Smalc v. Commissioner oj Inland Pevenue
-i971Present : Wceramantry, J.E. SSI ALE, Petitioner, and THE COMMISSIONER OF INLANDREVENUE, RespondentS. C. S/1971—Application in Revision in M. C.
Colombo South, 12707/A
Jnsolvcncy Ordinance (Cap. 97)—Sections 3G and 1C I—Extent of the protection availablethereunder to an insolvent—Income Tax Ordinance (Cap. 112)—Section So (1)—Proceedings for recovery of tax before a Magistrate—Whether or not sentence ofimprisonment is obligatory in default of payment—Criminal Procedure Code,ss. 312 (1), 312 (1) (b).
WEERAMANTRY, J.—Smale v. Commissioner of Inland Hevenuc
Tho protection from arrest and imprisonment given to an insolvent bysections 3G and 164 of tho Insolvency Ordinanco is avoilablo not only when thoinsolvent is coming to surrender but also at later stages right up to tho Btago ofexamination and allowance of certificate. Such protection, however, does notextend to a cose where tho insolvent is ono who has incurred a tax liability totho Crown.
“ A clear distinction must be drawn between tho typo of arrest or imprison-ment which a civil creditor is entitled to inflict upon his debtor under thoprovisions of tho Civil Procednro Codo and tho arrest or imprisonment whichtho Criminal Proccduro Codo provides as ono of its essential sanctions . . .Consequently whero tho Tncomo Tax Ordinanco states that tho tax duo is to borecovered as a fine and thereby contemplates tho uso of tho machinery of thoCriminal Procedure Codo for its recovery, it can scarcely bo stated thatinsolvency by itself exempts tho tax payer from- liability to undergo a termof imprisonment provided in lieu of payment.”
In proceedings for tho recovery of incomo tax under section S5(l) of thoIncome Tax Ordinanco it is not obligatory upon tho Magistrato to impose aterm of imprisonment in default of payment ; it is open to him to dccido whetheror not tho provisions of section 312 (1) of tho Criminal Procedure Codo shouldbo made applicable. It i3 also open to tho Supremo Court, acting in revision,to consider whether an order of imprisonment mado by tho Magistrato shouldbe altered.
_/-PPEAL from a judgment of the Magistrate's Court, ColomboSouth.
M.Kanagasunderam, with M. Amarasingham, for the petitioner inApplications Nos. S, 9, 10 and 11 of 1971.
Faisz Mvslcipha, Crown Counsel, for the respondent in all Applications.
Cur. adv. vull.
. i 1a 3, 1971. Weeramaxtry, J.—
This is one of four applications filed by the same petitioner against thoCommissioner of Inland Revenue.
The facts which I shall sot out arc those referred to in the first of thisset of petitions. Apart from differences in figures ancl dates, the questionsinvolved in all these applications arc the same.
It would appear that the Commissioner, in terms of section S5 (1) ofthe Income Tax Ordinance, had issued a certificate for the recovery ofa sum of Rs. S,SS3, being tho sum stated to be due as tax and penaltyfrom the petitioner.
Tho petitioner had been adjudicated an insolvent by the DistrictJudge of Colombo on the 5th of July 1970, and protection was issued tohim until tho 2nd of October 1970. Before this date, however, on tho21st of August 1970, the District Judge, under section 3G of the InsolvencyOrdinance, directed that the insolvent be free from arrest or imprisonmentby any creditor until his certificato was allowed.
VVEER.A3IANT.RY, J.—Smale v. Commissioner oj Inland Revenue
While the petitioner was enjoy’ing protection in terms of these orders,the learned Magistrate held an inquiry in terms of section So (1) of theIncome Tax Ordinance on 13th October 1970.
At tills inquiry the petitioner submitted to the learned Magistrate thathe had already been adjudged an insolvent- and that consequent upon thesaid adjudication he had been granted 3 certificate of protection in termsof section 36 of the Insolvency Ordinance. He also produced beforethe learned Magistrate certified copies of the insolvency proceedingsshoving that the period of protection had been extended up to 16thFebruary 1971.
