061-NLR-NLR-V-53-M.-E.-DE-SILVA-Appellant-and-THE-COMMISSIONER-OF-INCOME-TAX-Respondent.pdf
280
M. E. de Silva v. The Commissioner of Inccfme Tax
1951
Present: Gratiaen J.M. E. de SILVA, Appellant, and THE COMMISSIONER OFINCOME TAX, Respondent
S. C. 507 with Application 512—M. C. Colombo, 5,061
Income Tax Ordinance (Cap. 188)—Tax due from Company—Proceedings takenagainst Director personally for recovery of the tax—Conclusive nature of certi-ficate issued by Commissioner of Income Tax—Vicarious liability—Sections62, 64, 76, 80.
Where income tax due from a limited liability Company was in default andthe Commissioner of Income Tax, purporting to initiate proceedings underSection 80 of the Income Tax Ordinance, sought to recover the tax from theManaging Director of the Company and not from the Company itself—
Held, (i) that the certificate issued by the Commissioner of Income Taxdid not preclude the Managing Director from taking objection that he was notthe “ defaulter ” within the meaning of Section 80 of the Income Tax Ordinance.A defaulter, for the purposes of Section 80, is a person who, having been dulyassessed under Section 64 as being " chargeable with tax ", has omitted, incontravention of Section 76, to pay such tax on or before the date specified inthe notice of assessment served on him as the person so chargeable.
(ii) that the provisions of Section 62 of the Icome Tax Ordinance do notmake the principal officer of a Company chargeable out of his personal assetswith income tax levied on the Company’s assessable income.
» (1936) 16 O. L. Bee. 204.
GRATZAEN J.—M. E. de Silva v. The Commissioner of Income Tax
281
^^L-PPEAii, with application in revision, against an order of theMagistrate’s Court, Colombo.
N.K. Choksy, K.G., with N. M. dc Silva, H. Mack and B. D- Gandevia,for the accused appellant.
T. S. Fernando, with A. Mahendrarajah, Crown Counsel, for the AttorneyGeneral.
Cur. adv. vult.
November 5, 1951. Gratiaen J.—
The facts to which this appeal relates are not in dispute.
The appellant was the Managing Director of an incorporated Companywith limited liability carrying on business in Colombo under the name ofthe Ceylon Building Syndicate Limited. The Company had from timeto time been duly assessed to pay income tax under the provisions of theIncome Tax 'Ordinance (Cap. 188) and on 10th June, 1950, the aggregateamount of tax in default—including a sum added under Section 76 (5) fornon-payment—was Rs. 9,720. The Commissioner of Income Tax thereforeinitiated proceedings under Section 80 of the Ordinance for the recovery ofthe amount in default in the Magistrate's Court of Colombo. A certificatewas issued by the Commissioner for the purpose of these proceedings de-clearing the appellant (as the “ principal officer ” of the Company) and notthe Company itself to be the defaulter chargeable with tax for the relevantyears of assessment Admittedly the earlier notices of assessment hadbeen made out by the taxing authority on the basis that the Company wasthe assessee, and no suggestion had at that time been made that vicariousliability to pay the amounts concerned was imputed to the appellant byvirtue of his office. Pending the proceedings before the learned Magistratethe Commissioner of Income Tax issued an amended certificate declaring,that “ the amount of tax to be recovered from the defaulter Mr. M. E.
de SUva, Managing Director, Ceylon Building Syndicatehad
been reduced to Rs. 6000
The appellant took objection to the proceedings for the recovery of thetax under Section 80, in so far as his personal liability was alleged to beaffected, on the ground that he was not the “ defaulter ” within the mean-ing of the Section. After inquiry the learned Magistrate over-ruled thisobjection. The judgment proceeds on the basis (a) that the proviso to-Section 80 (1) precluded the Court from “ considering, examining or de-ciding the correctness of any statement in the certificate of the Commis-sioner and (6) that in any event, by virtue of Section 62 of the Ordinance,the appellant, as principal officer of the Company, was “ answerable fordoing all such acts, matters or things as are required to be done under theprovisions of the Ordinance by (the Company) The learned Magistratetook the view that these words imposed a personal obligation to pay thetax due by the Company, and accordingly sentenced the appellant fo-und ergo a term of 6 weeks’ simple imprisonment. There can be no ques-tion that, if the learned Magistrate’s ruling on these questions of law be
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(IRATTABN J.—M. E. de Silva v. The Commissioner of Income Tax
correct, his order was properly made in the exercise of the special juris-diction vested in Magistrates under Section 80 (1) of the Income TaxOrdinance.
