THE COMMISSIONER OF INLAND REVENUE, Appellant, and THE WOODLAND (K. V. CEYLON) R

069-NLR-NLR-V-70-THE-COMMISSIONER-OF-INLAND-REVENUE-Appellant-and-THE-WOODLAND-K.-V.-CEYLON-R.pdf


294
Commissioner of Inland Revenue v. Woodland
(K. V. Ceylon) Rttbber dk Tea Co. Ltd.
1967 Present: Tambiah, J., and Siva Supramaniam, J.
THE COMMISSIONER OF INLAND REVENUE, Appellant, andTHE WOODLAND (K. V. CEYLON) RUBBER & TEACOMPANY LTD., Respondent
S.C. 3/66—Income Tax Case Stated, BRA/333
Income tax—Non-resident company—Remittances of such company—Imposition of33% per centum tax thereon—Validity—Income Tax Ordinance {Cap. 242), asamended by Act No. 13 of 1959, ss. 5, 57A, 57B, 57C—Double TaxationAgreement {Treaty Series No. 9 of 1950), Articles VI and XVIII—DoubleTaxation {Relief) Act, No. 26 of 1950 {Cap. 244), s. 2—Inland Revenue Act,No. 4 of 1963, s. 130 (3)—Scope of rule generalia specialibus non dorogant.
In regard to the income tax years 1958/59 to 1961/62, the imposition on anynon-resident company of the tax of 33% per centum on the remittances as setout in section 57 C (1) {a) of the Income Tax Ordinance (Cap. 242), as amendedby Act No. 13 of 1959, is not in conflict -with either Article VI or Article XVIIIof the Double Taxation Agreement (Treaty Series No. 9 of 1950 betweenCeylon and the United Kingdom), the provisions of which were given the forceof law by the Double Taxation (Relief) Act No. 26 of 1950 (Cap. 244). Even ifthere is any conflict, the Income Tax (Amendment) Act No. 13 of 1959 impliedlyrepealed the provisions of the Double Taxation (Relief) Act No. 26 of 1950. Therule generalia specialibus non derogant cannot be applied in construing theamending Act No. 13 of 1959, which prevails over all earlier provisionsgoverning tax payable by any resident or non-resident company. The factthat the Double Taxation (Relief) Act was formally repealed by the InlandRevenue Act No. 4 of 1963 makes no differ ence to the fact that the Income Tax(Amendment) Act No. 13 of 1959 had impliedly repealed it earlier.
CaSE stated under section 78 of the Income Tax Ordinance (Cap. 242).
Walter Jayawardena, Q.C., Solicitor-General, with Shiva Pasupathy,Crown Counsel, for the appellant.
H. W. Jayewardene, Q.C., with B. Eliyatamby and T. L. D. Fernandofor the assessee-respondent.
Cur. adv. vuU.
TAMBIAH, J.—Commissioner of Inland Revenue v. Woodland296
(K. V. Ceylon) Rubber dk Tea Co. Ltd.
December 18, 1967. Tambtah, J.—
This matter comes before this Court for its opinion on a case stated bythe Board of Review under the provisions of section 78 of the Income TaxOrdinance^Cap. 242). Although the sum involved is comparativelysmall, this case raises matters of importance and the opinion sought forwill have far reaching effects since the tax recovered for the four years inreview will amount to a considerable sum.
It is a matter of common knowledge that the bulk of the non-residentcompanies, which are affected by the agreement entered into between theUnited Kingdom and Ceylon in the Treaty Series No. 9 of 1950, are“ Sterling Companies ”, that is to say, companies which have theirregistered office in the United Kingdom. Some of them own large teaestates and others have entered into commercial ventures in this Island.The respondent is one of such non-resident companies.
The respondent appealed to the Board of Review against the assess-ment for the income tax years 1958/59, 1959/60, 1960/61 and 1961/62on the ground that the imposition of a tax, under section 57 (c) of theIncome Tax Ordinance (Cap. 242) as amended by Act No. 13 of 1959, of33£ per cent, on remittances was in contravention of Articles "VT andXVIII of the Double Taxation Agreement (Treaty Series No. 9 of 1950,which will hereinafter be referred to as the Treaty), between theGovernment of the United Kingdom and the Government of Ceylon.The provisions of this agreement have been given the force of law bythe Double Taxation (Relief) Act No. 26 of 1950 (Cap. 244). Therelevant Articles of this Treaty are as follows :—
"Article VI—
Where a company which is a resident of one of the territories derivesprofits or income from sources within the other territory, there shallnot be imposed in that other territory any form of taxation ondividends paid by the company to persons not resident in that otherterritory, or any form of taxation chargeable in connection with or inlieu of the taxation of dividends, or any tax in the nature of anundistributed profits tax on undistributed profits of the company,whether or not those dividends or undistributed profits represent,in whole or in part, profits or income so derived.”
