HAKIM BHAI v. COMMISSIONER OF INCOME TAX

056-NLR-NLR-V-35-HAKIM-BHAI-v.-COMMISSIONER-OF-INCOME-TAX.pdf


Hakim Bhai v. Commissioner of Income Tax
291
13" IPresent: Macdonell C.J. and Garvin S.P.J.
HAKIM BHAI v. COMMISSIONER OF INCOME TAX.
96—(Inty.) Special.
Income Tax—Loans on security of promissory notes and I.O.V’s.—Instrumentsdrawn for larger sums than actually lent—Profits accruing from loans—Not restricted to interest—Meaning of profit—Ordinance No. 2 of 1932.ss. 6 (I) (a), 47, and 52 (2).
Where a money-lender took, as security for loans, promissory notesand 1. O. U’s for larger sums than those actually lent by him,—
Held, that in assessing the income of the money-lender for purposes ofIncome Tax, it was competent to take into consideration any profitswhich may accrue to him from the loans other than the interest madepayable under them.
The difference between the amount stated in the promissory note orI. O. U. and the sum actually lent amounts to a profit within the meaningof section 6 (IX (a) of the Income Tax Ordinance.
Section 47 of the Ordinance is not inconsistent with the right toassess for the purpose of Income Tax the whole of the profits, whetherit consists of interest or any other form of profit, which a money-lenderderives from his business.. •
rn HIS was a case stated under section 74 (2) of the Income Tax Ordi–L nance by the Board of Review constituted under section 70 of the..Ordinance.
The appellant who was an Afghan money-lender appealed against anassessment of his income made for the year ending March 31, 1933. Hecarried on business in Colombo and lent money on the security of pro-missory notes and I. O. U’s, carrying interest at 18 per cent. His methodof conducting business was to take, as security for a loan, a promissory
292MACDONELL C.J.—Hakim Bhai v. Commissioner of Income Tax
note or an I. O. U. for a considerably larger sum which was repayable byinstalments spread over a certain period. The appellant rendered areturn supported by a statement of accounts declaring that his incomewas only interest at 18 per cent, per annum on all loans secured as above,the amount for the year preceding the year of assessment being Rs. 2,785.It was contended for the appellant that his sole income was from intereston loans and that under section 47 of the Income Tax Ordinance hisincome from that source should be the full amount of interest falling dueand that, if the appellant did receive sums in excess of the amountssecured to him, such sums were not income within the meaning of theIncome Tax Ordinance.
Hayley, K. C. (with him Iyer), for appellant.—The income of the petitioneris all derived from loans. The Income Tax Ordinance deals with loans ona purely artificial basis. It is not a tax on incomes. So far as loans areconcerned, the receipt of any money under the contract is not a conditionfor the payment of tax—see section 47. One must pay on the recoverableamount whether recovered or not. Conversely, if a man agrees to takea certain interest the fact that he agreed with the debtor to take a higherrate does not affect the amount of tax. It is not interest falling dueunder section 47. Interest falling due is interest legally recoverable.
L. M. D. de Silva, K.C., S.-G. (with him Wendt C.C.), for respondent.—Section 47 is not applicable. Even if it were, money falling due must bemoney which has fallen due because the tax is assessed on the incomefor the previous year. Section 52 (2) provides for artificial or fictitioustransactions and provides for the possibility of fictitious transactionsstanding in the way of the collection of income tax. The transactionwould be the whole transaction of loan. Fictitious is used in the sense ofsomething that pretends to be what it is not. This section is wide enoughto include all cases in which the effect of the transaction is to reduce theamount of tax.
[Garvin S.P.J.—In a case like the present if you disregard the trans-action, there is no transaction at all.]
You disregard merely what the transaction purports to be and to thatextent only. The taxing would be on the real transaction. The word" disposition ” is free from any such legal objections. Further, theassessment has been made under section 6 (1) (a) in this case. Section 47is therefore inapplicable. If section 47 applies then the excess would betaxable as other profits under the other sections. Even if the profitconsists of interest not legally recoverable, it can be taxed. (Minister ofFinance v. Smith.1)
Cur. adv. milt.
