W. S. FERNANDO, Appellant, and COMMISSIONER OF INCOME TAX, Respondent

098-NLR-NLR-V-59-W.-S.-FERNANDO-Appellant-and-COMMISSIONER-OF-INCOME-TAX-Respondent.pdf

Fernando v. Commissioner of Income Tax
441
1958 Present :Basnayake, C. J., K. D. de Silva, J., and Sinnetamby, J.
V. S. FERXAXDO, Appellant, and COADHSSIOXER OF IXCOAtE
-TAX, Respondent.
jS'. C. 3 IS—Income Tax Case BP A (2 35
Profits tax—JXIethod of computation—Point of law—Power of Supreme Court to con-sider it though it had not been raised in the tribunal below—Income Tax Ordi-nance, s. 11, sub-sections 1 and 2—Profits Tan Act, 1Vo. 5 of 10 IS, ss. 3, 6 (1) (a)
The assessee-appellant- derived his income from three main sources, but inrespect of two of them the annual accounts were made up to different dates,viz., up to 30th September and 31st December. The Commissioner rejected theassessee’s returns and assessed the income on an estimated computation based■ on capital improvement for periods commencing on 1st April and ending on31st ^larch of tlio following year.
Held, that under section 0 (1) (a) of the Profits Tax Act the profits tax for. the years 194 7 and I94S should be determined by reference to the assessableincome for the years of assessment 1947-4-S and 194S-49 respectively^
Held further, that where all the relevant facts are before the Court, the Courtis entitled to consider a question of law although it was not specifically raisedbefore tho Commissioner of Income Tax or before tho J3oard-of Review*.
e ASE stated for the opinion of the Supreme Court.
II- V- Perera, Q.C., with K. Sivagurnnalhan and L. Mulutantri, for■the assessee-appellant..
V. Tenn^koon, Senior Crown Counsel, with B. C. F. Jayaralne, CrownCounsel, for the respondent.*''.
Cur. a-dv. vult. –
442SIK2STETA3IBY, J.—Fernando v. Commissioner of Income Tax '
February 25, 1958. ■ SevNetamby, ' J.—.'The facts involved in this reference are set out adequately in the casestated for the opinion of tliis Court and it is not necessary for us to men-•tion them in detail here. In regard to the determination of the questioninvolved in paragraphs 11 (/) (1) and 11 (/) (2) it was agreed between the. Crown and the taxpayer that it should abide the result of the appeal to; the Privy Council from a decision of tliis Court in S. C. Case hTo. 175/Income Tax Case Stated No. 53/2260/BRA-23G. This agreement,"which was reached at an earlier hearing, applies to this case as well asto the' connected income tax Case 3STo. 319. The learned Counsel whoappeared for both sides assured us that effect Mould be given adminis-‘ tratively to the decision of the Privy Council when it is delivered. Ishall, therefore, confine myself to the other question that arises on theseproceedings to which learned Counsel limited themselves and which isset out in paragraph 11 (c) of the case stated. It is to the foliowingeffect :
■“ The aggregate of Appellant’s Profits liable to Profits Tax for the
years 1947 and 194S has been determined by reference to the assessableincome of the Income Tax Years 48/49 and 49/50 respectively, whereasunder sections G and 7 of the Profits Tax Act the aggregate of Profitsfor the said years 1947 and 194S should be determined by reference tothe assessable income of the Income Tax years 47/4S and 48/49respectively. ”■'
The assessee who is a mill owner, an arrack renter and a landed pro-prietor derived liis income from three main sources, but in respect of twoof them the annual accounts were made up to different dates,' viz., up toSeptember 30th and December 31sb. Tiie Commissioner acting tindersection 11 (2) of the Income Tax Ordinance had accepted these terminaldates for the purpose of computing the statutory income for thesebusinesses. The assessee made his returns accordingly and when assessedfor the periods in question appealed to the Commissioner. The taxing• authority, we are told, decided eventually to reject the assessee’s returnsand tax him on an estimated income computed on the capital improvementof his various ventures during the period 1 /4/42 to 31/3/50. The amountof the capital improvement and therefore the income during this periodwas finally determined by the Commissioner of Income Tax to beRs. 700,000 and was apportioned as follows :—
Year of Assessment 1943/44„',,1944/45
,,„1945/46
”-,’• 1946/47
„„1947/4S
,,„1948/49
’’„1949/50
,,,,1950/51
Rs. • 12,000/:„45,000/-,,45,000/-
„40,000/-
„30,000/-
„214,000/-
„104,000/-
„150,000/-
Two important matters must be noted and emphasised at this stage :first, the assessor haring computed the income from 1/4/42 to 31/3/50
SIXX ETA MB V, J.—Fernando v. Commissioner of Income Fax
443
apportioned Rs. 12,000 as the income which accrued to the assessee forthe first year 1942/43, and secondly, this was to be the basis of taxationof the income tax 3-ear of assessment 1943/44. – It is thus abundantly-clear that to ascertain the income for the 3'ear of assessment 1943/44 thetaxing authority adopted the income derived during the previous 3-ear1942/43, i.e., from 1/4/42 to 31/3/43. The taxable income for thesucceeding 3rears was computed in the same ivay and for the 3-car of assess-ment 1950/51 the 3-ear of accrual—to adopt a convenient phrase used bylearned Counsel for the assessee—was the 3'ear 1949/50.