Learned Crown Counsel has submitted, and Mr. Choksy concedes, thatno appeal lies against an order purporting to have been made by a Magis-trate under Section 80 (1) of the Ordinance. Commissioner of Income Taxv. de Vos 1 and Vaz v. Commissioner of Income Tax *. In both thesedecisions, however, it was indicated that the correctness of such orderscould appropriately be examined by this Court in the exercise of its revi-sionary powers. It is on this basis that I propose to consider the questionsof law which were fully argued before me.
The conclusion at which I have arrived is that the tax in respect ofwhich the Company was in default could not be deemed under Section 80(1) of the Ordinance to be a fine imposed on the appellant personally.The sentence of imprisonment passed on the appellant was thereforeirregular, and must be set aside. For the reasons which I shall indicate,the fundamental objection raised by the appellant under Section 80 of theIncome Tax Ordinance should have been upheld.
I shall first consider the preliminary ruling given by the • learnedMagistrate with regard to the effect of the proviso to Section 80 (1)which is in the following terms: —
“ Provided that nothing in this section shall authorise or require theMagistrate in any proceedings thereunder to consider, examine, or decidethe correctness of any statement in the certificate of the Commissioner.”Section 80 (2)-of the Ordinance proceeds to declare as follows: —
“ In any proceeding under sub-section (1) the Commissioner’s certificateshall be sufficient evidence that the tax has been duly assessed and is in de-fault. and any plea that the tax is excessive, incorrect, or under appealshall not be entertained, except that where any person proceededagainst has not appealed within the proper time against the assessmentin respect of which the tax is charged and alleges that the tax is in excessof the sum which would have been charged if he had so appealed, theCourt may adjourn the matter to submit to the Commissioner hisobjection to the tax.
The real purpose of the proviso to Section 80 (1) is to prevent a defaulter whohas been duly assessed to income tax for which he is properly chargeablefrom re-agitating in the course of proceedings taken under Section 80 (1) forthe recovery of such tax, the correctness of the assessments served on him.The reason is obvious. A Magistrate’s jurisdiction in matters of this kindis the jurisdiction of a Court of execution simpliciter, and not that of anappellate tribunal. An assessee who disputes the correctness of anassessment made on him has already had access to other machinery pre-scribed by the Ordinance, although Section 80 (2) and Section 80 (3) doafford some limited relief to an assessee who desires a further opportunityof satisfying the Commissioner (and not the Court) that the amount ofthe original assessment should be reconsidered.
1 (1933) 36 N. L. R. 349.
* (1945) 46 N. L. R. 201.
SBATtAEN J.—M. B. dc Silva v. The Commissioner oj Income Tax
288
So much is clear enough, but I am not prepared to accede to the furtherproposition that the combined effect of the proviso to Section 80 (1) and ofSection 80 (2) is to prevent an alleged defaulter against whom proceedingshave been initiated from satisfying the Magistrate that he was not dulyassessed, or that he was~not a defaulter in respect of any tax for which,hewas properly chargeable under, the provisions of the Ordinance. If, forinstance, A is assessed to pay tax, and proceedings are taken under Section'80 against B for the recovery of such tax, I see nothing in the language ofthe Section which precludes B from raising the objection that lie was notin truth or in law the defaulter against whom an order under the Sectioncould properly be made. This proposition is implicit in the relevant partof VVijeyewardene J’s judgment in Vaz's case (supra). Indeed, Section 80 (2)makes the Commissioner’s certificate in such proceedings only " sufficientevidence that the tax has been duly assessed and is in default ”. I amcontent in this connection to adopt, with respect, the observations ofBennett J. in re Duce and Beets Cash Chemists (Southern) Limited’sContract, (1937) Ch. 642 at page 647:—
"It is a truism that the word ‘ sufficient ’ is not the same word asand has not the same meaning as ‘ conclusive …. I think onemost find some context of a compelling kind before one can decidethat the word sufficient has the same meaning as conclusive ”.
For these reasons I am satisfied that it was open to the appellant to raisethe objection before the learned Magistrate that, where the Companyof which he was admittedly the principal officer had defaulted in the pay-ment of income tax, the Company and the Company alone must be re-garded as the defaulter against whom proceedings under the Ordinancecould be instituted for recovery of the tax. The soundness of this ob-jection depends, of course, on the true meaning of Section 62 of theIncome Tax Ordinance which is in the following terms: —
“ The secretary, manager or other principal officer of every companyor body of persons corporate or incorporate shall be answerable fordoing all such acts, matters or things as are required to be done under theprovisions of this Ordinance by such company or body of persons •:
Provided that any person to whom a notice has been given under theprovisions of this Ordinance on behalf of a company or body of personashall be deemed to be the principal officer thereof unless he proves thatbe has no connection with the company or body of persons or that someother person resident in Ceylon is the principal officer thereof ”.
