001-SLLR-SLLR-2005-V-3-THE-MANAGER-BANK-OF-CEYLON-HATTON-vs.-THE-SECRETARY-HATTON-DICKOYA-URB.pdf
SCThe Manager Bank of Ceylon, Hatton vs. The Secretary,
Hatton – Dikoya Urban Council
THE MANAGER, BANK OF CEYLON, HATTONVS
THE SECRETARY, HATTON DICKOYA URBAN COUNCIL
SUPREME COURT.
BANDARANAYAKE, J.
AMARATUNGA J. ANDMARSOOFJ.
SC APPEAL 67/2004.
C. (CENTRAL PROVINCE).
MAGISTRATE'S COURT (HATTON).
30TH MAY, 13TH JULY AND 30TH SEPTEMBER, 2005.
By laws under Urban Councils Ordinance – Urban Councils Ordinance,sections 164, 165, 165B and 165C – Whether the appellant Bank is liable topay licence fees separately for money lending and pawn brokering-Meaningof “Banking’ under common law and statutes such as the Bank of CeylonOrdinance and Banking Act, No. 30 of 1988- Existence of doubt regarding themeaning of *Banking’ (whether money lending and pawn brokering can beseparated) Interpretation of statutes – Doubts in taxing statutes to be resolvedin favour of the tax payer – Validity of the Magistrate’s order on the appellantBank to pay licence fees on pawn brokering in addition to payment for moneylending.
On the application of the respondent Secretary aforesaid, the Magistrate, Hattonordered the recovery of Rs.3,375 from the appellant Bank as licence fees forpawn brokering with GST whilst the Bank had already paid Rs. 3000 for moneylending for the year 2000 on Document XI.
HELD:
t. Having regard to the common law and statutes such as the Bank ofCeylon Ordinance and the Banking Act. No. 30 of 1988 and the meaningof “Banking”, the Bank of Ceylon is carrying on banking business includingmoney lending and pawn-brokering. These two activities cannot beseparated.
In any event there is a doubt whether money lending and pawn-brokeringmay be separated. In the circumstances the doubt should be resolvedin favour of the Bank being the tax payer. Taxing statutes should bestrictly construed in favour of the tax payer.
2
Sri Lanka Law Reports
(2005) 3 Sri L ft
As such, the order of the Magistrate that the appellant is liable to beadditionally taxed for pawn-brokering and the order of the High Courtaffirming that order are invalid and cannot be sustained.
APPEAL from the judgment of the High Court.
Cases referred to :
United Dominions Trust vs. Kirwood (1966) 2 QB 431.
State Saving Bank of Victoria Commissioners vs. Per. Mewan Wrightand Co. Ltd. (1915) 19 CLR 459.
Tuck and Sons vs. Priester (1887) 19 QBD 629.
M. K. Muthukumar with Jinadasa Gamage for appellant.
S. Mandaleswaran with P. Peramunagama for respondent.
Cur.adv. vult.
7 December, 2005.
SHIRANI A. BANDARANAYAKE, J.This is an appeal from the order of the High Court of the Central Provincedated 21.05.2004. By that order the learned High Court Judge had affirmedthe judgment of the learned Magistrate of Hatton and dismissed the appeal.The respondent – appellant – appellant (hereinafter referred to as the appellantBank) appealed against the said order on which this Court granted specialleave to appeal.
The facts of this appeal, albeit brief, are as follows :
The complainant – respondent – respondent (hereinfter referred to as therespondent), being the Secretary of the Hatton – Dickoya Urban Council,filed a complaint against the appellant Bank in the Magistrate’s Court ofHatton to recover the tax due under section 165B(3) of the Urban CouncilsOrdinance for conducting the business of pawn-brokering. The respondenthad claimed in the said complaint that the appellant Bank was liable topay Rs. 3,000 as the licence fees for pawning business, Rs. 375 asgoods and services tax and Rs. 625 being charges for office expenses,totalling to a sum of Rs. 4,000. Learned Magistrate by his order dated
allowed the respondent's application and imposed a fine of
scThe Manager Bank of Ceylon, Hatton vs. The Secretary,
Hatton – Dikoya Urban Council (Bandaranayake, J.)