" Article XVIII—
The residents of one of the territories shall not be subjected inthe other territory to any taxation or any requirement connected there-with which is other, higher or more burdensome than the taxation andconnected requirements to which the residents of the latter territoryare or may be subjected.
The enterprises of one of the territories shall not be subjected inthe other territory, in respect of profits attributable to their permanentestablishments in that other territory, to any taxation which is other,
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higher or more burdensome than the taxation to which the enterpriseof that other territory, and, in the case of companies to which theenterprises of that other territory incorporated in that other territoryare or may be subjected in respect of the like profits.
In this Article the term ‘ taxation ’ means taxes of every kindand description levied on behalf of any authority whatsoever.
Nothing in this Article shall be construed as—(a) obliging eitherof the Contracting Governments to grant to persons not resident in itsterritory, those personal allowances, reliefs and reductions for taxpurposes which are, by law, available only to persons who are soresident; (b) affecting the additional rate of tax with which Article IXis concerned.”
After the Kaldor Report was adopted with modifications in Ceylon,the basis of taxation underwent radical changes. Profits tax wasabolished and the simple provisions governing income tax, applicableboth to persons and companies, gave way to a more sophisticated methodof taxation and the Income Tax Ordinance (Cap. 242) was accordinglyamended by Act No. 13 of i.^59. So far as persons are concerned, thecomputation of taxation is based on family units. The husband, thewife, and four children are given certain units and the income tax isbased on slabs ranging according to the units. So far as companies areconcerned, the profits tax and all the provisions of the Income TaxOrdinance under which companies were taxed earlier, were repealed andChapter VIIIA of the Income Tax Ordinance was introduced by theamending Act of 1959.
The basis of taxation on resident companies is found in section 57 (B)which enacts as follows :—
“ In respect of any year of assessment commencing on or afterApril 1, 1958, the tax to which a company resident in Ceylon in theyear preceding such year of assessment shall be liable shall consist of—
a sum equal to 45 per centum of the taxable income of suchcompany for such year of assessment; and
a sum equal to 33 J per centum of the aggregate amount of thegross dividends distributed by such company out of the profits onwhich the taxable income of such company is computed for suchyear of assessment.”
The basis of taxation of non-resident companies is found in section57 (C) of the Income Tax Ordinance which enacts as follows :—
" In respect of any year of assessment commencing on or afterApril 1, 1958 the tax to which a non-resident company shall be liable—
shall, where there are remittances of such company in the yearpreceding such year of assessment, consist of a sum equal to 45 percentum, and an additional 6 per centum, of the taxable income ofsuch company for such year of assessment and a sum which shall,
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if the aggregate a *n ->unt of such remittance is less than one-third ofsuch taxable income, be equal to 33 J per centum of such aggregateamount and, if such aggregate amount is not less than one-third ofsuch taxable income, be equal to 33J per centum of one-third ofsuch taxable income ; and
(6) shall, where there are no such remittances, consist of a sum equalto 45 per centum, and an additional 6 per centum, of such taxableincome.”
The imposition of a sum computable at the rate of 45 per centum ofthe taxable income of resident companies and the sum at the rate of 51per centum of the income on non-resident companies, set out in section57 (B) (1) (a) and section 57(C) (1) (a) of the Income Tax (Amendment)Act No. 13 of 1959, respectively, is not the subject matter of controversyas it is common ground that such taxes are within the terms of theTreaty. The only dispute is over the imposition on non-residentcompanies of 33 £ per centum on the remittances as set out in section57 (C) (1) (a) of the Income Tax (Amendment) Act No. 13 of 1959.
When this matter was argued before the Board of Review the appellantagreed that if there is any conflict between the provisions of section 57(C)of the Income Tax Ordinance and the provisions of the Double Taxation(Relief) Agreement, then it is the provisions in the agreement that mustbe given effect to. The appellant, however, strenuously maintained thatthere was no conflict between these provisions. The Board of Reviewhas held that there is conflict and has sought the opinion of this Court onthe point of law stated earlier.
