025-NLR-NLR-V-56-INCORPERATED-LAW-SOCIETY-OF-CEYLON-Appellant-and-COMMISSIONERR-OF-INCOME-TAX-.pdf
ROSE C.J.—Law Society v. Commissioner of Income Tax.
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1954Present: Rose C.J. and Sansoni J.INCORPORATED LAW SOCIETY OF CEYLON, Appellant, andCOMMISSIONER OF INCOME TAX, Respondent
.S'. C. 146—Income Tax Case Stated 62/366/BRA214
Income Tax—Law Society—Annual grant received from Government—Assessable toincome tax—Meaning of terms “ Business ”, “ Annuity ”, “ Income ”— Ordi-nance. No. .33 of 1947, ss. 3, 7—Income Tax Ordinance (Cap. 1S8), 88. 5, ti (/)(«) (/) </.), 7 (/) (c)..
Thu annual grant of Rs. 50,000 received by tlio Tiicor|x>rated Law Society ofCoylon from the Government under section 7 of Ordinance No. 33 of 1047 ischargeable with tax under one or all of the following sub-heads of section 6(1)of the Income Tax Ordinance :—
(n) the profits from any business ;
(/) unnuity ;
(A) income from any other source whatsoever, nut including profits of a casualand non-recurring nature.
AiSE stated under the Income Tax Ordinance.
11. F. Perertt, Q.C., with C. Thiagalvngam, (J.C., I1. Navaratnara.jah andP. Somatilakam, for the assessee appellant.
T. S. Fernando, Acting Attorney – Gene ra 1, with M. Tiruchelvam andMtirvyn Fernando, Crown Counsel, for the Commissioner of Income Tax,respondent.
Cur. adv. vult.
iSopteinlier 7, 1954. Rose C.J.—
The Incorporated Law Society of Ceylon was incorporated by Ordi-nance No. 33 of 1947.
Section 7 of the Ordinance provides :
'' The Government shall make to the Society, out of the revenue ofthe Island, a grant of fifty thousand rupees per annum. The amount ofthe grant shall be paid to the Society on or before the thirtieth day ofSeptember in each year, commencing in the year 1947. ”
The question that arises for consideration is whether this annual grantof Rs. 50,000 can properly be regarded as an item of income.
The first point taken on behalf of the Appellunt Society was that theprovisions of .Section 7 (1) (c) of the Income Tax Ordinance, Chapter 188,is applicable. The sub-clause exempts from tax—
The income of any institution or trust of a public characterestablished solely for charitable purposes. ”
5LVI
J. N. R 40718-1,590 (11/54)
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ROSE O. J.—Law Society v. Commissioner of Income Tax
The general objects for which the Society.'is constituted are set out inSection 3 of the Ordinance and read as follows :—
“ (a) to maintain correct and uniform practice and discipline amongthe members of the profession of Proctors in their capacityas proctors, or as notaries, or as both ;
to establish, regulate, and maintain Libraries, Pension and Benefit
Schemes and other financial arrangements, for the benefit ofits members and their dependants ;
to consider, represent and express the opinion of its Council or
members, and to collect and circulate information, relating tolegislative or other measures affecting the Civil or CriminalLaw of Ceylon ;
generally to protect and promote the interests and welfare, rights
and privileges of the profession of Proctors in Ceylon and ofthe public in relation to that profession ;
to discharge and perform such functions and duties as may be
conferred or imposed upon the Society or any Committee thereofby any other written law. ”
In the course of the argument before us learned counsel for the AppellantSociety conceded—in my opinion properly—that the general objectscould not reasonably be contended to be solely charitable in their nature,and that therefore he did not propose to press the point that the Societywas established solely for charitable purposes within the meaning ofSection 7 (1) (c) of the Income Tax Ordinance.
That being so, the Attorney-General contends that the grant in questionis caught up by Section 6 (1) of the Income Tax Ordinance under one orall of the following sub-heads :—
“ (a) the profits from any trade, business, profession, or vocation forhowever short a period carried on or exercised ;….
(/) any charge or annuity ;….
