howard v. Secretary of State ( 1 All E.R.644),- the Court of Appeal approved the above decision in BrayheadLtd v. Berkshire C.C: ([1964) 1. All E.R. 149). In the course of hisjudgment, Roskill LJ., when dealing with the contention that a failureto indicate the grounds of appeal and/or the facts on which theappeal was based, in breach of the statute which provided that “Anappeal shall be made by notice in writing to the Minister which shallindicate the grounds of appeal and state the facts on which it isbased", nullified the notice of appeal that was sent, observed at page 649:
“The crucial question is – is that notice of appeal invalidatedbecause the other provisions of the section were not compliedwith? Like Lord Denning MR. and Stamp LJ., I would acceptthat those provisions cannot be construed as other thanmandatory; but the fact that they are mandatory does not itselfcause a failure to comply with them to invalidate the notice.This problem of construction had arisen before in a numberof cases. It was dealt with by Winn J. in his judgment in theDivisional Court in Brayhead Ltd v. Berkshire County Council( 1 All E.R. 153).’’
In London and Clydeside Estates v. Aberdeen ( ! All E.R.876). the House of Lords had to consider the effect of a planningcertificate which failed to conform to the requirement of Article 3(3)of the Town and Country Planning (Scotland) Order (1959), whichprovides as follows:
Fernando v. Mohideen Ismail (Sharvananda. J.)
“If a local planning authority issues a certificate otherwise thanfor the class or classes of development specified in the application
made to them they shall in. that certificate include
a statement in writing, of their reasons for so doing and ofthe rights of appeal to the Secretary of State given by section6 of this order.”
The certificate in question did not include a statement of theappellant’s right of appeal to the Secretary of State as required bythe above order. It was held that the certificate was invalid becausethe requirement of the aforesaid Article 3(3) to include a statementin writing of the rights of appeal to the Secretary of State wasmandatory and the failure to include this information was fatal tothe certificate as “Where Parliament prescribes that an authority withcompulsory powers should inform the subject of his right to questionthose powers, prima facie the requirement must be treated asmandatory”. – per Lord Hailsham. That the certificate should ‘include’a written notification of the rights of appeal was held to be anintegral part of the requirement. The House referred to the judgmentof Winn J. in Brayhead Ltd v. Berkshire C.C ([1964| 1 All E.R.149) and distinguished it. Lord Keith relevantly observed at page893: “As is showrr by Brayhead Ltd Berkshire C.C. somethingmay turn on the importance of the..provisions in relation to thestatutory purpose which the provision is directed to achieve andwhether any opportunity exists of later putting right the failure". Heendorsed the principle enunciated by Winn J. that "while the requirementof a statutory provision may be mandatory in the sense that compliancewith it could be enforced by mandamus, non-compliance did notrender the condition void because that result was not required forthe effective achievement of the purpose of the statute under whichthe requirement was imposed and not intended bv Parliament on aproper construction of that statute".
In Rex v. Liverpool C.C ex-parte Liverpool Taxi Fleet Operators'Association ( 1. All E.R 379). the Queen's Bench Division hadto consider the following section:
“A body (a Committee of Local Authority) may by resolution
exclude the public from a meeting whenever publicity
would be prejudicial to the public interest by reason of the confidentialnature of the business to be transacted, or for other special reasons
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stated in the resolution and arising from the nature of the businessout of the proceedings; and where such a resolution is passed, thisAct shall not require the meeting to be open to the public duringproceedings to which the resolution applies.”
Under the section it was permissible for the Committee to resolveto exclude the public for special reasons stated in the resolution andarising from the nature of the business. The Court held that therequirement of the section that the reasons for excluding the publicshould be stated in the resolution was directory and not mandatory,and the fact that the reason had not been stated in the resolutionwould not have the effect of invalidating the resolution automatically,and, ip..those circumstances, the resolution would be set aside onlyif it could be shown that someone had suffered significant injury inconsequence of the irregularity. In the course of his judgment withwhich the others agreed, Cord Widgery, Chief Justice, said at page 384:
“One must distinguish between statutory provisions whjch areclearly imperative or mandatory and those which are merely directory.In my opinion, the requirement that the reason shall be stated inthe resolution is a purely directory requirement. The effect of thatis that the resolution does not automatically become a nullity byreason of the failure to state the reasons within its terms. It stands,unless and until set aside by this Court, and would not be set asideby this Court unless there were good reasons for setting it aside onthe footing tha£ someone had suffered significant injury as a consequenceof the irregularity.”