The learned Solicitor-General who appeared for the appellant before thisCourt presented his arguments in a different vein. He stated that he isnot bound by the concession of the appellant before the Board and urgedthat even if there is a conflict between the Double Taxation (Relief) ActNo. 26 of 1950 and section 57 (C) (1) (a) of the Income Tax (Amendment)Act No. 13 of 1959, the provisions of the latter should prevail, not onlybecause it is a later enactment but also because it was the clear intentionof Parliament to do away with the existing tax measure affecting com-panies, both resident as well as non-resident, and to provide for a newand complete scheme of taxation of the aforesaid companies, by theamending Act of 1959. Therefore, he submitted that by necessaryimplication the Double Taxation (Relief) Act No. 26 of 1950 had beenrepealed.
Counsel for the respondent was not taken by surprise by the enuncia-tion of this principle of law since he was given ample notice by thelearned Solicitor-General. Although Counsel for the respondent formallyobjected to this matter being argued, he did not pursue it further.
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(K. V. Ceylon) Rubber db Tea Co. Ltd.
It is a well known proposition that an admission on a pure question oflaw in a tribunal does not bind the Counsel who appears for thesame party in a higher tribunal (vide Attorney-General v. A. D. Silva)l.A fortiori, in tax matters where the opinion of this Court is sought, theCourt is not precluded from reconsidering a question of law which wasnot before the Board of Review. In Fernando v. Commissioner of IncomeTax 2 it was held that sub-section 6 of section 78 of the Income TaxOrdinance empowers the Court to hear and determine any question oflaw arising on the case stated (vide M. P. Silva v. Commissioner of IncomeTax 3).
The learned Solicitor-General also contended that there is no conflictbetween the provisions of section 57 (C) of the Income Tax (Amendment)Act and Articles VI and XVIII of the Treaty Series, the terms ofwhich were embodied in the Double Taxation (Relief) Act of 1950.Alternatively, he argued that should there be a conflict, the provisionsof the Income Tax (Amendment) Act 13 of 1959 should prevail.
Mr. Jayewardene, Counsel for the respondent, urged that there was aconflict between section 57 (C) of the Income Tax (Amendment) Act of1959 and Articles VI and XVIII of the Treaty Series, which wereemb’1 Taxation (Relief) Act of 1950, in so far as section
57 (C) -^mending Act seeks to impose a tax on a non-resident
company governed by the agreement on its remittances which is in facta form of taxation in lieu of taxation on its dividends. In any event, hesaid that this tax was a tax on undistributed profits of the company.
He also contended that section 57 (C) of the amending Act No. 13 of1959 is in conflict with Article XVIII (2) of the Treaty, since this tax iseither higher or more than the tax to which the resident companies aresubjected to ; and in any event, it is a tax other than the tax which hasbeen imposed on the resident companies of Ceylon.
Mr. Jayewardene further urged that the canon of constructionenshrined in the maxim generalia specialibus non derogant should apply andthe Treaty which was embodied in the Double Taxation (Relief) Act of1950, being a special law, which is applicable to particular types of non-resident companies, caught up by the agreement, has not been impliedlyrepealed by section 57 (C) of the Income Tax (Amendment) Act of 1959which is a general law applicable to taxation of other non-residentcompanies. He elaborated his contention and said that since the earlierAct gave effect to a bilateral Treaty, the Parliament could not haveintended to abrogate it unilaterally by enacting section 57 (C) of theIncome Tax (Amendment) Act No. 13 of 1959.
Firstly, it is convenient to consider the question whether the provisionsset out in section 57 (C) of the amending Act of 1959 are in conflict withArticles VI and XVIII of the Treaty, which is embodied in the Double
1 (1953) 54 N. L. R. 529.• (1959) 61 N. L. R. 296 at 319.
* (1947) 1 Ceylon Tax Cases, p. 336.
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(K. V. Ceylon) Rubber db Tea Co. Ltd.