Rs. 3,375 payable to the respondent Urban Coucil, which order was affirmedby the learned High Court Judge of the Central Province by his order dated2'1.05.2004.
Both counsel agreed that the only question that has to be examined inthis appeal is whether the respondent is entitled to levy a tax from theappellant Bank separately for the business of pawn brokering carried onby the appellant Bank in Hatton apart from various businesses of bankingcarried on by the appellant Bank in the said area.
Learned Counsel for the respondent contended that the respondentis entitled to levy a tax under section 165B(1) of the Urban CouncilsOrdinance for the two businesses carried on by the appellant Bank,namely money lending and pawn brokering set out in item 2 and item 7 ofthe third Schedule to the Gazette notification dated 14.02.1997, publishedin terms of the Urban Councils Ordinance. He further contended that thesum of Rs. 3,000 paid by the appellant by document marked XI for theyear 2000 was for the business of money lending and that the presentclaim was for the recovery of the taxes for the business of pawnbrokeringin terms of section 165B(3) of the Urban Councils Ordinance.
It is common ground that the appellant Bank is a branch office of theBank of Ceylon established under the Bank of Ceylon Ordinance No. 53 of1938 as amended. It is also common ground that the Bank had paidRs. 3,000 as licence fee for the year 2000 (x). The contention of therespondents is that the said payment of Rs. 3,000 was made by theappellent Bank for carrying on the business of money lending and that afurther sum has to be paid in terms of schedule III of the Gazette notificationdated 14.02.1997 (P1) published under section 165 of the Urban CouncilsOrdinance for carrying on the business of pawn-brokering.
The Gazette notification dated 14.02.1997 (P1) refers to the by -lawsmade by the Urban Council in terms of sections 164,165,165B and 165Cof the Urban Councils Ordinance. The said by -laws refer to 3 Schedules.The first Schedule deals with the licence duty referred to in section 164 ofthe Ordinance for the use of the premises for the specific purpose set outtherein. The second Schedule refers to the tax imposed and levied on thetrade, set out in section 165 of the Ordinance. The third Schedule dealswith the tax imposed and levied on the business set out in section 165Bof the Ordinance. It is apparent that none of these schedules refer to
4
Sri Lanka Law Reports
(2005) 3 Sri L R.
banking business. The third Schedule, which deals with the business inthe area, has 23 listings, but has not included banking business. However,the third Schedule refers to money lending and pawn-brokering among theother type of business.
Section 5 of the Bank of Ceylon Ordinance makes provision for the saidBank to establish and maintain branches in Sri Lanka or elsewhere. PartI of the first Schedule to the said Ordinance refers to the business, whichthe Bank is authorized to carry on and transact, subject to the limitationsmentioned in Part II of the first Schedule. In fact,section 71 of the Bank ofCeylon Ordinance, clearly refers to the scope of its business, which readsas follows:
“Subject to the provisions of this Ordinance the business whichthe Bank is authorized to carry on and transact shall be theseveral kinds of business specified in Part I of the first Schedulesubject to the limitations mentioned in Part II thereof.”
It is thus evident that the Bank of Ceylon is empowered to carry on andtransact business relating to money lending and pawn-brokering. However,it is apparent that none of the provisions in the Money Lending Ordinance,or the Debt Conciliation Ordinance or the Pawnbrokers Ordinance shallapply to such transactions. Sections 68 and 69, which are reproducedbelow, had quite clearly laid down that such Ordinance has no applicationto debts which are due to the Bank.
“Section 68- Nothing in the Money Lending Ordinance or theDebt Conciliation Ordinance shall apply or be deemed to applyto any debt due to the Bank, or to prejudice or affect the rightsof the Bank in respect of the recovery of any such debt.
Section 69 – The Pawnbrokers Ordinance shall not apply tothe Bank where the Bank carries on the business of a' pawnbroker".
The claim made by the respondent was on the basis that the appellantBank had been carrying on different businesses in terms of the Bank ofCeylon Ordinance. The respondent therefore was of the view that moneylending and pawn-brokering are two different business. In fact learned Councilfor the respondent contended that in terms of the definition given undersection 165B'of the Urban Council’s Ordinance, the financier, money lender
scThe Manager Bank of Ceylon, Hatton vs. The Secretary,
Hatton – Dikoya Urban Council (Bandaranayake, J.)