Mr. Sivapragasam, Counsel for the Petitioner-Respondent, submittedthat the intention of Parliament in providing, by the amendment tosection 93(2)(b) of the Inland Revenue .Act, for the communicationby the Assessor to the taxpayer in writing the reasons for notaccepting his return wa$. to give him an opportunity to persuade theAssessor that the latter was not justified in rejecting his return priorto the Assessor taking the next meaningful step of estimating the..amount of the taxpayer’s assessable income and that this objectshould be given effect. There is good sense in having such objectin view; such object seeks to give statutory recognition to the ruleof ‘audi alteram partem'. But what the Court is concerned is withwhat a statute has said rather than with what it was meant to say.The meaning and intention of a statute must be collected from the
Fernando v. Mohideen Ismail (Wimalaralne, J.i
actual expression used by the Legislature. The sequence of steps tobe taken by the Assessor as regulated by the amended section 93(2)(b)militates against the submission of Counsel. Acceptance of thesubmission of Counsel which found favour with the majority of theCourt of Appeal would involve re-writing that section by juxtapositionof words and supplying omissions. However sensible the coursesuggested by Counsel, a Court cannot depart from the language ofthe state in order to give effect to the supposed intention of theLegislature. If the language of the statutory provision fails to achieveParliament’s apparent purpose, the Court cannot take upon itself thetask of judicial legislation by reading words into the statute orsupplying omissions.
For the reasons set out above. 1 set aside the judgment of theCourt of Appeal and allow the appeal with costs in both Courts anddismiss the application of the Petitioner-Respondent.
The facts arc set out in the Judgments of My Lord the ChiefJustice and Sharvananda J. It is unnecessary for me to repeat themexcept to emphasise, that in his subsequent statement'C dated 10.8.77in which, for the first time he disclosed an additional income ofRs.961,415.80 from a new source, the assesscc also claimed as adeduction an estimated expenditure, unaccounted in his hooks, of asum of Rs.404,500/-,io.cludipg a payment of Rs. 190.000/- to~a.workingpartner.
Where the Assessor docs not accept,:a. return he is now obliged,by virtue of section 93(2)(b) of the amending Act No.30 of 1.978,to do two things, .namely (1) to estimate the assessable income etc.and assess him accordingly; and (2) to communicate to the asscsseein writing the reasons for not accepting the return. The-Chief Justicetakes the view that they are all part..of one exercise.and that theassessor's exercise is not complete .till he communicates the reasonsto the assessee. But the Chief Justice is unable to uphold the viewof the Court of Appeal that this section imposes a condition precedentand a duty on the assessor to hear submissions of the asscssee beforemaking an estimate of assessable income etc. The duty to communicatereasons can, in his opinion, be discharged by sending the reasonssimultaneously with the notice of assessment.
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Dealing with the question as to whether the duty to communicatereasons is mandatory, failure to perform which renders the noticeof assessment null and void, the Chief Justice, after a considerationof various guidelines, including the rules in Heydon's Case, concludesthat it is a direction of Parliament contained in its legislation requiringobedience of a kind: he has no doubt it is a mandatory one, andthat failure to observe the stipulation as to communicating reasonsrenders-the notice of assessment null and void. Whilst agreeing thatthe duty cart be enforced by Mandamus or by an effective threat ofit, he is unable to accept the contention that the legislature intendedthe firovision to be a source of litigation. Therefore the failure tocommunicate the reasons for non-acceptance of the returnsimultaneously with the notice of assessment rendered the notice ofassessment null and void.
According to Sharvananda J. the exercise of estimating the amountof assessable income etc. and of assessing the taxpayer accordingly,is not dependant on the taxpayer being informed, in advance, of thenon acceptance of his return and of the reasons for such nonacceptance. But he disagrees with the Chief Justice as to the effectof non-compliance, for in his view disregard by the assessor tocommunicate reasons does not ipso facto render void or nullify theantecedent assessment made under section 93(2)(b). It only makesthe assessment voidable if the taxpayer has been substantially prejudicedby such disobedience.
I am in respectful agreement with the view taken by both learnedJudges that the communication of reasons for not accepting a returnis not a condition precedent to the making of a subsequent estimateand an assessment. The context in which the words “and communicateto such person in writing the reasons for not accepting the return”occur, in section 93(2)(b), leaves no room for doubt as to how thatsection ought to be interpreted. The Court of Appeal was thereforein error when it imposed on the assessor a condition precedent ofcommunicating reasons before taking the steps of estimating andassessing.
From here we get on to the next question. There could be nodoubt that reasons for non acceptance have to be communicated bythe assessor at some stage. My Lord the Chief Justice takes the viewthat it should be sent simultaneously with the notice of assessment;
Fernando i». Mohideen Ismail (Wimalarafne. J.)
does the non compliance of that duty, however, render the noticeof assessment null and void? One of the grounds for awardingCertiorari is lack of jurisdiction; and jurisdiction may he lacking ifthe authority exercising jurisdiction has disregarded an essentialpreliminary requirement. The Chief Justice is of the view that thefailure to communicate reasons amounts to a failure to comply witha 'mandatory provision and therefore to a disregard of an essentialpreliminary requirement.