February 22, 1934. Macdonell C.J.—
This was a case stated under section 74 (2) of the Income Tax Ordinance,No. 2 of 1932, by the Board of Review, a body constituted under section 70of that Ordinance. Section 64 of the Ordinance provides that an IncomeTax Assessor appointed under the Ordinance can require any person inhis opinion chargeable with income tax, to furnish a return of incomeupon which the Assessor can make an assessment, or the Assessor can
1 (1927) A. C. 193, at 197.
MACDONELL C.J.—Hakim Bhai v. Commissioner of Income Tax. 293
make one, disregarding the return or even if the person has furnished horeturn. If the person against whom an assessment is made objects to it,he can under section 69 appeal to the Commissioner. Under that sectionthe Commissioner can institute further inquiry with a view to obtainingan agreement between the Assessor and the person assessed, sub-section(2), and failing such agreement shall fix time and place for the hearing ofthe appeal to him, sub-section (3), to which hearing he can, “ summonany person whom he may consider able to give evidence respecting theappeal to attend before him at the hearing and may examine such personon oath or otherwise ”, sub-section (5), and he may “ in disposing of anappeal …. confirm, reduce, increase, or annul the assessment”,sub-section (6). If the person assessed is dissatisfied with the decision ofthe Commissioner on the appeal under section 69, he can give notice ofappeal to the Board of Review, section 71 (3). The hearing and disposalof an appeal to that Board are regulated by section 73 which provides forthe attendance at it of the appellant personally or by representative,sub-section (2), and of the Assessor or other authorized person in supportof the assessment, sub-section (3). The rest of section 73 is as follows : —
The onus of proving that the assessment as determined by theCommissioner on appeal, or as referred by him under section 72, as thecase may be, is excessive shall be on the appellant.
All appeals shall be heard in camera.
The Board shall have power to summon to attend at the hearingany person whom it may consider able to give evidence respecting theappeal and may examine him as a witness either on oath or otherwise.Any person so attending may be allowed by the Board any reasonableexpenses necessarily incurred by him in so attending.
At the hearing of the appeal the Board may, subject to theprovisions of section 71 (4), admit or reject any evidence adduced,whether oral or documentary, and the provisions of the Ceylon EvidenceOrdinance, 1895, relating to the admissibility of evidence shall notapply.
After hearing the appeal, the Board shall confirm, reduce,increase, or annul the assessment as determined by the Commissioneron appeal, or as referred by him under section 72, as the case may be,or make such orders thereon as to the members present may appear fit.
„(9) Where under sub-section (8) the Board does not reduce or annul
such assessment, the Board may order the appellant to pay as costs ofthe Board a sum not exceeding one hundred rupees, which shall beadded to the tax charged and recovered therewith.
The provisions of the Ordinance as to cases stated, such as that nowbefore us, are contained in section 74 which enacts, as follows:—
(1) The decision of the Board shall be final: provided that eitherthe appellant or the Commissioner may make.an application requiringthe Board to state a case on a question of law for the opinion of theSupreme Court. Such application shall not be entertained unless it ismade in writing and delivered to the Clerk to the Board, together witha fee of fifty rupees, within one month of the date of the Board’s
294 jVIACDONELL C.J—Hakim Bhai v. Commissioner of Income Tax.
decision. If the decision of the Board shall be notified to the Com-missioner or to the appellant in writing, the date of the decision, forthe purposes of determining the period within which either of suchpersons may require a case to be stated, shall be the date of the com-munication by which the decision is notified to him.
The stated case shall set forth the facts and the decision of theBoard, and the party requiring it shall transmit the case, when statedand signed, to the Supreme Court within fourteen days after receivingthe same.
At or before the time when he transmits the stated case to theSupreme Court, the party requiring it shall send to the other partynotice in writing of the fact that the case has been stated on his appli-cation and shall supply him with a copy of the stated case.
The Supreme Court may cause a stated case to be sent back foramendment and thereupon the case shall be amended accordingly.
The Supreme Court shall hear and determine any question oflaw arising on the stated case and may in accordance with the decisionof the Court upon such question confirm, reduce, increase, or annul theassessment determined by the Board, or may remit the case to theBoard with the opinion of the Court thereon. Where a case is soremitted by the Court, the Board shall revise the assessment as theopinion of the Court may require.
In any proceedings before the Supreme Court under this sectionthe Court may make such order in regard to costs in the Supreme Courtand in regard to the sum paid under sub-section (1) as to the Court mayseem fit.