5
and pawnbroker are regarded as three different entitiies and therefore tookup the position that the appellant Bank, being a establishment which carriedon money lending as well as pawn-brokering, should pay the relevanttaxes for the said businesses separately.
A careful examination of-the definition given to the word “takings” undersection 165B(b) indicates that the statute has referred to financier, moneylender and a pawnbroker not as fhree different entities, but as a singleperson. The wording in the aforesaid provision, which is referred to below,clearly shows this position.
“takings in relation tp any business, means the total amountreceived or receivable from transactions entered into in respectof that business or for services performed in carrying on thatbusiness, and includes – (a) in the case of financier,moneylender or pawnbroker the money given out by him asloans, the interest received or receivable by him on such loans,and the sums received by him as fees or other charges inrespect of such loans.”
What the definition referred to above, explains is that, takings shouldinclude the total amount received from the transactions relating to financier,moneylender or the pawnbroker. When one refers to these three items, itis apparent that a modern day Bank would be forced to carry out all thesetransactions. Moreover, it is to be borne in mind that considering thecharacterietics of banking takings, in relation to a Bank would undoubtedlyinclude handling deposits as well as make use of such deposits by lendingit out at interest or investing it on mortgages etc. This was the view takenby Lord Denning M. R. in United Dominios Trust vs. Kirkwood (1) wherereference was made to the characteristics of banking in the following terms :
“Seeing that there is no statutory definition of banking, we mustdo the best we can to find out the usual characteristics which goto make up the business of Banking. In the eighteenth century,before cheque came into common use, the principalcharacteristics were that the banker accepted the money of theothers on the terms that the persons who deposited it couldhave it back again from the banker when they asked for it,sometimes on demand, at other times on notice, according tothe stipulation made at the time of deposit, and meanwhile the
6
Sri Lanka Law Reports
(2005) 3 Sri L R.
banker was at liberty to make use of the money by lending it outat interest or investing it on mortgage or otherwise (emphasisadded).”
A similar view was taken as far back as in 1914, by Issacs, J. in theHigh Court of Australia in State Savings Bank of Victoria Commissionersv Permewan Wright and Co. Ltd.,2 With regard to the definition of Banking,Issacs, J. thus stated that-
"The essential characteristics of the business of banking…may be described as the collection of money by receivingdeposits on loan, repayable when and as expressly or impliedlyagreed upon, and the utilisation of the 'money so collected bylending it again in such sums as are required (emphasisadded).”
Thus it is apparent that the business of Banking would include theacceptance of deposits of money as well as utilisation of such money socollected by lending them on interest. This position is clearly laid down inthe definition given to 'banking business’ in Section 86 of the Banking Act,No. 30 of 1988, where it is stated that,
“banking business means the business of receiving fundsfrom the public through the acceptance of money depositspayable upon demand by cheque, draft, order or otherwise,and the use of such funds either in whole or in part for advances,investments or any other operaton either authorized by law orby customary banking practices.”
The question that would arise at this juncture is that, if lending is part ofthe banking business, whether that would include pawning as well. ThePawnbrokers Ordinance, No. 8 of 1893 defines the pawnbroker in wideterms that includes every person who carries on the business of takinggoods in pawn. The Encyclopedia Britannica (Voi. 15-pg. 354) refers topawnbrokering and states that-
“the oldest security device that is common everywhere is thepledge (or pawn). The borrower delivers the goods to be chargedto the lender, who keeps them until repayment of the securedloan…. But pawnbrokers continued to operate on a minor scale,
sc
The Manager Bank of Ceylon, Hatton vs. The Secretary,
Hatton – Dikoya Urban Council (Bandaranayake, J.)
7
and Banks keep documents of title (such as property deeds)as security."
On an examination of the Pawnbrokers Ordinance it is clear that theOrdinance does not speak of security for loans as only gold article. Apledge is defined as an article pawned with a pawnbroker obviously ofvalue. Thus in simple terms the pledge is the security for the purpose ofthe money borrowed and when the pledge is with a movable item such asgold, it could not change the nature of the main business of money lendingcarried out by a Bank.
