Lordos Demetrios ν. The Republic of Cyprus through the Commissioner of Income Tax (1987) 3 CLR 462

(1987)3 CLR 462 THE CYPRUS LAW REPORTS ΠΑΓΚΥΠΡΙΟΣ ΔΙΚΗΓΟΡΙΚΟΣ ΣΥΛΛΟΓΟΣ CyLaw | Αναφορικά μ'εμάς | " target="_top">Επικοινωνία | Όροι χρήσης Έρευνα - Κατάλογος Αποφάσεων - Εμφάνιση Αναφορών (Noteup on) - Αρχείο σε μορφή PDF - Αφαίρεση Υπογραμμίσεων

(1987)3 CLR 462 [TRIANTAFYLLIDES, P., MALACHTOS, SAVVIDES, STYLIANIDES, AND KOURRIS, JJ.] DEMETRIOS LORDOS, Appellant, v. THE REPUBLIC OF CYPRUS THROUGH THE COMMISSIONER OF INCOME TAX, Respondents. (Revisional Jurisdiction Appeal No. 530). Special Contribution - The Special Contribution (Temporary Provisions) Law34/ 78, section 3- Special contribution is assessed and imposed quarterly in watertight compartments - Dividend received from a company limited - Rightly treated as income accrued in the quarter when it was declared or paid. Company Law - Dividend - Meaning of- A declaration of dividend creates a debt enforceable immediately or in the future, according to whether the dividend is or is not expressed to be payable at a future date. The respondent Commissioner treated the dividend of £3,197 received by the appellant from «Lordos Polysac (Limassol) Ltd.» on 30.8.79 as income liable to Special Contribution for the quarter that ended on 30.9.79 and the dividend of £1,119 received from the same company by the applicant on 1.9.80 as income liable to Special Contribution for the quarter that ended on 30.8.80. As a result he raised assessments accordingly. The appellant objected on the ground that each dividend should be treated as dividend for the whole year and should, therefore, for the purposes of Special Contribution equally spread over the four quarters of the year. The respondent turned down this objection and as a result the appellant filed a recourse for annulment. The recourse was eventually dismissed by a Judge of this Court. Hence the present appeal. Held, dismissing the appeal:

(1)The matter in issue is governed by section 3 of Law 34/78 and the Regulations made under Law 55/74.

(2)The special contribution legislation has as its basis the quarter and not the year. It intends for speedy levying and recovery of revenue. It is assessed and imposed quarterly in watertight compartments. It is levied and paid on the income of every person in a particular quarter derived from any source other than emoluments.

(3)Dividend is an income derived from the ownership of shares in a company. Dividends are paid out of profits, but not the profits or necessarily all the profits are necessarily distributed by way of dividends. The shareholder has no right to claim and be paid a profit of the Company before the declaration of dividend. The declaration of a dividend creates a debt enforceable immediately or in the future, according to whether the dividend is or is not expressed to be payable at a future date. Dividends are not connected with the year in which the profits were made, but accrue on the date of their declaration or stipulated time of payment.

(4)The dividends in question were not declared and did not become an enforceable debt until 30.8.79 and 1.9.80. respectively. The income accrued to the taxpayer only on those dates.

(5)In the light of the above this appeal has to be dismissed. Appeal dismissed. No order as to costs. Cases referred to: The Singer Sewing Machine Company v. The Director of the Department of Inland Revenue

(1979)3 C.L.R. 507: The Bank of Cyprus (Holdings) Ltd. v. The Republic

(1985)3 C.L.R. 1883; Bond v. Barrow Haematite Steel Co. [1902] 1 Ch. 353: Godfrey Phillips Ltd. v. Investment Trust Corporation Ltd. [1953)1 All E.R.7; Potel v. I.R.C. [1971] 2 All ER.

