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Trust Union Shipping Corporation v Commissioner General of
Inland Revenue. (Somawansa, J.)
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TRUST UNION SHIPPING CORPORATIONvCOMMISSIONER GENERAL OF INLAND REVENUECQURT OF APPEALDISSANAYAKE, J.
SOMAWANSA, J.
C.A. 02/97MAY 15, 2002JULY 16, 2002
Inland Revenue Act No. 28 of 1979 – S. 2, S. 74(1), S. 117(1), S. 122(1) -Case stated – Income – Liable to taxation – Income derived from property inSri Lanka – What is property? – Are Ships movable property?
The appellant’s (non Resident Ship Owner) ships were utilized by the Ceylon. Shipping Lines Ltd. to fulfil its objectives with the contract entered into between
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the Food Commissioner and the Ceylon Shipping Lines Ltd. The Appellant wastreated as a non – resident Company. Two ships belonging to the appellantwere made available and were in Sri Lankan waters and operated more than63 voyages in coastal shipping. The appellant was assessed by the InlandRevenue Department. The Commissioner General determined that the appel-lant is liable for tax. The Board of Review over turned that decision and heldthat, the appellant was not liable to tax in terms of section 74(1) but was liablefor tax in terms of section S. 2(2).
The Board of Review on an application by the appellant stated a case on aquestion of law – whether the ships in questions are property in Sri Lanka ?
Held :
The Act is silent as to what constitutes property in Sri Lanka.
However section 2(2) read with section 163 does indicate what consti-tutes property in Sri Lanka liable for imposition of taxes.
Term profit and income arising in or derived from Sri Lanka found insection 2(1 )b has been defined in section 2(2).
The definition include these situations, one such situation in section2(2) is when profits are derived from property in Sri Lanka and in termsof section 363 property includes any interest in any movable andimmovable property.
The appellant’s ships come under "Movable Property". The appellants did earnprofits from the ships that were in Sri Lanka.
Case stated under s. 122(1) of the Inland Revenue Act, 28 of 1979Case referred to :
1. Cape Brandy Syndicate v IRC – (1921) 1 KB 64ShiblyAziz P.C. with L. Hettiarachchi and S. Dayaratne for appellantM.R. Ameen, State Counsel for the respondent.
cur.adv.vult
August 2, 2002
SOMAWANSA, J.This is an application under section 122 (1) of the InlandRevenue Act No. 28 of 1979 whereby the Board of Review on anapplication made by the appellant has stated a case on a questionof law for the opinion of this Court. The question of law that theappellant requested the Board of Review in the said application tobe referred for the opinion of this Court is as follows :
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Trust Union Shipping Corporation v Commissioner General of
Inland Revenue. (Somawansa. J.).
45
"Matter in dispute is whether the ships in question areproperty in Sri Lanka as held by the Board underSection 2 of the Inland Revenue Act No. 28 of 1979".
The relevant facts are the Food Commissioner on or about10.08.1984 entered into a contract of affreightment marked A3 withthe Ceylon Shipping Lines Ltd., for the carriage of cargo betweenthe coastal ports in Sri Lanka. Although this contract was initiallyoperative from 10.08.1984 to 31.12.1985, it was subsequentlyextended beyond the said period. The Ceylon Shipping Lines Ltd.,a governmental institution which had a monopoly of coastal ship-ping in Sri Lanka, owned ho ships. Consequently it entered into anagreement dated 27.11.1985 marked A2 with the appellant a non-resident ship owner whereby the appellant's ships would be utilizedby Ceylon Shipping Lines Ltd., to fulfil its obligation under the saidcontract between the Food Commissioner and the Ceylon ShippingLines Ltd., Marked A3.
The appellant though it maintained a liaison office at No. 92Rosmead Place, Colombo 7 during the period 1985 to 1986 did nothave a registered office in Sri Lanka and the agreement marked A2disclosed that its principal place of business as being in Nagasaki,Japan. As the appellant by itself could not look after its own inter-est in Sri Lanka it appointed Ceylon Shipping Lines as its protectiveagent. Consequently it was treated as a non resident company forthe purpose of the Inland Revenue Act No. 28 of 1979.
In pursuance to the contract of carriage of cargo between theFood Commissioner and Ceylon Shipping Lines Ltd., two shipsbelonging to the appellant namely 'Marine Nagasaki' and 'WorldSanpo' were made available and were in Sri. Lankan waters fromJanuary 1985 to September 1986 and operated more than 63 voy-ages in coastal shipping during this period. Pursuant to these voy-ages on the basis of information supplied .by the Ceylon ShippingLines Ltd., the appellant was assessed by the Inland RevenueDepartment.
The appellant appealed against the said assessment to theCommissioner General of Inland Revenue in terms of section117(1) of the Inland Revenue Act No. 28 of 1979 and theCommissioner General of Inland Revenue determined that the
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appellant is liable for tax in terms of sections 2 and 74(1) of the saidAct No. 28 of 1979. The appellant appealed against the said deter-mination of the Commissioner General of Inland Revenue to theBoard of Review in terms of section 119(3) of the Act. The Board ofReview by its order dated 27.07.1990 held that the appellant wasnot liable for tax in terms of section 74(1) of the Inland Revenue ActNo. 28 of 1979 but that the appellant was liable for tax in terms of sosection 2(2) of the said Act No. 28 of 1979. Aggrieved by the saiddetermination of the Board of Review, the appellant has come tothis Court by way of a case stated in terms of section 122(1) of thesaid Act seeking the opinion of this Court on the said question oflaw.