The tax in question was imposed by the respondent, in terms of section,165A of the Urban Councils Ordinance. Section 165A reads as follows:
“An Urban Council may by resolution impose and levy annuallyon every person who…. carries on any business for which nolicense is necessary under the provisions of this Ordinance…a tax according to the takings of the business.”
As the appellant Bank came under the category that was carrying on abusiness for “which no licence was necessary”, the respondent couldimpose only a tax. When such tax was imposed, the appellant Bank hadduly paid the relevant and assigned amount for which a receipt was issuedstating that the amount was paid for the purpose of payment for businesslicence (®Osgq aeag ©odz§). The contention of the respondent is that theCouncil is entitled to levy a tax from the appellant Bank separately for thebusiness of pawnbrokering carried on by the Bank apart from the variousbusinesses of Banking carried on by the appellant Bank.
It is not disputed that the question at issue is regarding whether theappellant Bank has to pay for separate business licences to carry outbusiness pertaining to money lending as well as for pawnbrokering. It isalso not disputed that the appellant Bank has already paid Rs. 3,000being the payment as conceded by the respondent for business licence.As referred to earlier, section 165A of the Urban Coucils Ordinance statesthat a business entity would be liable to pay a tax ‘according to the takingsof the business*. Depending on the ‘takings’ the amount that has to bepaid as tax would be decided. Non payment of such tax would create apecuniary burden on the person liable to pay such tax in terms of section165B(3) of the Urban Councils Ordinance.
8
Sri Lanka Law Reports
(2005) 3 Sri L R.
Referring to such statutes which incur pecuniary burdens. Maxwellis of the view that they should be subject to strict interpretation. It wasfurther stated that (Interpretation of Statutes, 11th Edition, Sweet MaxwellP- g- 278)
“Statutes which impose pecuniary burdens, also, are subjectto the same rule of strict construction. It is a well settled ruleof law that all charges upon the subject must be imposed byclear and unambiguous language because of some decreethey operate as penalties. The subject is not to be taxedunless the languages of the statute clearly imposes theobligation.
In a Taxing Act one has to merely look at what is clearly said.
There is no room for any intendment. There is no equity abouta tax. There is no prescription as to a tax. Nothing is to beread in, nothing to be implied. One can only look fairly at thelanguage used. A construction for example, which wouldhave the effect of making a person liable to pay the sametax twice in respect of the same subject matter wouldnot be adopted unless the words were very clear andprecise to that effect. In a case of reasonable doubt theconstruction most beneficial to the subject is to beadopted (emphasis added)”
In fact Lord Esher, M. R. InTuck and Sons vs Priester(3) referring tostrict construction in construing penal laws, stated that,
“if there is a reasonable interpretation which will avoid thepenalty in any particular case, we must adopt that construction.
If there are two reasonable constructions we must give themore lenient one. That is the settled rule for the constructionof penal sections.”
On a careful consideration of the issue before us, it is clear that theappellant Bank is carrying on banking business, which includes moneylending as well as pawn-brokering. Both money lending and pown-brokeringare part and parcel of the banking business of the appellant Bank andpawn-brokering cannot be separated from the money lending business ofthe appellant Bank. Therefore the respondent could levy a tax on the basis
sc
Jinasena vs University of Colombo and Others (S. N. Silva CJ.)
9
of the issuance of business licence for the banking businesses of theappellant Bank which in turn would include money lending as well aspawn-brokering carried out by them.
It is common ground that the appellant Bank has already paid moneyfor its business license (XI). In the circumstances there cannot be anybasis for the respondent to levy a further tax for the business of pawn-brokering carried out by the appellant Bank.
For the aforementioned reasons I answer the question in the negative.This appeal is accordingly allowed and the order of the learned MagistradeHatton dated 23.11.2001 and the order of the.learned High Court Judge ofthe Central Province, dated 21.05.2004 are set aside.
I make no order as to costs.
N. G. AMARATUNGA, J. – /agree.
SALEEM MARSOOF, J. I agree.
Appeal allowed.