The asscssee’s complaint is that in computing for the purpose of theProfits Tax his income for the 3-ears 1947 and 1948 the Commissionertook into account the taxable profits for the 3-ears of assessment 1948/49and 1949/50 instead of 1947/4S and 194S/49 respectively.
It was stated from the Bar b3r learned Crown Counsel that the profitstax was computed in this case under section 6 (i) («) of the Profits TaxAct, Xo. 5 of 194S, and it is with the interpretation of that sub-sectionthat we are in this case concerned. Section 3 of the Act imposed on thetaxpa3'cr the liability to pa3' profits tax in respect of the 3*ear commencing1/1/47 and for each subsequent 3"car. The Act enacts that the firstprofits tax 3-ear must end on some date in 1947. Section G (i) (a) providesthat for the first profits tax 3-ear the taxable profits shall be for a period
” ending on that day in the 3'ear 1947 up to which the accounts ofthe business are usualfy- made up and which lias been adopted for thepurpose of ascertaining the statutory income from that business foreither of the 3-ears of assessment commencing from 1/4/1947 and 1/4/194S as the case ma3r be under section 11 (1) or 11 (2) of the IncomeTax Ordinance. ”
In the present case—to repeat what I have stated earlier—the assessorliaving rejected the accounts submitted by the assessee adopted theincome which accrued to the assessee from 1/4/46 to 31/3/47 in accordancewith the provisions of section 11 (1) of the Income Tax Ordinance for thepurpose of ascertaining the statutory- income for the 3-car of assessmentwhich commenced on 1/4/47 and ended on 31/3/4S. The statutoryincome for the following 3-ears was computed on the same basis. Itfollows that the statutory income computed in respect of 0113- one incometax 3rear of assessment corresponds with the actual income derived duringthe previous 3*ear, or to put it in another way, the actual income derivedby the assessee in any one 3-ear is the same as the taxable income com-puted for the following 3-ear of assessment. It will be seen that in makingan estimate of the assessee’s taxable income the Commissioner proceededon the footing that the accounts of the assessee were made up to 31st3Iarch in eacli 3"car though in point of fact this was not so in respect atleast of two of his enterprises.
To take the case of a business that had its accounts made up to adate after 31/3/47—sa3;- 30/9/47—in order to ascertain the statutory-income for the 3rear of assessment 1947/48 one has to take the actualincome derived from 1st October 1915 to 30th September 1946, i.e.rfor the 3-ear 1945/46. This accords with the provisions of secti on 11 (2}
444' SINNETAMBY, J.—Fernando v. Commissioner of Income Tax
of the Income ; Tax . Ordinance. In such a case the profits actuallyaccruing during thetwelve months which ended in 1947 for the purpose of'profits tax is the same as the taxable income for the year of assessment1948/49.’ Alt was'contended by learned Crown Counsel that in his returnthe assessee had revealed businesses in respect of which accounts had beenmade tip for a year which ended not on the 31st March but on the 30thSeptember and 31st December. While it is true that if the assessments'had been made on the returns furnished by the assessee in respect of thearrack rents and the oil mills the income derived for 1945/46 would bethe taxable income for the year of assessment 1947/48, that certainly wasnot the basis on which the taxing authority dealt with the assessee’sliability. The Commissioner rejected those returns and assessed theincome from March to April on an estimated computation. It is mani-fest, therefore, that for an assessment on the Profits Tax Act the year ofassessment which corresponds to the 3’ear of accrual which ends in 1947. is the period 1947/4S and not the period 1948/49 as adopted by the Com-missioner. The Commissioner in his order does not give the reasonswhy he adopted for the profits tax year the assessable income for theyear 1948/49. Presumably he took into account the fact that twoat least of the assessee’s businesses had their annual accounts terminatingnot in March but on subsequent dates. This he is hot, on his own assess-ment of the assessee’s income, entitled to do.