It is sufficient for the moment to say of this section that under it theSupreme Court has power to hear the point of law stated in the case andto determine it, and to require the confirmation, reduction, &c., of theassessment in question in accordance with such determination. TheCourt can also send the case back for amendment by the Board and thismight be necessary, for instance if the point of law for determination wasimperfectly stated.
The case stated to us was in the following terms:—
At a meeting of the Board of Review held on February 10, 1933,for the purpose of hearing appeals, under the provisions of section 73 ofthe Income Tax Ordinance, Seyed Hakim Bhai, hereinafter called theapplicant, appealed against an assessment of Rs. 9,080, tax Rs. 138.20,made upon him for the year ending March 31, 1933.
The following facts were admitted or established to the satisfactionof the Board : —
The applicant is a member of the “ Afghan ” community in Ceylon.
He is a native of Baluchistan in British India. For the year inquestion he was resident in Ceylon within the meaning of theIncome Tax Ordinance.
The applicant carries on in Colombo the business of a money-lender.
His method of conducting his business is to lend money on the
security of promissory notes or I. O. U’s. These documentsstate on the face of them that the client has borrowed a certain
MACDONELL C.J.—Hakim Bhai v. Commissioner of Income Tax 295
stated sum of money, and in every case it is stipulated thatinterest at the rate of 18 per cent, per annum shall be paidthereon. The applicant never lends money except on thesecurity of documents of this nature.
The applicant has rendered a return, supported by a statement of
accounts, declaring that his only income was from interest at18 per cent, per annum on all loans secured as mentioned above,the amount for the year preceding the year of assessment beingRs. 2,783.
The applicant’s usual method of conducting business was to take as
security for any loan, a promissory note or an I. O. U. for a con-siderably larger sum which is repayable by instalments spreadover a certain period.
His profit did not consist of interest at 18 per cent, per annum on
the amount stated in the promissory note or I. O. U. as theprincipal sum lent, but the difference between that sum and thesum actually lent; and
The return furnished by him did not truly disclose the whole of his
income for the year from his business as a money-lender.
It was contended on behalf of the applicant—
That the applicant’s return and statement are correct and should
be accepted.
That the whole of the applicant’s business consisted in lending
money on the security of promissory notes and I. O. U’s, andthese being written documents setting out particulars of trans-actions must be regarded as conclusive evidence of thosetransactions ; that no oral evidence could be led to contradictthem and that the Board must arrive at its determination onthe assumption that the documents correctly represented thetransactions.
That the applicant’s sole income was from interest on loans, and
that under section 47 of the Income Tax Ordinance his incomefrom that source should be the full amount of interest “fallingdue”. The amount of interest falling due, it was argued, isthe amount secured to and legally recoverable by the applicanton the documents. If the applicant does, in fact, receive sumsin excess of the amounts secured to him, such sums were notincome within the meaning of the Income Tax Ordinance andwfere not taxable, as only such interest as can be recovered atlaw on the documents could be taken into consideration.
That the applicant was entitled to exemption under the provisions
of section 15 of the Income Ordinance.
It was contended in support of the assessment—
That the applicant’s return and statement did not disclose the true
facts regarding his business and should-be rejected.
That the question at issue was not what sum could be legally
recovered as interest on certain documents, but a pure questionof fact, namely, what was the amount of profit derived by theapplicant from his business as money-lender.
296MACDONELL. C.J.—Hakim Bhai v. Commissioner of Income Tax
That the applicant had been assessed on the profits from a trade or
business under the Income Tax Ordinance, section 6 (I) (o).Section 47 refers solely to the determination of income frominterest, which is assessable under section 6 (1) (e). Section 47had no application to an assessment made under section 6 (1) (a).
That the profit derived by the applicant consisted of the difference
between the nominal amount of the promissory note or I. O. U.and the sum actually advanced. This difference was notinterest, and section 47 had no application thereto.
That the promissory notes and I. O. U’s in so far as they related to
the payment of interest, were “dispositions which were notgiven effect to” within the meaning of section 52 (2). TheAssessor had disregarded such dispositions, and was entitled todo so by virtue of that section.,
That under section 73 (4) of the Income Tax Ordinance the onus of
proving that the assessment was excessive lay on the applicant.He had failed to prove that the assessment was excessive. Theassessment should, therefore, be confirmed.