Taxation (Relief) Act of 1950. The learned Solicitor-General contendedthat the term “ dividend ”, as used in Company law, is a term well knownto Company lawyers and signifies the amount payable to a share holderout of tho net profits of the company, as resolved by the Company.On the other hand, the remittances sent by a non-resident companyfrom a branch office in Ceylon to its head office has no relation to thedividends that would ultimately be payable to the shareholders. Anon-resident company may have business ventures throughout theworld and may reap a good harvest from its investments abroad althoughfrom its properties or business in Ceylon nothing may be sent byremittances or only a small sum may bo remitted to tho head office.Conversely, the Ceylon office may send from their undertakings largeprofits whereas the non-resident company may suffer severe losses fromits ventures abroad and, ultimately, no dividends may be payable toits shareholders.
The Board of Directors of a non-resident company may instruct theCeylon office to invest the profits earned in Ceylon for a particular yearor for a number of years in buying more estates, if it is an agriculturalundertaking, or to enter into other businesses, if it is an industrial under-taking. Therefore no remittances may be made for that particularyear or years to the head office, although dividends may bo distributedto its shareholders from other business ventures outside Ceylon.
It is more profitable for a non-resident company if it accumulatesits profits for a period of years and then remits them duringan year succeeding a lean year. In such cases the tax payablecannot exceed the ceiling of one-ninth of tho taxable income oftho non-resident company for the previous year if the remittancesare more than 33 J per centum of the taxable income for thatprevious year.In this matter it may be legitimate for non-
resident companies to wait till tho taxable income for a particular yearis low and obtain a tax relief of great magnitude, which the residentcompanies cannot avail themselves of in view of the specific provisionsof the Income Tax (Amendment) Ordinance of 1959. Therefore, theremittances of a non-resident company are not the same as dividendsnor is there any computable basis on which the relation between thetwo can be established.
Hence the provisions governing the tax on remittances bynon-resident companies, imposed by section 57 (C) of the Income Tax(Amendment) Act No. 13 of 1959, are not in conflict with Article VI oftho Treaty.
In this context Mr. Jayewardene asked us to look into the budgetspeech made by the then Finance Minister, who introduced this taxmeasure. The learned Solicitor-General stated that the proposals ina budget speech cannot be looked into by this Court in interpreting theprovisions of a Parliamentary Statute. But he conceded that thisCourt could look into the facts set out in the budget speech by a Minister
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in order to find out the intention of the Legislature in enacting a measuresubsequently. In this context it may be useful to refer to the dictumof Lord Wright in Assam Railways and Trading Go. v. Commissioner ofInland Revenue h In dealing with the question whether the report of aRoyal Commission on Income Tax of 1920 could be looked into to interpretthe provisions of the Finance Act of 1920, he said :
■“ But on principle no such evidence for the purpose of showing theintention, that is the purpose or object, of an Act is admissible ; theintention of the Legislature must be ascertained from the words ofthe statute with such extraneous assistance as is legitimate ; as tothis I agree with Farwell L. J. in Rex v. West Riding of Yorkshire CountyCouncil (1906 2 K.B. 676, 717) where he says : “ I think that the ruleis expressed with accuracy by Lord Langadale in giving the judgmentof the Privy Council in the Gorham Case in Moore 1852 edition, p. 462,' We must endeavour to attain for ourselves the true meaning of thelanguage employed ’—in the Articles and Liturgy—* assisted onlyby the consideration of such external or historical facts as we mayfind necessary to enable us to understand the •subject matter to whichthe instruments relate, and the meaning of the words employedIn this House where the judgment of the Court of Appeal was reversed(Attorney-General v. West Riding of Yorkshire County Council (1907)A. C. 29), no reference was made to this point. It is clear that thelanguage of a Minister of the Crown in proposing in Parliament ameasure which eventually becomes law is inadmissible and the Report ofCommissioners is even more removed from value as evidence of intention,because it does not follow that their recommendations were accepted.”
With respect, I would adopt the dictum of Lord Wright and hold thatthe proposals of the Minister in his Budget Speech, in which he saidthat regarding non-resident companies, he proposes to impose 33Jper cent tax on remittances and which will be deemed to be a tax ondividends, is not admissible because we do not know whether his proposalswere adopted ultimately. Indeed, the learned Solicitor-General citedto us certain passages from the objects and reasons for the passing ofthis amending Act in which it is stated that the proposals of the thenMinister of Finance were amended by the Cabinet.