What, then, is the test to determine whether a statutory provisionis mandatory, and what is the test to determine whether disregardof such a provision has the effect of nullifying a decision taken indisregard of such statutory provisions? Under the heading “disregardof procedural and formal requirements’’. S.A. de Smith suggests thefollowing test:-
“When Parliament prescribes the manner dr form in which aduty is to be performed, it seldom lavs down what will be thelegal consequences of failure to observe its prescriptions; TheCourts must therefore formulate their own criteria for determiningwhether the procedural rules are to be regarded as mandatory,in which case disobedience will render void or voidable whathas been done, or as .directory, in which case disobediencewill be treated as an irregularity not affecting the validity ofwhat has been done. Judges have often stressed theimpracticability of specifying exact rules for the assignment ofa procedural provision to the appropriate category. The wholescope and purpose of the enactment must be considered, andone must assess ‘the importance of the provision that has beendisregarded, and the relation of that provision to the. generalobject intended to be secured by. the Act'. Judicial Review ofAdministrative Action (4th Ed) 142.
He continues “Although nullification is the .natural and usualconsequence of disobedience (Maxwell on'thg Interpretation of Statutes
11th Ed. 364) breach of procedural or formal rules* iS; likely to betreated .as a mere irregularity if’the departure from the'terms of theAct is of a trivial nature, ot if no-substantial prejudice has beensuffered by those for whose benefit the requirements were introduced.
” at p. 143. In a footnote (72) the author points obt
that in the 12th edition of; Maxwell, the sentence "nullification is
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the natural and usual consequence of disobedience" is not reproduced,possibly because it was thought to be over emphatic.
Also relevant to a correct approach to the question are the followingobservations of Winn J. in the case of Brayhead Ltd. Vs. Berkshire
C f1964J 1 AH E.R. 149. referred to in the judgments of the ChiefJustice and Sharvananda J.: “while a statutory provision may bemandatory in the sense that compliance with it could be enforcedby Mandamus, non compliance did not render the condition voidbecause that result was not required for the effective achievementof the purpose of the statute under which the requirement wasimposed and not intended by Parliament on a proper constructionof the statute”, at p. 153
These tests, of de Smith and of Winn J., are based on soundreason and afford a solution to the question we are called upon todecide. I would seek a solution by asking myself the question: is itnecessary for the purpose of achieving the objects of the amendmentto declare as null and void the notice of assessment because of noncompliance by the Assessor with the requirement to communicate tothe assessee the reasons for not accepting the return furnished bythe assessee? My answer to that question is “NO”. What then is thepurpose' that the amendment seeks to achieve?The purpose theamendment seeks to achieve is to enable the taxpayer to know thereason or reasons as to .why his return has not been accepted. Whyis it that he should know the reason? It is because up to the dateof the amendment he did not have a clue as to why his return wasnot accepted, and at the stage of appeal he was faced with variousdifficulties ip discharging the burden of proving that the assessor'svaluation or assessment was excessive, or arbitrary. Take the simplecase of a taxpayer who in his return has valued his house at Rs.100,000/-. The assessor does not accept his valuation but takes thenext step of estimating and assessing it at Rs. 200,000/-. In his reasonsfor not accepting the return the assessor may, for example, rely onthe market price of property in the vicinity for not accepting theassessee’s valuation of Rs. 100,000/- made in his return. When theassessor’s reason is communicated to the assessee, the assessee willbe in a better position to satisfy the Commissioner at the stage ofappeal that the assessor's reasons are faulty and ought not to beacted upon. That, in my view, is the purpose Parliament sought toachieve by requiring the assessor to furnish reasons. I am fortified
Fernando v. Mohidecn Ismail (Wimalaralne, ./.)
in my view by an observation of the Chief Justice that "the assessormust now take a firm decision on tenable facts and on reasonablegrounds that he will be called upon to justify them in appeal and.that the assessee is now in a better position to deal with the assessor’sestimate". I am in entire agreement with that observation.
The extreme result of nullifying the notice of assessment is notnecessary for the effective achievement of the purpose Parliamenthad in mind when it imposed a duty on the assessor to communicatethe reasons for not accepting a return. Although the stipulation tocommunicate reasons is mandatory in the sense that it, cimM, ultimatelybe enforced by Mandamus, I repeat the words olijWm.mUoqthat non
compliance with that duty does not rentier'tHe min'ttb !iVP'iiS'tSt'fisinentvoid, because that result is not required for Uiereffec'ijye_ achievementof the purpose of the statute. In my t)piiiio,nir,the, assussoi; .vv.ould becomplying with his statutory duty if hej'joommunit:atos the 'writtenreasons either simultaneously with th.e'Vvth'fte,!t>f 'assessment or withina reasonable time thereafter so' as to eii.ul^lie the assessee to utilisethe communication at the hearing of his appeal by the Commissioner.
The test suggested By dc Smith that breach of procedural or formalrules-.oughto.tO/b>e, treated as a mere ,irregularity,; if no substantialprejudice has been suffered by those for whose benefit the requirementswere introduced appears to have commended itself to Sharvananda
J.I am in entire agreement tjhjiC.op.qiiy-.application of that test aswell, th^asscssec in the present case is not a person who hits sufferedany prejudice at all by the failure of the Assessor to communicatethe reasons for not accepting his return simultaneously with the noticeof assessment.
For these reasons I am in agreement with Sharvananda J. that theapplication ought to have been refused bv the Court ot Appeal andthat the present appeal ought to be allowed, with costs.
D. M. S. Fernando and Another Vs. Mohideen Ismail