We, the members of the Board who heard the appeal, gave thefollowing decision: —
“The Board of Review having heard the Counsel for the appellant,and the Assistant Commissioner on behalf of the Assessor,confirm the assessment as determined by the Commissioner.
The Board orders the appellant to pay the sum of Rs. 100 as costs.
The Board came to the conclusion that the matter before them fordecision was a pure question of fact, and it was not prepared toaccept the statement of accounts submitted by the appellant asa true return of his income ”.
The applicant on February 23, 1933, required us to state a case ona question of law for the opinion of the Supreme Court which case we haveaccordingly stated and signed.
In argument before us the form of this case was variously criticised andis indeed open to objection on several grounds. It does not clearly raisewhat is the point of law we are to determine and paragraphs 4 (b) and 5describe as “ pure questions of fact ” what are in reality mixed questionsof law and fact. Thus, paragraph 4 (b) “ the amount of profit derivedby the applicant from his business as money-lender ” involves a questionof fact, namely, what amount of money the applicant has received fromthat business but it also involves questions of law, for instance, theinterpretation of section 6 (1) of the Ordinance, and, having regard toother portions of the case, of section 47 also, possibly of other sections aswell. None the less, though the case has been inartificially stated, it isperfectly possible to extract from it certain questions of law whichtherefore we can answer.
The gist of the facts set out in this case is that the applicant being amoney-lender takes from his borrowers promissory notes or I. O. U’s,wherein the borrowers acknowledge themselves to be indebted to him ina certain sum and promise to repay that sum with interest thereon at 18per centum per annum, and the applicant claims that his sole income is
MACDONELL CJ.—Hakim Bhai v. Commissioner of Income Tax. 297
the interest on the loans as stated in these documents, namely, the 18 percent, and that if he does, in fact, receive from his borrowers somethingover and above that interest and over and above the sums they bindthemselves to repay, those extra amounts he so receives are not ‘ income ’within the meaning of the Ordinance and so not taxable thereunder.This contention involves consideration of section 47 of the Ordinancethe material portion of which is as follows : —“ Income arising frominterest on loans, mortgages, and debentures shall be the full amount ofinterest falling due, whether paid or not”. This provision deals onlywith that kind of income from loans which can be described as ‘ interest ’,it says so; it does not profess to deal with any other income which maypossibly arise from loans. All interest from loans is income but it doesnot therefore follow that all income from loans is interest—it is thefamiliar, all terriers are dogs but all dogs are not terriers.
This consideration of section 47 shows negatively that in the case ofloans, ‘interest’ does not necessarily comprise all the income that maybe derivable from loans. Is there anything in the Ordinance whichstates positively that income derived from loans other than interest onthose loans is income taxable under its provisions ? Section 6 (1) defines‘ profits and income ’ to mean “ (a) the profits from any trade, business,profession or vocation ”, also “ (g) rents, royalties, and premiums ”.Having this definition of ‘ profits and income ’ we find from section 11 (1)that, save for certain exceptions not claimed in this case, “ the statutoryincome of every person for each year of assessment from each source ofhis profits and income in respect of which tax is charged by this Ordi-nance”—loans are a source in respect of which such tax is charged—“ shall be the full amount of the profits or income which was derived byhim or arose or accrued to his benefit from such source during the yearpreceding the year of assessment”. From this ‘statutory income’ esdefined in section 11 (1), there must be deducted under section 13 certainmatters or allowances, none of which have been claimed in the presentcase, to arrive at the ‘ assessable income ’ of any person, and when thatdeduction has been made—here there is nothing to deduct—you arriveat the taxable income of the person, section 14. The taxable income,then, of any person is his statutory income, less certain deductions whichdo not require to be made in this case, and his statutory income is the fullamount of the profits or income which was derived by him or arose oraccrued to his benefit from any source thereof taxable under the Ordi-nance,—loans are a taxable source—and the phrase f profits and income 'include profits from any business, section 6 (1) (a), and also premiums,section 6 (1) (g). Then there is positive enactment that income derivedfrom loans, other than interest on those loans, is taxable income underthis Ordinance.