On the basis of the orders made in the insolvency case, the submissionwas made to the learned Magistrate that the sum of Rs. S,SS3 wasa debt due to the Crown and as such that by virtue of section 161of the Insolvency' Ordinance, read with section 36, the petitionerwas free from arrest or imprisonment by or at the instance of theCommissioner.
Section 36 of the Insolvency' Ordinance states that the insolvent shallbe free from arrest or imprisonment not only' in coming to surrender, butafter such surrender and for such further time as shall be allowed him forfinishing Iris examination. He is further protected for such time afterfinishing his examination until his certificate be allowed as the Court,shall from time to time think fit to appoint. In the present case, at thedate of tho inquiry under section 85, this protection had accrued to thepetitioner.
At this inquiry' the learned Magistrate on loth October made orderagainst the petitioner. Referring to the submissions made on his behalfthat sections 36 and 164 of the Insolvency Ordinance gave him protection,he has observed that that section has no application to the facts of thecase before him as that section only' gives protection from arrest whencoming to surrender.
This is clearly' a misreading of the section for it is not only w'hencoming to surrender but also at later stages right up to the stage ofexamination and allowance of certificate that protection is availableand the learned Magistrate’s reasons on this matter are therefore clearlynot sustainable.
The learned Magistrate has referred to the judgment of Sansoni, J.,in Kumatheris Appuhamy v. Commissioner of Income Tax1 to the effectthat an assessee who is insolvent and has been adjudicated accordinglyis not entitled to claim that no proceedings can be taken against him forrecovery of tax under section SO (1) of the Income’ Tax Ordinance(corresponding to section 85 (1) as the Ordinance stands today).
» (1955) 57 N. L. R. 164.
WEERA5IANTRY, J.—Smalc f. Commissioner of Inland Hei'enus
Although the learned Magistrate was clearly wrong in holding thatsection 36 is limited to the case of an insolvent coming to surrender,still the larger question remains whether the protection afforded by section36 extends to a case where an insolvent is one who has incurred a taxliability to the Crown.
Section 36 seems to contemplate protection being granted to a debtorfrom arrest or imprisonment by a creditor, that is an arrest orimprisonment at the instance of a creditor who in default of paymentseeks to use the provisions of the Civil Procedure Code for the arrestof a debtor as a means of enforcing tho payment of his dues. The samewould apply to the Crown where the Crown is a creditor.
There seems to be no warrant however for extending the operation ofthis section to cover cases of recovery under the Criminal ProcedureCode. In cases where a fine has been imposed upon an accused personand he is arrested or imprisoned for default of payment of such fine, it istrue that in such cases the accused is a Crown debtor and that the Crownis a creditor, but to make the provisions of the Insolvency Ordinanceapplicable to fines thus sought to be recovered under the provisions ofthe Criminal Procedure Code would be to deprive orders of Court incriminal cases of the sanction which must necessarily accompany them.Where for example a Magistrate sentences an accused person to pay afine of Rs. 500 or in default to undergo a term of six weeks rigorousimprisonment, I do not think it would be reasonable to hold that themere circumstance that the accused in that case happens to be insolventwould exempt him from the necessity to undergo a term of imprisonment,in default of payment of the fino. The penal law cannot thus be robbedof those sanctions which are essential to its proper enforcement.
It seems therefore that a clear distinction must be drawn between thetype of arrest or imprisonment which a civil creditor is entitled to inflictupon his debtor under the provisions of the Civil Procedure Code and thearrest or imprisonment which the Criminal Procedure Code provides asone of its essential sanctions. I do not think the Legislature evercontemplated that- insolvents who committed crimes punishable •with adefault sentence in lieu of a fine should go scot free merely because oftheir insolvency. This would be an absurdity and in the interpretationof section 36 an interpretation leading to such a result must beavoided.
Consequently where the Income Tax Ordinance states that the taxduo is to be recovered as a fine and thereby contemplates the use of themachinery of the Criminal Procedure Code for its recovery, it can scarcelybe stated that insolvency by itself exempts the tax payer from liabilityto undergo a term of imprisonment provided in lieu of payment.