On the other hand, there are several passages in the Minister’s speechwhere he said that the finances of the State were in a parlous conditionand therefore these tax proposals were brought in order to increase therevenue of the country. If these were the facts which prompted theParliament to pass the amending Act of 1959, could it be said thatthey wanted to treat a non-resident company, caught up in the agreement,And the resident companies differently and imposed a tax of 33 J per-centum of the gross dividends distributed by the resident companies inaddition to the tax of 45 per cent on the taxable income, but intended to
1 (1935) A. C. 415 at 458.
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exempt such, non-resident companies from paying any tax on its profitsand remittances sent out and granted them a concession of paying only51 per cent tax on their taxable income ? It is common knowledgethat a good part of our revenue comes from tea and rubber, the main cashproducts of this Island, and is it likely that the Parliament wanted to•exempt these “ Sterling Companies ” and other non-resident companieswhich are caught up by the agreement, from paying any tax other thana tax of 51 per cent on the taxable income?
In support of the argument that 33£ per cent tax imposed by section-57 (C) of the amending Act of 1959, on remittances of non-resident com-panies is a tax in lieu of dividends, Mr. Jayewardene submitted that thesame percentage of 33^ per cent is imposed on the dividends of residentcompanies as well as on the remittances of profits of non-residentcompanies. Therefore he argued that although the word ' remittances ’was used in section 57 (C) it was in fact a tax in lieu of dividends.
Mr. Jayewardene also contended that the dividends payable by themon-resident companies to its shareholders abroad is naturally affectedby its remittances sent from Ceylon. No doubt the dividend payablewould be affected by the profits that are sent from Ceylon but in thatevent no income tax can be imposed on profits, since the imposition ofincome tax on profits will naturally affect the dividends ultimatelypayable. Income tax is inherently a tax on profits and it is perfectlylegitimate for any Government to tax the profits of a non-resident companyand, therefore, when a tax is imposed on remittances which are sent byway of profits, it is only a method of computation of the income tax onprofits and is not an attempt to tax the dividends.
Mr. Jayewardene’s contention that the tax on remittances ofmon-resident companies imposed by section 57 (C) of the amending Actis, in any event, in the nature of an undistributed profits tax on undis-tributed profits of the company and therefore was in conflict with ArticleVI of the Treaty, is not tenable. When one refers to undistributedprofits of a company, what is meant is the balance of the profits leftover after paying dividends. The undistributed profits of a non-residentcompany can only be computed by first looking at the nett profits of thatcompany derived from all its ventures and thereafter deducting fro n thatamount the dividends already paid to the shareholders. It has, therefore,no direct connection with the dividends declared by a non-residentcompany. If remittances of profits sent by a branch office to the headoffice of a non-resident company do not have any computable relationto the dividends payable by a non-resident company to its shareholdersabroad, it follows that the remittances sent from Ceylon to its head officehave again no computable relationship with the undistributed profitsof the company. Therefore a tax on profits remitted, as envisaged insection 57 (C) of the amending Act, is not a tax on the undistributedprofits of a non-resident company.
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The learned Solicitor-General also submitted that the provisions ofsection 57 (C) of the amending Act of 1959 are not in conflict with ArticleXVIII of the Treaty. He said that it has not been shown by therespondent, on whom the burden lies, that the taxation was wrong andthat the tax imposed on non-resident companies under section 57 (C) ofthe amending Act is higher or more burdensome than the taxation onthe resident companies of Ceylon. By a comparison of section 57 (B)with section 57 (C) of the amending Act it is clear that the residentcompanies in Ceylon have to pay 33 £ per cent of the gross profits,whereas no such tax is imposed on the uon-rosident companies. Asstated earlier, the non-resident companies have a greater advantageover the resident companies since they could wait for a lean year andsend the profits, which have accumulated for a number of years and gainan advantage by paying 1 /9th of the taxable income from that previousyear. This advantage alone would outweigh all other disadvantages,if any, which a non-resident company may have in comparison with a.resident company. This is a big concession given to foreign investors inCeylon. The actual figures worked out by the Income Tax Department,which was not disputed before the Board of Review, is set out in page 2of document X 1. The computations are in respect of the income taxyears 1958/’59 to 1961/’62. A comparison has been made between thefigures of the tax payable if it were a resident company. It will be seenfrom these figures, which are not disputed by the respondent, that if therespondent had been resident in Ceylon it would have paid a sum ofRs. 159,580 by way of a tax on dividends, whereas it paid only a tax ofRs. 35,893 for these years as tax on remittances. Therefore, by theimposition of 33 J per cent on the remittances as tax on non-residentcompanies by section 57 (C) of the amending Act, it has not been shownthat this tax is more burdensome than the tax imposed on resident-companies or that it is higher within the meaning of Article XVIII of theTreaty.