Now this being the law, as disclosed in the sections quoted, it remainsto apply it to the facts stated in the case before us. Paragraphs 2 (e) and(J) of that case are as follows:—“ (e) The applicant’s usual method ofconducting business was to take as security for any loan a promissorynote or I. 0. U. for a considerably larger sum which is repayable byinstalments spread over a certain period, (f) His profit did not consistof interest at 18 per cent, per annum on the amount stated in the
298 MACDONELL CJ—Hakim Bhai v. Commissioner of Income Tax.
promissory note or I. O. U. as the principal sum lent, but the differencebetween that sum and the sum actually lent In the bygoing, we maynote that it was conceded in argument that there was evidence before theBoard for the findings on fact contained in these paragraphs 2 (e) and (f)
—so far as they do contain findings of fact, for they also contain a proposi-tion of law—though the adequacy of that evidence was contested. Thefacts are then that the applicant would pay to his borrower one sum butwould require the borrower to admit his indebtedness for, or to promiserepayment of, a larger sum. The difference between the larger sum andthe smaller sum, seems clearly to be a ‘profit’, section 6 (1) (o), thedefinitions of ‘ profit ’ in the Concise Oxford Dictionary being ‘ advantage,benefit, pecuniary gain, excess of returns over outlay ’. The differencebetween the larger sum and the smaller might also be described as a‘ premium ’, section 6 (1) (/), one of the definitions of which in the sameDictionary is ‘ sum additional to interest ’. It seems to follow then thatthe difference between “ the amount stated in the promissory note orI. O. U. as the principal sum lent …. and the sum actually lent”is a ‘ profit ’ or ‘ income ’ derived by the lender from a “ source in respectof which tax is charged ” under the Ordinance, and therefore a portionof his statutory income under section 11 (1), which by the combinedeffect of sections 13 and 14 becomes his taxable income, and he is taxablethereon accordingly. This conclusion will dispose of the matters of lawraised in paragraphs 2 (e) and (f), and also of that raised in paragraph 2 –
, for on the facts stated the return made by the applicant did not dis-close the whole of the income, as that word is defined by section 11 (1) readin conjunction with section 6 (1) (a) and (g), made by him as a money-lender, and also of that raised in paragraph 4 (b) which though stated asa ‘ pure question of fact ’ really contains a question of law, namely, theprofit derived by applicant from his business as a money-lender; thedifference between the larger sums and the smaller sums mentioned justabove, will be a profit, defined as above. Further this conclusion willdispose of the matters of law raised in paragraph 3 (c) and in paragraphs4 (c) and (d) since it holds that in questions as to profit or income fromloans, it is necessary to consider and, where the facts require, to apply notonly section 47 but also section 11 (1) read in conjunction with section 6(1) (a) and (g).
Further questions of law, dependent upon those just determined andupon the facts on which they are based, arise out of paragraph 3 (b) andparagraph 4 (e) of the case. Those paragraphs contain the contention,of the applicant that the written documents, promissory notes andI. O. U’s, setting out particulars of his transactions as money-lender mustbe regarded as conclusive evidence of those transactions not to be contra-dicted by oral evidence, and the contention in reply that these promissorynotes and I. O. U’s in so far as they relate to interest are “ dispositionswhich were not given effect to ” within the meaning of section 52 (2) andconsequently to be disregarded. The important parts of section 52 areas follows:—“ (2) Where an Assessor is of opinion that any transactionwhich reduces or would reduce the amount of tax payable by any personis artificial or fictitious or that any disposition is not in fact given effect to,he mny disregard any such transaction or disposition and the persons
MACDONELL CJ.—Hakim Bhai v. Commissioner of Income Tax. 299
concerned shall be assessable accordingly. (3) Nothing in this sectionshall prevent the decision of an Assessor in the exercise of any discretiongiven to him by this section from being questioned in an appeal againstan assessment in accordance with Chapter XI. (4) In this section (a)
‘ disposition ’ includes any trust, grant, covenant, agreement, or arrange-ment ”.
The ‘disposition’ is said to be this. The applicant takes a writtenstatement from the debtor that the debtor owes him, and will repay byinstalments, say, Rs. 200, but in actual fact the applicant has only lentthe debtor, say, Rs. 150. The admission, express or implied, by thedebtor that he has borrowed, and so received, the Rs. 200, is said to bea disposition in the sense of ‘agreement’ or ‘'arrangement’ which is‘ not in fact given effect to ’ since in fact he has not received Rs. 200 butRs. 150 only. But he has agreed to pay the Rs. 200 and this sum to theextent of Rs. 50 will be a ‘ profit ’ to the lender since it is an excess ofreturns over outlay, and it is argued that the disposition can be dis:regarded and the lender assessed on the profit disclosed. This may beso, but it is perhaps unnecessary in the present case to make anypronouncement thereon.