Beamed Crown Counsel contends that the “ answerability ” of the “ prin-cipal officer " of a company is wide enough to include an absolute and un-qualified responsibility to pay, out of his own personal assets ifnecessary, the Company’s dues; and that this responsibility wouldarise even if the Company’s income had never reached his hands or had,for that matter, accrued and been expended at a date long prior to the dateof his appointment. Mr. Choksy has argued,' on the other hand, that inthe context in which the section appears in the Ordinance, the principalofficer is only made responsible by virtue of his office "for such matters as
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GRATIAEN J.—M. E. de Silva v. The Commissioner of Income Tax
the furnishing of returns and the giving of information which an assessor isentitled to call for in order to assess the Company’s liability to tax. Inother words, Mr. Choksy submits that Section 62 does not, expressly or bynecessary implication, impose vicarious liability on the principal officerfrit the payment of tax for which the Company is primarily and, indeed,solely chargeable.
The question for my decision is not free from difficulty, but I take theview that, on an examination of the entire scheme of the Income TaxOrdinance, Mr. Choksy’s contention is entitled to prevail.
The imposition of vicarious liability under a statute is not lightly to bepresumed, and such liability must necessarily be imposed in clear andunambiguous language. Can it be said that the words of Section 62,appearing as they do in a context dealing with machinery designed tosupply an assessor with information regarding the details of a potentialtax payer’s income, satisfy this test ? It is significant that in every other•case where vicarious liability has been imposed, the language of the Ordi-nance is very explicit. For instance, under Section 21 the income of ami rried woman who is not living apart from her husband ’ ‘ shall ….be deemed to be the income of her husband and shall be charged accord-ingly ”. Similarly the chargeability of receivers, trustees and executors isunambiguously provided for in the Sections appearing in Part B of Chap-ter 8 of the Ordinance ; Section 35 makes the tax due by a non-residentperson recoverable in certain cases from his agent in Ceylon and, if therebe more than one such agent, they are made jointly and severallyliable for the payment of the principal’s tax; Section 29 (7) makes expressprovisions for the recovery of tax due by a non-resident partner from per-sons other than himself. In the case of trustees, co-trustees and co-executors, each is made “ answerable ” under section 61 (1)—in the sameway as the principal officer of a Company is answerable under Section 62—“ for doing all such acts, matters and things as would be required to be doneunder the provisions of the Ordinance by an individual acting in such capa–eily I regard it as significant and indeed conclusive that, notwith-standing this provision, it was considered necessary to add expresswords in other parts of the Ordinance imposing vicarious “ chargeabilityon trustees, executors and partners, whereas no such special provision hadbeen made in the case of the principal officer of a limited liability Companyin respect of tax for which the Company is primarily liable.
The matter may also be looked, at from another angle. The successivestages contemplated by the Ordinance in the assessment and recovery ofincome tax from members of the public are (1) the furnishing of a return ofincome by or on behalf of the person chargeable with tax; (2) the serviceof a notice of assessment by the taxing authority on the assessee or on■some person who represents him, and the fixing of a date on or beforewhich payment must be made; (3) the opportunity of an appeal by or onbehalf of an assessee who is dissatisfied with the assessment served on him;■and finally (4) the agony of payment or, as an equally painful alternative,the recovery of tax from the defaulting assessee in accordance with one or■other of the alternative methods prescribed by Chapter 13.
Section 64 permits an assessment to be made on any person “ who is inthe opinion of an Assessor chargeable with tax ”, and no person can or
Disaanayake t>. Kriahnapillai
285
should be exposed to the drastic penalties provided by Section 80 unlessand until he has previously received a notice of assessment charging himwith liability which, if disputed, could have been challenged in appropriateproceedings under the Ordinance. If this test be applied, it follows thatthe appellant was not “ duly assessed ” and was not a “ defaulter ”, sothat the conditions precedent to the institution of proceedings against himunder Section 80 of the Ordinance were not complied with.
I hold that the provisions of Section 62 of the Ordinance do not makethe principle officer of a Company chargeable out of his personal assets withtax levied on the Company’s assessable income. A fortiori, proceedingsfor the recovery of such tax under Section 80 are not available against him“as a defaulter ”. In my opinion a defaulter for the purposes of Section 80 isa person who, having been duly assessed under Section 64 as being " charge-able with tax ”, has omitted, as required by Section 76, to pay such tax on-or before the date specified in the notice of assessment served on him as theperson so chargeable. The order sentencing the appellant to a term ofimprisonment for non-payment of tax due by the Company was thereforenot authorised by law. I accordingly quash the order made by the learnedMagistrate on May 8, 1951. My decision does not of course preclude theCommissioner of Income Tax from taking such proceedings as he may beadvised for the recovery of the tax from the Ceylon Building Syndicate.Limited.
Order quashed.