For the purposes of Article XVIII, one must take a comparablesituation. Assuming that a resident company in Ceylon gets Rs. 10,000as nett profits and a non-resident company also has the same profits, ithas to be shown that as a result of the imposition of the remittance taxby section 57 (C) of the amending Act, the taxation is more burdensomeor higher. The respondent has failed in discharge the burden on thispoint.
The next question is whether the tax imposed by section 57 (C) of theamending Act is an “ other ” tax other than tax imposed on a residentcompany. The learned Solicitor-General submitted that the tax imposedby section 57 (C) of the amending Act is Income Tax, computed andcalculated in the same way as any other component of income tax andtherefore is not any other tax but income tax. He submitted that IncomeTax is one tax, although its components and the method of calculationmay be different. Mr. JayoAvardono, on the other hand, urged that
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there is no taxation on remittances of profits of resident companies,whereas there is a taxation on remittances of profits of non-residentcompanies and, therefore, the tax imposed by section 57 (C) of the IncomeTax (Amendment) Act is a tax other than a tax imposed on a residentcompany. I am unable to appreciate the argument of the Counsel forthe respondent. In the first place I find it difficult to visualize a residentcompany sending profits by way of remittances abroad. It may havebranch offices in various parts of the world. If remittances are sentthey are not remittances of profits. Remittances may be sent in orderto purchase articles for the purpose of the business or to defray theexpenses of its offices abroad. The tax imposed on the remittances sentas profits of a non-resident company is only a component of the incometax payable by such company. Therefore, I hold that it is not a taxother than income tax, and that section 57 (C) of the amending Act of1959 does not contravene Article XVIII of the Treaty.
For these reasons I am of the view that section 57 (C) of the amendingAct is not in conflict with either Article VI or Article XVIII of the Treaty.This view alone should dispose of this matter but in view of the fact thatthe matter has been fully argued, it is necessary also to consider theproposition put forward by the learned Solicitor-General, namely, thateven if there is a conflict, the rule of construction enshrined in the maximgeneralia specialibus non derogant has no application in this matter.
It is necessary for this purpose to construe the provisions of section57 (A) of Cap. VIE (A) which was brought in by the IncomeTax (Amendment) Act No. 13 of 1959. It enacts as follows :—
** 57A.(1) In respect of any year of assessment commencing on
or after April 1, 1958—
the rate or rates of the tax referred to in section 5, and
the provisions of Chapter VII and the provisions of section 43
other than sub-section (1A) and subsection 3 of that section,
shall not apply to any resident or non-resident company.
(2) The provisions of subsection (1A) of section 43 shall not applyto any resident company after April 30, 1959, and the provisions ofsub-section (3) of that section shall not apply to any person afterMarch 31, 1960. ”
The repealing of the provisions of the “ rate or ratos of the tax ”referred to in section 5 of the principal Act and the words “ any residentor non-resident companies ” are of significance. It shows that any typeof non-resident company is caught up by these provisions and the legis-lature did not intend to make a distinction between non-residentcompanies, caught up by the agreement contained in the Treaty, and
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other types of non-resident companies. This disposes of Mr. Jayewar-dene’s arguments that the intention of the Legislature was not to repealthe Double Taxation (Relief) Act which gave effect to the provisions ofthe Treaty and the Income Tax (Amendment) Act No. 13 of 1959 wasonly applicable to those non-resident companies which are not governedby the Treaty.
Relying on the case of Ostime v. Australian Provident Societyx,Mr. Jayewardene urged that we should hold that the Double Taxation(Relief) Act of 1950 is still in force and should be applied to the non-resident companies governed by the treaty and that the general Actonly applies to non-resident companies, which were not contemplatedby the Treaty entered into between the United Kingdom and Ceylon.In Ostime’s Case, the Australian Mutual Insurance Company, resident inAustralia, carried on business in Australia through a branch office inLondon, in the United Kingdom. This company was assessed to pay theUnited Kingdom income tax for the years of assessment 1947 /48 to1953/’54 inclusive, on the notional amount of its profits in the UnitedKingdom, computed by reference to the appropriate part of theinvestment income of its life assurance fund under rule 3 of Case III ofSchedule D to the Income Tax Act, 1918, or (in the later years), section430 of the Income Tax Act, 1952. It was the contention of the companythat it was assessable only under the Double Taxation Relief (Taxes onIncome) Australia Order, 1947, which gave effect to the AustralianDouble Taxation Relief Agreement that was set out in the schedule tothe order.