(h) income from any other source whatsoever, not including profitsof a casual and non-recurring nature. ”
While normally it is not regarded as relevant to consider the terminologyof the “ Objects and Reasons ” of an ordinance for the purpose of derivinginformation to assist in its interpretation, it appears that in the presentmatter in the proceedings before the Board of Review a copy of the“ Objects and Reasons ” was produced and marked (A3). It "is ofinterest—and assistance in determining the applicability of Section 6(1)
and (h) of the Income Tax Ordinance—that the “ Objects andReasons ” which accompanied the draft ordinance at the date of itsintroduction in 1947 included the following :—
“ In England and other Empire countries, the fees payable bymembers of the profession upon admission and for annual certificatesauthorising them to practise are paid to Societies enjoying the samestatus and discharging the same functions as the Law Society will, inCeylon, under the new legislation. At present, under local Ordinances,those fees are payable to the local authority within whose area aproctor practises his profession. It is not proposed at present to makeany alteration in this respect under the existing law, but since funds
ROSS C.J.—Law Society v. Commissioner of Income Tax90
must be made available to the Society to enable it properly to dischargeits important functions and duties, the Bill provides that the Govern-ment should make an annual grant of fifty thousand rupees to theSociety. This amount represents the average sum which is recoveredannually from members of the profession. ”
In search of a test to determine whether the Law Society may be saidto be carrying on a business within the meaning of sub-clause (a), thelearned Attorney-General referred to Commissioner a of Inland, Revenuev. Marine Steam Turbine Co1., where at page 203, Rowlatt J. says, inconsidering the meaning to be attached to the word “ business ”,
“ the word ‘ business ’, however, is also used in another and a verydifferent sense, as meaning an active occupation or profession con-tinuously carried on, and it is in this sense that the word is used inthe Act with which we are here concerned. I have therefore to askmyself whether the respondent company is carrying on a ‘ business ’in this latter sense. ”
This judgment goes on to hold that on the facts of that particularease certain royalties received by the “ old company ” could not be re-garded as part of the profits of any “ trade or business ” carried on by itwithin the meaning of the Finance Act. It is to be noted in thatparticular case that the learned Judge said,
“ When it found that these royalties were likely to continue to be paidfor some years, it thought that it would be best to stay the winding upand thus to continue the existence of the company, which was by nomeans a very active existence, until these royalties had ceased to bepayable. Jt is contended on behalf of the Crown that the respondentcompany, merely because it continues to exist for the purpose of receivingthese moneys, and is a registered company, is carrying on ‘ business ’within the meaning of the Act. I am unable to come to that conclusion.The respondent company have ceased to carry on the business whichthey originally carried on, and are now merely receiving royalties for acertain number of years in part payment for the business and theassets of the business with which they have parted. In these circum-stances I am of opinion that they are not carrying on business withinthe meaning of the Act. ”
The case of Smart (H. M. Inspector of Taxes) ». Lincolnshire, SugarCo., Ltd. 2 is also in point. The matter concerns the effect of the BritishSugar (Subsidy) Act, 1925, which provided that a subsidy be paid for anumber of years on sugar manufactured in Great Britain from beet growntherein. The British Sugar Industry (Assistance) Act, 1931, provided forfurther assistance to be given to companies engaged in such manufacture(of which the Respondent Company was one) by way of weekly advancesfor one year commencing on 1st October, 1931. In the event of a riso insugar prices, the advances were, in certain circumstances, repayable,otherwise the advances were not to be repayable. On appeal from theoriginal assessment under Schedule (D) of the relevant Finance Act, theSpecial Commissioners held that the advances were in their nature loansand not trading receipts, and that, in any event, they were not tradingreceipts until the period during which possible repayment might be1 {1920) 1 K. B. 193.* (1937) 20 Tax Cases 643, 662.
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ROSE C.J.—Law Society v. Otamwsioner of Income Tax
claimed liad expired ; and the Company could not be assessed to IncomeTax in respect thereof in the year under appeal. On appeal the mattercame before the Court of Appeal and subsequently the House of Lords,where in both cases it was held, in effect, that in view of the businessnature of the sums in question they were trading receipts of the companyand properly to be taken into account for Income Tax purposes in theyear in which they were received.
It is, in my view, unnecessary to set out in detail the reasons whichFinlay J. and subsequently Lord Wright gave in coming to theirconclusion. But the facts of the case and the basis of the decision ul-timately arrived at would seem to assist the learned Attorney-General’scontention in the present matter.