The other point raised by learned Crown Counsel was that this parti-cular question was not raised before the Board of Review and that thiscourt should not, therefore, consider it. In support he cited two cases—JBray v. Justices of Lancashire 1 and Timbrell v. Lord Aldenham's Execu-tors 2. In the first of these cases an appellant taxpayer was declared notentitled to raise before the Court of Appeal a point of law which had notbeen raised by him in the case before the Special Commissioners and whichhad not been determined by the Special Commissioners. It did not alsoarise in the case that- was stated by the Special Commissionersfor the determination of the Court. The point raised was a highlytechnical point which the Master of the Rolls described as “ a miserable,-contemptible point ”. The Court took the view that the point wasraised only' for the purpose of-avoiding costs and refused to entertain it ;and Lord Justice Bowen, in refusing to consider it stated :
“ It makes no difference to any human being which way we decide,
… In this ease Mr. Bruce (Counsel for the assessee) who is wrong
on the main point would get the costs if he happens to be right upon atechnical point raised …. That is why he took the pointwith Ills usual ingenuity and that is the reason why we will not decideit.”—
In the other case the Crown sought to raise a question which had notbeen raised before the Special Commissioners and which had not been Aincluded in the case stated by the Special Commissioners for the decision/ :of the Court and in respect of which “ had it been taken quite obviouslyfurther evidence might have been called. ” The Court of Appeal refusedto entertain argument on this point. Lord Justice Somervell in dealing
1 2 Tax Cases 42G.■* 2S Tax Cases 203.
BASNAYAKE, C.J.—Fernando v. Commissioner of Income Tax
445
with this question .suggested that if all the relevant documents and. evidence were before the Court the^' Mould have considered it. Tliepresent case difFcrs from both these decisions in two respects : first, thequestion we are called upon to decide is included in the case stated to theCourt ; secondly, all the relevant evidence in regard to it is before thisCourt, both in the order of the Commissioner of Income Tax and in para-graphs 2 and 3 of the case stated by the Board of Be view. Furthermoreobjection was taken to the computation of profits tax before the Board ofBcview though not for the same reasons that were advanced before thisCourt. I take the view that where all the relevant facts are before theCourt as in this case, the Court is entitled to consider a question of lawwhich has not been specifically taken by a taxpayer before the Commis-sioner of Income Tax or before the Board of Review.
In the result I am of opinion that the profits tax for the years 1947 and194S should be determined by reference to the assessable income for theincome tax years 1947/4S and 194S/49 respectively. The asscssce willbe entitled to the costs of this reference.
IC. D. de Silva, J.—I agree.
Basxayake, C.J.—
I have had the advantage of reading the judgment prepared by mybrother Sinnetamby and I agree that the profits tax for the years 1947and 194S should be determined by reference to the assessable income fortire 3-ears of assessment 1947-4S and 194S-49 respectively and that theassessee should receive the costs of the hearing before us.•
I wish also to add that there is no substance in the contention of learnedcounsel for the Commissioner of Income Tax that the question of law towhich learned counsel for the assessee restricted his argument does notarise on the case stated.
In his notice of appeal under section 71 (3) of the Income Tax Ordinancethe assessee has stated as a ground of appeal the precise point whichlearned counsel was content to argue. It is also specifically set out in theCase Stated for our opinion.
I think we would be acting properly and we would be within our pro-vince in deciding a question of pure law which arises on the facts foundl>3r the Board even though it had not been raised in the tribunal below.
I derive support for mr view from the English cases on the point in parti-'■cular the ease of Attorney-General v. Aramayo and others1 and Wolf son v.Commissioners of Inland Jtevenue- where Lord Justice Cohen cited withapproval the Aramayo ease. The observations of Lord Justice Atkinin,the former case are helpful particularly in ascertaining the true scope of
1 9 T.C. 44-5 at 497.
* 31 T. C. 141at 166.
446
■Ediriweera v. 'Wijesuriya
section 74 (5) of the Income Tax Ordinance as he was there construing a •statute in pari materia. I shall quote them in extenso as' 'they beiir.repetition:—'’ .-i-;
.“ As I read the statutory procedure, which at that time depended, on.
Section 59 of the Taxes Management Act, 18S0, the Court is not -limited to particular questions raised by the Commissioners inthe formof questions on the Case. All that the Section provides is that if the.,appellant is dissatisfied with the determination as being erroneous in"point of law he may require the Commissioners to state and sign a Case,'and the Case shall set forth the facts and the determination,’ and uponthat being done the Court has to decide whether or not the determi-nation was or was not erroneous in point of law, and any point of lawthat can be raised properly upon the facts as found by the Commis-sioners the Court can decide upon. jMo doubt there may be a point of •law in respect of which the facts have not been sufficiently found, and -if that point of law was not raised below at all so as to require furtherfacts on either side the Court may very well refuse to give effect to it,and either party may have precluded themselves by .their conductfrom raising in the Court of Appeal the point of law which they deli-berately refrained from raising down below. Those questions, ofcourse, have to be considered. But apart from that, if the point oflaw or the erroneous nature of the determination on the point of law isapparent upon the Case as stated and there are no further facts to befound, it appears to me that the Court can give effect to the law. ,r
Appeal allowed.