The House of Lords (Lord Denning dissenting) held that the companyshould not be taxed under rule 3 of Case III of Schedule D to the IncomeTax Act, 1918 (or section 430 of the Income Tax Act, 1952), because thehypothesis on which such an assessment was based (namely, that theworld income from the investments of the life fund formed the firststage in the rule 3 calculation of profits) was inconsistent with the basisof taxation under Article III (3) of the Double Taxation Relief Agreement(which proceeded on the hypothesis that the branch in England was anindependent enterprise) and the latter prevailed.
As stated in the Editorial Note of the All England Reports in Ostime’sCase (at page 246), the Double Taxation Relief (Taxes on Income) (Australia)Order, 1947, which was made under the repealed Finance Act No. 2, 1945,section 51 (I) was kept in force by virtue of section 528 (2) of the IncomeTax Act, 1952, as if made under section 347 of that Act.
Therefore the Double Taxation Relief (Taxes on Income) (Australia)Order, 1947, although repealed by the Finance Act No. 2 of 1945, waskept in force by virtue of section 528 (2) of the Income Tax Act, 1952.It is clear, therefore, that the provisions of the Double Taxation Relief
1 (1959) 3 All E. R. 245.
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Act were specially preserved and the only question that the Court hadto decide was whether the taxing authorities were justified in ignoringthe provisions of the Double Taxation Relief Act which were expresslykept in force.
In Ostime's case it was never contended that the later Act repealed theearlier Act by implication. Lord Radcliffo who delivered the majorityjudgment said (vide (1959) 3 A. E. R. at 250) :
“ The question we have to determine is how this method ofattributing a profit to a life assurance company, whose head office isoutside the United Kingdom, stands up against the provisions of theDouble Taxation Relief Agreement. I should find nothing surprisingin the conclusion that it had been superseded. Rule 3 was an attemptat a unilateral solution of this particular aspect of double taxation inwhich the Australian taxing authorities were certainly no lessinterested than the authorities of the United Kingdom. Bilateralagreements for regulating some of the problems of double taxationbegan, at any rate so far as the United Kingdom was concerned, in1946. The form employed which, for obvious reasons, employssimilar forms and similar language in all agreements, is derived, Ibelieve, from a set of model clauses proposed by the financialcommission of the League of Nations. The aim is to provide bytreaty for the tax claims of two governments both legitimatelyinterested in taxing a particular source of income either by resigningto one of the two, the whole claim or else by proscribing the basis onwhich the tax claim is to be shared between them. For our purposeit is convenient to note that the language employed in this agreementis what may be called international tax language, and that suchcategories as ‘ enterprise ’, ‘ commercial or industrial profits ’ and* permanent establishment ’ have no exact counterpart in the taxingcode of the United Kingdom.”
As stated earlier, in that case the Double Taxation Relief Agreement,which was entered into between the Commonwealth of Australia and theUnited Kingdom, was kept in force by section 347 of the Income TaxAct of 1952. It sets out a special mode of computation of income taxon Australian Companies wfyich were not resident in the United Kingdombut which carried on business in the United Kingdom. They could onlybe taxed on the investments in England, as if they were carrying on aseparate business and not on their world income basis. Therefore thatcaso is not an authority supporting the proposition of an implied repealby the application of the canon of construction set out in the maximgeneralia specialibus non derogant.
The rule generalia specialibus non derogant is only a presumption andcannot be elevated to a rule of law, because no Parliament of Ceylon canbind a future Parliament. In view of the clear provisions of the amending
306TAMBIAH, J.—Commissioner of Inland Revenue v. Woodland
(K. V. Ceylon) Rubber db Tea Co. Ltd.
Act of 1959, set out earlier, which repeals all previous legislation governingthe basis of taxation of companies and in view of the provisions of theearlier legislation governing the taxation of any company, both residentand non-resident, having no application after April 1958, it is my viewthat this canon of construction cannot be applied in construing this Actand the amending Act of 1959 has repealed, by necessary implication, anyprevious Acts dealing with the taxation of companies both resident andnon-resident.