1. Appeal. Appeal against the judgment of a Judge of the Supreme Court of Cyprus (Loris, J.) given on the 14th October, 1985 (Revisional Jurisdiction Case No. 263/82) by virtue of which appellant's recourse impugning the decision, whereby income in the form of dividend of a shareholder was considered as liable to special contribution for the specific quarter in which it was declared and paid and was not spread over the whole year was dismissed. Chr. Triantafyllides, for the appellant. A. Evangelou, Senior Counsel of the Republic, for the respondents. Cur. adv. vult. TRIANTAPYLLIDES P.: The judgment of the Court will be delivered by Mr. Justice Stylianides. STYLIANIDES J.: This appeal involves a single question: Whether income in the form of dividend of a shareholder is liable to special contribution for the specific quarter in which it is declared and paid or whether it is spread over the whole year. The salient facts of the case are:- The appellant, who under section 5 of the Assessment and Collection of Taxes Laws, 1978-1979, was required to submit returns of his income, failed to do so for the years 1975-
2. Examination of the returns of income submitted by the Company «Lordos Polysac (Limassol) Ltd.,» for the years 1979 and 1980, revealed that it had declared and paid dividends to each shareholder on 30th August, 1979, and on 1st September,
3. Appellant's name appeared in the list of the said Company's shareholders as having received a dividend of £3,
4. - on 30.8.79 and £1,
5. -on 1.9.
6. The respondent Commissioner, holding the view that dividends form income liable to special contribution on the date of declaration or the stipulated date of payment (irrespective of the period the profit, out of which the dividend is paid, was earned by the Company) and applying the provisions of the Special Contribution (Temporary Provisions) Law, 1978 (No. 34 of 1978), as amended, and the Special Contribution (Temporary Provisions) Regulations, 1975, decided to treat the respective dividends received as income of the appellant liable to special contribution for the quarters ended on 30.9.79 and 30.9.80, respectively. Assessments were raised for the aforesaid quarters accordingly and the relevant notices were sent to the appellant on 15.2.
7. The appellant objected that the respondent erroneously treated the whole amount of the dividend received by him as income of the quarter in which the dividend was declared, maintaining that it should be considered to be income of the whole year, spread equally over four quarters of the year, and not only of the quarter in which the dividend was declared and paid. The objection was determined against, the taxpayer and notice of assessment upon determination of the objection was issued. The taxpayer challenged by recourse the validity of the aforesaid decision. The first instance Judge confirmed the sub-judice decision of the respondent Commissioner of Income Tax that income from dividends is liable to special contribution for the quarter that they are declared and/or the stipulated date of payment. Counsel for the appellant submitted that dividend accrues throughout the period during which the profit to which it relates is realized; that the reference to quarters in the statutory enactment in issue relates only to computations; a dividend is a yearly receipt of income and as regards special contribution it should be spread over the year; that is the reasonable construction and application of the special contribution legislation; that Section 3 of the Law makes a provision regarding the imposition and collection and not the computation of the tax in the form of special contribution. He submitted, when invited by this Court to address as regards the application of Regulation 4 of the 1975 Regulations, that this Regulation lends support to his argument as at the end of the day an assessment is made on a yearly basis and an adjustment is made on a yearly basis. Counsel for the respondents, on the other hand, submitted that special contribution is measured by reference to the income of a particular quarter whereas for income tax purposes the tax is measured by reference to the annual income. Thus the basis of assessment is different whereas the principles applicable are the same; that the relevant time of taxation of the dividend is the time when finally dividends are declared or the time stipulated for payment. With regard to the Regulations, he said that Regulations 2 and 3 provide how a taxpayer declares his income for special contribution purposes and Regulation4 makes provision in cases where no returns of income are submitted to the Commissioner or where the returns of income show less income than that finally determined. Special contribution was introduced in this country for the first time by The Special Contribution (Temporary Provisions) Law, 1974 (No. 55 of 1974) for the purpose of making provisions for meeting the abnormal situation and relevant matters, that is to say, the situation created as a consequence of the Turkish invasion. It is a legislation of temporary character designed to tidy over a grave emergency and to enable the Government to raise revenue for the extraordinary social needs of the country. This legislation was extended by Law No. 43/75; it was substituted by The Special Contribution (Temporary Provisions) Law, 1976 (No. 15 of 1976), amended by Law No. 12/
8. The material section for this case - Section 3-was amended by Law No. 22/
9. That amendment is not relevant for the purposes of this case. The Special Contribution (Temporary Provisions) Law, 1978, (No. 34 of 1978) came into operation on 1st April, 1978, and by virtue of subsequent enactments it continues to be the Law applicable. The matter is governed by s.3 of Law No. 34/78 and the Regulations which were made by the Council of Ministers under Law No. 55/74 (Special Contribution (Temporary Provisions) Regulations, 1975, No. 31/75, Supplement No. 3, Official Gazette No. 1170 of 14.2.75), which, however, survived and are in force by virtue of s.10 of Law No. 34/
10. Section 3 of Law No. 34/78 reads as follows: ### («
11. For the quarter beginning as from the 1st April, 1978, and for every subsequent quarter during the period when this Law shall be in force, there shall be levied and collected a contribution at the rates and in accordance with the provisions set forth in the Schedule, on the income of any person which is derived from any source other than emoluments»). Sections 3 of Laws No. 55/74, 15/76 and 34/78, except as regards emoluments, are identically cast and worded. The original Law started with the quarter beginning as from 1st October, 1974, Law No. 15/76 with the quarter beginning 1st April, 1976, and 1st April again is the date of the operation of Law No. 34/
12. The intention of the legislator is expressed in the words of the Law. The special contribution legislation has as its basis the quarter and not the year. It intends for speedy levying and recovery of revenue. Special contribution is assessed and imposed quarterly in watertight compartments - (The Singer Sewing Machine Company v. The Director of the Department of Inland Revenue,