It is contended by the counsel for the appellant that the Board ofReview erred in law by holding that the income earned by theappellant in the instant case was liable to taxation on the basis ofincome derived from property in Sri Lanka, in as much as the appel-lant's ships do not come within the category of property in Sri 60Lanka. It was the position of the appellant that as the Act is silentas to what constitutes property in Sri Lanka and in the absence ofanything contrary in the Act, movable or immovable property quali-fies as property in Sri Lanka only in the event that such propertyhas a permanent nexus with Sri Lanka. Unfortunately the appellanthas failed to explain as to what it means by the term "permanentnexus". In any event section 2(2) of the Inland Revenue Act No.28of 1979 does not impose this additional requirement of a perma-nent nexus which the appellant is seeking to introduce to theSection. The said Section 2(2) of the Inland Revenue Act reads as 70follows;
"For the purposes of this Act, "profits and income arising in orderived from Sri Lanka" includes all profits and income derivedfrom services rendered in Sri Lanka, or from property in SriLanka, or from business transacted in Sri Lanka, whether direct-ly or through an agent".
Therefore it is clear on a reading of this section that the require-ment of permanent nexus has nothing to do with section 2(2). InCape Brandy Syndicate v IR^'i per Rowlatt that in taxingstatutes…. "one has to look merely at what is clearly said. There is scno room for any intendment. There is no equity about tax. There is
CA
Trust Union Shipping Corporation v Commissioner General of
Inland Revenue. (Somawansa. J.)
47
no presumption as to tax. Nothing is to be read in, nothing is to beimplied. One can only look fairly at the language used".
The term 'property' has been defined in section 163 of the InlandRevenue Act No. 28 of 1979 to include 'any interest in any movableor immovable property.' The obvious characteristic of a movableproperty is that it can be moved from place to place. Consequentlyit cannot have a permanent nexus. On the other hand, the require-ment of a permanent nexus is a characteristic of immovable prop-erty. If the interpretation suggested by the appellant is applied to 90section 2(2) the distinction between movable and immovable prop-erty would disappear.
Be that as it may the Inland Revenue Act No. 28 of 1979 isindeed silent as to what constitutes property in Sri Lanka. Howeversection 2(2) read with section 163 does indicate what constituteproperty in Sri Lanka liable for imposition of taxes. The term 'profitand income arising in or derived from Sri Lanka' found in section2(1) (b) of the Act has been defined in section 2(2)of the Act. Thisdefinition in section 2(2) includes three situations. One such situa-tion in Section 2(2) is when profits are derived from 'property in Sri 100Lanka' and in terms of Section 163 property includes any interest inany movable and immovable property. It would appear that theappellant's ships would come within the term 'movable property'. Itis conceded that in the instant case the ships owned by the appel-lant are registered outside Sri Lanka and came into Sri Lankan ter-ritorial waters in pursuance of a charter agreement. But the fact thatthey operate 64 voyages in coastal shipping and earned profitswould certainly change the legal status of the ships.
In the written submissions of the appellant, it is contended thatif property in Sri Lanka were to be defined to encapsulate a wide 110and all encompassing meaning as resorted to by the Board ofReview in arriving at its conclusion that the appellant's ships con-stitute property in Sri Lanka. Then in such a situation even air craftsthat over fly the air space of Sri Lanka or the ships that passthrough the exclusive economic zone or the territorial waters of SriLanka without calling in at any part in Sri Lanka (which is a com-mon occurrence in International Shipping and Aviation) will becomeliable to taxation on the basis that these air crafts or ships also con-stitute 'property in Sri Lanka’. This analogy I must say is complete-
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ly misconceived. In terms of section 02 of the Inland Revenue Act '20No. 28 of 1979 the liability for taxes arise when profits are derivedfrom property in Sri Lanka. In the examples cited by the appellantthe air craft and ships do not appear to earn profits in Sri Lanka .since they merely pass through Sri Lanka. However the two shipsnamed 'Marine Nagasaki' and 'World Sanpo' belonging to theappellant were not passing through Sri Lanka but were in SriLankan waters from January 1985 to September 1986. It operated64 voyages in coastal shipping during this period. The appellant didearn profits from these ships that were in Sri Lanka. I am inclinedto take the view that all these factors clearly established that the 130appellant's ships constitute property in Sri Lanka within the mean-ing of section 2(2) of the Inland Revenue Act No. 28 of 1979.
I might also mention that the appellant in addition to the matterin issue in this case stated has raised other issues which are irrel-evant for the purpose of this case stated. Hence I do not proposeto consider those issues as the opinion of this Court has not beensought in respect of them.
Therefore in expressing my opinion to the question of lawreferred to in the case stated as set out above, I answer the saidquestion of law in the affirmative and I hold that the ships in ques- motion are property in Sri Lanka as held by the Board of Review undersection 2 of the Inland Revenue Act No. 28 of 1979.
DISSANAYAKE, J. – I agreeQuestion of law answered in the affirmative.