The taxing authorities can only look into the provisions of ChapterVIIIA and other provisions of the amending Act of 1959 for the taxationof both resident and non-resident companies after the amending Act of1959 came into force. Unlike the provisions in the Income Tax Act of1952 of the United Kingdom, there is no provision in the Income Tax(Amendment) Act No. 13 of 1959 which keeps alive the provisions of theDouble Taxation (Relief) Act of 1950. On the other hand, the amendingAct of 1959 has swept away all provisions governing the taxation of■any company, resident or non-resident, and the Legislature has also repealedthe Profits Tax Act and has enacted comprehensive provisions in theAmending Act of 1959 for the taxation of all companies.
Mr. Jayewardene also urged that section 2 of the Double Taxation(Relief) Act of 1950 enacts that “ notwithstanding anything in any otherwritten law ” the agreement in the Treaty will have the force of law. Hetherefore contended that the Double Taxation (Relief) Act of 1950 shouldhave priority over all subsequent Acts. By the use of these words theParliament did not intend to tie the hands of future Parliaments. Itonly dealt with legislation in pari materia and therefore gave priorityto this Act over all other Acts governing taxation which existed at thetime this Act was passed. If Mr. Jayewardene’s contention is to beaccepted then serious inroads would be made into the supremacy ofthe Parliament of Ceylon, because a Parliament can then bind a futureParliament.
It is an elementary rule of construction that the earlier Act mustgive place to the later, if the two cannot be reconciled, lex posteriorderogat priori. An Act can repeal another Act either by express wordsor by necessary implication. However, a repeal by implication shouldnot be favoured and must not be imputed to a legislature without necessityor strong reason (vide Broom’s Legal Maxims, 5th Ed., page 348). Themaxim generalia specialibus non derogant only creates a presumption.But in this case the presumption is greatly weakened in view of the factthat the agreement entered into between the United Kingdom and Ceylon,which was embodied in the Treaty, could be resiled from by eithergovernment after a period of four years and the amending Act was
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(K. V. Ceylon) Rubber dk Tea Co. Lid.
enacted after the expiration of this period. But if a statute is unambi-guous, its provisions should be followed, even if they are contrary toInternational Law (vide Maxwell's Interpretation of Statutes, 11thEdition, p. 142). Only where there are general words in a later Actcapable of reasonable and sensible application without extending themto subjects specially dealt with by earlier legislation, the maxim generalia^specialibus non derogant would apply (vide Maxwell’s Interpretation ofStatutes, 11th Edition, p. 168, 169). It cannot be said, in the instantcase, that these considerations exist for the application of this rule ofconstruction. As Maxwell states “ In the absence of these conditions,the general statute is read as silently excluding from its operation thecases which have been provided for the special one.” (ibid. p. 169).
To sum up, in view of the clear provisions of the Income Tax■(Amendment) Act No. 13 of 1959, which repeal the very basis oftaxationcontained in section 5 of the Income Tax Act and which introduce newprovisions which apply to any resident or non-resident company, withoutmaking any distinction between a resident company and a non-residentcompany caught up by the agreement in the Treaty and other non-residentcompanies, I am of the view that the provisions of the Income Tax(Amendment) Act of 1959 should prevail over all earlier provisionsgoverning tax payable by companies. The fact that the Double Taxation(Relief) Act was formally repealed by Act No. 4 of 1963 makes no■difference to the question whether the Income Tax (Amendment) Actof 1959 has impliedly repealed it earlier. The Legislature, through anabundance of caution, repealed the relevant provisions of the DoubleTaxation (Relief) Act which wore already repealed by implication whenthe Income Tax (Amendment) Act of 1959 came into force.
For these reasons I am of opinion that the provisions of section 57 (C)of the Income Tax (Amendment) Act No. 13 of 1959 are not in conflictwith Articles VI and XVIII of the Treaty entered into between Ceylonund the United Kingdom and found in Treaty Series No. 9 of 1950.Even if they are in conflict I am of opinion that the Income Tax(Amendment) Act No. 13 of 1959 has impliedly repealed the provisionsof the Double Taxation (Relief) Act of 1950 on this matter and theamending Act of 1959 should prevail. The case is remitted for the taxto bo assessed on this basis.
The appellant is entitled to costs of appeal.
Siva Sui’RamajnIam, J.—I agree.
Appeal allowed.