Tin's view does not however mean that imprisonment automaticallyfollows in the event of non-payment- of tax due, for as this Court hasobserved before, it is not obligatory' upon a Magistrate to imposo a termof imprisonment in default of payment.
WEER AMANTRY, J.—Smale v. Commissioner of Inland Revenue
I should in this connection refer to the judgment of T. S. Fernando J.,in Pcrcra■ v. Commissioner of Inland JR even vel where, the winner of a prizein a hospital sweep who had spent the prize money for legitimate andnecessary expenses, was sought to be taxed under a Statute which renderedprize money subject to taxation. This legislation was passed about sixweeks before she received the monej- and she had, at no time prior to thereceipt of the prize money, been liable to pay income tax.
The petitioner in that ease was unable to pay the tax at the time of theassessment and proceedings were taken against her under section SO (5).The tax in default was deemed to be a fine and the learned Magistratesentenced her to a term of two months rigorous imprisonment fornon-payment of the tax. T. S. Fernando J., observed that where itis not disputed that the defaulter is not possessed of any money, hefound it difficult to appreciate how the subjection of the defaulter to aterm of imprisonment would result in a payment of the tax or even apart of it.
I find that much of the reasoning in T. S. Fernando J.’s judgment inthat case is applicable to the present case as well.
T. S. Fernando, J., there referred to the learned Magistrate’s beliefthat he was obliged at the time of imposition of the fine to make orderalso in respect of imprisonment in default of payment. Fernando J.,while referring to the phraseology of section 85 (1) which states thattax in default shall be deemed to be a fine, observed that it was iu hisopinion open to the Magistrate to decide whether or not any ofthe provisions of section 312 (1) of the Criminal Procedure Code shouldbe made applicable to the fine, for that section states that the Magistratemay make any direction which by the provision of sub-section 312 (1)he could have made at the time of the imposition of the sentence.
Another provision vesting a Magistrate with a discretion in a matterof ordering imprisonment is section 312 (1) (b). Consequently, althougha Magistrate may decide to impose a term of imprisonment where thecircumstances warrant it, there may well be cases in which even thoughhe may have such power he does not think such action is appropriateand may therefore refrain from exercising that power.
Again quite apart from the Magistrate's discretion there is alwaj's thodiscretion in this Court, as T. S. Fernando J. observed, to considerwhether in the circumstances the order complained of should be alteredin the exercise of this Court’s powers in revision.
I should refer also to the case of de Jong v. Commissioner of IncomeTax 2. Weerasooriya J. there held that in proceedings under section SO (1)of the Income Tax Ordinance, where the defaulter appears in court andhas'no cause to show why further proceedings for the recovery of taxshould not be taken against him,but the Magistrate makes no direction
(1966) 70 C. h. W. 46.
* (1955) 57 N. Ij. R. 279.
WEERAMANTli Y, J.—Smale v. Commissioner of Inland Revenue
at the time that the defaulter should suffer a term of imprisonment indefault of payment of the tax due, it is not open to the Magistrate to makesuch a direction subsequently. In the course of that judgment it wasobserved that the object of proceedings under that section was to ensurethe recovery of the tax duo from the defaulter by subjecting him to aterm of imprisonment should he fail to pay the tax.
In the present case the learned Magistrate would not appear to havegiven his mind to the question whether the imposition of a term ofimprisonment was called for in the circumstances, and seems to haveassumed that a term of imprisonment should automatically follow uponnon-payment of the tax. It is necessary therefore that before a term ofimprisonment be imposed upon the |>etitioncr the Magistrate be calledupon to give his mind to the suitability of such an order, in the light of theprinciples laid down by this Court.
I therefore set aside the order of imprisonment imposed bythe Magistrate and send this case back to the learned Magistrate sothat he may determine whether a term of imprisonment is or is notappropriate in the circumstances of this case.
This judgment and order would apply to the three connected casesas well : S. C. 9/1971—M. C. Colombo South Case No. I270S/A,S. C. 10/1971—M. C. Colombo South Case No. 17550/A, S. C.11/1971—M. C. Colombo South Case No. 17059/A.
Case sent hack for further proceedings.
F. E. SMALE, Petitioner, and THE COMMISSIONER OF INLAND REVENUE, Respondent