As to the meaning of the term “ business ” the case of Bolls v. Miller1 isalso helpful. In that matter Lindley L.J. held that a chafitableinstitution called a “ Home for Working Girls ”, where the inmates wereprovided with board and lodging, whether any payment was taken ornot, was a “ business ”. At page 88 the learned Lord Justice said,
“ It is very true it is a charitable lodging-house, but what is beingdone ? The defendants are associated together for the purpose of findinga home for these working girls, and they invite them to come and boardand lodge there. They do not take any payment now—I do not thinkthat is material—but they have a staff …. When wo look intothe dictionaries as to the meaning of the word ‘ business I do notthink they throw much light upon it. The word means almost anythingwhich is an occupation, as distinguished from a pleasure—anything whichis an occupation or duty which requires attention is a business—I donot think we can get much aid from the dictionary.”
Applying that test it would seem to be difficult to come to any otherconclusion but that the Law Society in Ceylon are engaged in a“ business ” wherein they perform the various activities necessary tocarry out the general objects of the Society.
Be that as it may, it seems to me that, with regard to sub-clause (/),there can be no doubt that the grant in question would fall within themeaning of the term ” annuity ”, nor, indeed was any substantial argu-ment adduced to the contrary. It is true that learned counsel for theappellant suggested that an annual payment need not necessarily beregarded as an annuity, and he referred to Perrin v. Dickson (Inspectorof Taxes) a. That case however referred to the details of a policy ofinsurance, and it was held on the facts of that case that the annualpayments made by the Assurance Society did not constitute an annuitywithin the meaning of the Income Tax Act, but were intended to effectrepayment of the principal sum with interest ; and therefore that IncomeTax was only payable upon such part of them as consisted of interest.
It does not seem to me that the ratio decidendi in that case isof assistance to the appellant in the present matter.
With regard to sub-clause (h) one has to consider the meaning tobe attached to the word “ income ”. We were referred in the course ofthe argument to tho case of Higgs v. Wrightson 3 and Charles Brown
* (1884) 27 Chancery Division 71.* (1929) 1 K. B. D. 107.
3 (1944) 26 Tax Cases 73.
ROSE C.J.—Law Society v. Commissioner of Income Tax
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Company v. Commissioners of Inland Revenue *. It would seem to boclear from the judgments in these two cases and from a passage in LordWright’s judgment in Smart {H. M. Inspector of Taxes) v. LincolnshireSiityir Co. Ltd. (supra) that the teat to be applied is whether the receiptin question is of a revenue nature or of a capital nature.
Learned counsel for the appellant contends that the functions of theLaw Society are, in effect, “ capital ” functions, and therefore it wouldnot be right to regard the grant in aid payable by Government as being ofa revenue nature or as being paid on revenue account. It seems to me.however, that there is nothing in the general objects as such which wouldnecessarily lead one to the conclusion that the grant in question wasintended to be only for “ capital" purposes. Indeed, the contrarywould seem to be the case, particularly if one has regard to the objectsand reasons of the ordinance to which I have already adverted.
For all these reasons I am of opinion that there can lie no doubt thatthe annual grant in question is caught up by Section 6 (1) (/) and {h) ofthe Income Tax Ordinance. Whether it is also caught up by Section 6(!) («) is perhaps more open to question, as there is some attraction inthe argument of Learned counsel for the appellant that Section 6 (1) (a)requires the existence of a profit making motive on the part of the personor association carrying on the business in question. Having regardhowever to the views expressed by the learned Judges, on this aspect oftile matter, in the cases to which T have referred, 1 consider that thebetter opinion is that the absence of a profit making motive does notnecessarily take the business in question out of the scope of the sub-clause, if the other requirements of a business” are present ; and thattherefore this grant, is also caught up by the sub-clause (a).
Lt is perhaps unnecessary to add that in the determination of thismatter I have been guided entirely by legal considerations. Thequestion as to whether or not it is desirable that the Law Society shouldpay Income Tax in respect of this Government grant is a matter affectingthe taxation policy of government. If the decision in this ease is con-sidered, in fact, to constitute an injustice, the matter, of course, can beremedied by a simple legislative amendment.
The answ ers to the specific questions of law submit ted to us under para-graph 10 of tiie case stated are therefore as follows :—
Is the Society exempt from income tax under Section 7 (I) (r.) '{
…. No.
Is the grant of Rs. 50,000 received from Government an " income ”
under Section 5…. Yes.
Is the Grant of Rs. 50,000 received from Government profits ”
from any business under Section 0 (I) (a)…. Yes.
Is it a charge or annuity under Section C (1)(/) …. Yes, it is
an annuity.
Is it ‘‘ income ” from any other source whatsoever under Section
6 (1) (h)…. Yes..
There will be no order as to costs.
Sanson r J.—I agree.
.Appeal dismissed.
1 (1930) 12 Tax Cases 1250.