Paragraph 4 (f) after referring to section 73 (4) of the Ordinance asplacing on an applicant the onus of proving that his assessment is excessivegoes on to state that this applicant has failed to prove that his assessmentwas excessive. It only remains to mention paragraph 5 of the case whichformally confirms the assessment as determined, declares the matter tobe one of pure fact and declines to accept that statement of accountssubmitted by the appellant as a true return of his income. It has beenpointed out above that this paragraph 5 contains a proposition of law aswell as statements of fact, but the conclusions set out above will disposeof the proposition of law contained therein.
The other paragraphs in the case not specifically referred to in thisjudgment, namely, paragraphs 1, 2 (a), (b), (c) and (d), 3 (a) and (d) donot seem to contain any question of law but only questions of fact or ofargument as to fact and do not therefore need discussion.
I would summarize the conclusions arrived at on those points of lawwhich can be collected from the case submitted to us. Loans mayproduce to the lender that kind of profit or income called interest taxableunder the Ordinance as interest, section 47, but they may produce afurther profit or income derived otherwise than by way of interest onthose loans which further profit or income will be taxable under theOrdinance, by section 11 (1) read in conjunction with section 13 andsection 14, if falling within the definition of profit or income given insection 6 (1). On the facts stated, the difference between the sum namedby this applicant in his business instruments as the sum repayable, andthe sum which he actually lent, will be a profit within section 6 (1), andthe recording in a business instrument one sum as lent while at the sametime lending a smaller stun to the person bound by that instrument, maypossibly be a disposition not in fact given effect to within section 52 (2),and if so liable to be disregarded under that section. The businessinstruments of the applicant were not conclusive evidence of the trans-actions recorded therein but could be contradicted by parol evidence.
300GARVIN S.P.J.—Hakim Bhai v. Commissioner of Income Tax.
In addition to the matters of law discussed and determined above, alarge number of matters were argued as to which it seems unnecessaryto pronounce an opinion. It was urged for the appellant that in statinga case the Board must state that case which the applicant asks and noother. It was also urged that the evidence upon which the Board foundcertain facts proved was insufficient but at the same time it was concededthat there was some evidence for such finding and also (as I understood)that if there is some evidence to justify a finding on fact by such a tribunalas the Board, a Court will not go behind that finding. The differencesbetween Ordinance No. 2 of 1932 and the corresponding English and Indianenactments were also insisted upon, by both sides. In support of theassessment emphasis was laid on the differences between Ordinance No. 2 of1932 and other income tax enactments as increasing under that Ordinancethe powers of the taxing authority and diminishing the rights of the sub-ject in that behalf. It was argued on the same side that section 73 (7)of the Ordinance had “ emptied the term evidence of all content ”—thisphrase was put from the bench but adopted by the Solicitor-General,—also that ‘ to the extent that the Board of Review adopts the findings ofthe Commissioner the Supreme Court on a case stated has seisin of thematter1 but that 1 to the extent that the Board departs from the Com-missioner’s finding, the matter is beyond the competence of the Court*.These questions and others were very ably argued before us on both sidesbut a decision upon them is unnecessary since the matters of law arisingout of the case stated to us can all be determined, and have all beendetermined, without pronouncing on these questions. They are matterswhich can be decided when they definitely arise, but in the case beforeus they do not arise, so I would wish to express no opinion upon them.
For the reasons given earlier in this judgment I think that the assess-. ment on the applicant referred to in paragraphs 1 and 5 of the case statedmust be confirmed, and this appeal dismissed. The appellant must paythe costs of these proceedings but the Rs. 50 already paid by him inaccordance with section 74 (1) may be taken as part of the costs he is nowordered to pay.
Garvin S.P.J.—
This matter comes before us upon a case stated by the Board of Reviewunder the provisions of section 74 of the Income Tax Ordinance, No. 2 of3932. The case was stated at the instance of a person who objected to theassessment of his income made under the provisions of this Ordinanceand who, for convenience, will be referred to as the appellant.
As a person who, in the opinion of the assessors, was chargeable withtax, the appellant was required to and did furnish a return of his income.The assessor did not accept the return, and, in accordance with theprovisions of section 64 (2) (b), proceeded to make an estimate of theamount of his assessable income. Being dissatisfied with this assessment,he appealed to the Commissioner, and from the decision of the Com-missioner affirming the assessment already made, he appealed in duecourse to the Board of Review. The Board in turn confirmed theassessment.
GARVIN S.P.J.—Hakim Bhai v. Commissioner of Income Tax. 301
The appellant carries on in Colombo the business of a money-lender.He lends money on the security of promissory notes or I. O. U’s. Inevery instance, the money was lent at the rate of 18 per cent, per annum,and his return consisted of a statement of accounts showing as his onlyincome interest at 18 per cent, on various loans secured by promissorynotes or I. O. U’s.
The return appears to have been rejected on the ground that whereasthese documents stated that what was lent was the sums specified oneach note or I. O. U., the fact was that the amounts entered in thesedocuments'were greatly in excess of the amounts actually lent. In theresult, therefore, the appellant, in respect of such transactions, receivednot only the interest upon the larger sums specified in the documents,but the difference between the amounts actually lent and the amountsspecified in the documents which the borrower promised to repay.
It was admitted that there was some evidence to support the conclusionarrived at by the assessor, and, confirmed by the various tribunals ofappeal that the appellant’s profits did not consist solely of the interest at18 per cent, per annum on the amounts stated in the promissory notes, butit was urged that by reason of the provisions of section 47 of the IncomeTax Ordinance income from loans was restricted to the interest on theloans and that it was not competent, therefore, in making an assessmentof the income of a person who may appear to be chargeable with tax,to take into consideration any other profit which the lender may derivefrom such loans. The point, therefore, which emerges upon a perusal ofthe case stated for determination by this Court is whether the appellantis right in his contention that, as the effect of section 47 of the Income TaxOrdinance, it is not permissable, when assessing the appellant’s income, totake into consideration any profits which may accrue to him from loansother than the interest payable by the borrower. Now, the provisionsof section 47 with which we are here immediately concerned are asfollows:—
“ Income arising from interest on loans, mortgages and debenturesshall be the full amount of interest falling due, whether paid or notThe remainder of the section deals with cases in which interest isunpaid or is irrecoverable and prescribes how and what measure ofrelief is available in such cases.
Now, all that is said in the material part of section 47 is that the“ income arising from interest on loans ” shall, for the purposes of theassessment, be taken to be the full amount of the interest which has fallendue irrespective of whether the interest has been paid or not. Manifestly,it was a provision that was intended to facilitate the work of assessmentby enabling the assessors to treat as income all interest which has fallendue, while leaving it to the person assessed to plead and prove theexistence of circumstances which entitled him to relief. The existenceof such provision is in no sense inconsistent – with the rights to assess,for the .purpose of income tax, the whole of the profits, whether it consistsof interest or any other form of profit which a money-lender derives fromhis business.
302
Phipps v. Bracegyrdle
There might possibly have been some foundation for the argument hadthe opening words of the section been “income arising from loans,mortgages, and debentures shall be the full amount of interest falling due,whether paid or not It is impossible to construe the section as bearingany such connotation as the words of the legislature are “ income arisingfrom interest on loan, &c.”. Where, as in this case, the assessor and thevarious tribunals of appeal were satisfied that other profits were derivedby the appellant from his business in addition to the interest payable onthe amounts specified in the securities taken by him, it is impossible tosay that they were wrong in refusing to assess the appellant on the basisof the return made by him.
It does not appear to me to be necessary, for the determination of thequestion of law which arises upon the case stated, to determine whetherthe assessor may not also rely upon the provisions of section 52 (2). As forthe contention that no oral evidence was admissible or should have beenadmitted to contradict the terms of these various promissory notes andI. O. U’s, or to show the true nature of the transactions which took placebetween lender and borrower, it is sufficient to state that they were notvery strongly pressed upon us and clearly cannot be sustained. Thereis no occasion, therefore, to revise the assessment made in this case whichis accordingly affirmed.
The appellant will pay the taxed costs of this proceeding. The sum ofHs. 50 already paid by him will be retained as part of the costsawarded.
Appeal dismissed.