(1979)3 C.L.R. 507, 510). It involves a scheme for the payment of special contribution assessed on the basis of income in a particular quarter. The taxpayer is required to submit quarterly returns of income liable to this form of taxation. The contribution is levied and paid on the income of every person in a particular quarter derived from any source other than emoluments. Dividend is an income derived from the ownership of shares in a company. With regard to the meaning of dividend and the right of the shareholder, in the case of The Bank of Cyprus (Holdings) Ltd. v. The Republic.

(1985)3 C.L.R. 1883, the following was said at p.1891:- «The ordinary meaning of 'dividend' is a share of profits, whether at a fixed rate or otherwise, allocated to the holders of shares in a company - (Henry, v. Great Northern Railway Co.,

(1857), 1 De G. & J. 606; Chelsea Water Works Co. v. Metropolitan Water Board, [1904] 2 K.B. 77, C.A.). A shareholder is not entitled to claim that the company should apply its undivided profits in payment to him of dividend. Whether it must do so or not is a matter of internal management to be decided by the majority of the shareholders. He cannot sue for such a dividend until he has been given a special title by its declaration. Until then, no doubt, the profits are profits in the hands of the company until it has properly disposed of them. Provision is made either in the memorandum of association or in the articles and occasionally in both of these instruments, but the manner in which they are to be declared and paid is usually stated in the articles - (See the Companies Law, Cap. 113, Schedule I, Table «A», Arts. 114-122, relating to dividends)». Dividends are paid out of profits but not the profits or all the profits are necessarily distributed by way of dividends. The Directors are not compelled to declare a dividend against their judgment. The shareholder has no right to claim and be paid a profit of the Company before the declaration of a dividend. The declaration of a dividend by a Company creates a debt enforceable immediately or in the future, according to whether the dividend is or is not expressed to be payable at a future date. The shareholders can sue the Company for the dividend. Dividends are not connected with the year in which the profits were made but accrue on the date of their declaration or stipulated time of payment - (Bond v. Barrow Haematite Steel Co., [1902] v 1 Ch. 353; Godfrey Phillips Ltd. v. Investment Trust Corporation Ltd., [1953] 1 All E.R. 7; Potel v. I.R.C., [1971] 2 All E.R. 504). The object of taxation of special contribution is the income that accrues within a particular quarter. The Income Tax Laws and the Assessment and Recovery of Tax legislation are applicable mutatis v mutandis under s.6 of Law No. 34/78 which, however, leaves unaffected the provision of s.3 that makes the measurement, levying and collection of the special contribution quarterly. The relevant regulations are modelled on a quarterly basis. The income from dividends accrues on the date of its declaration or stipulated time of payment. The dividends in the present case were not declared and did not become an enforceable debt until 30.8.79 and 1.9.80, respectively. They did become due on those dates. The shareholder had no right earlier. The income from the dividends accrued to the taxpayer only on those dates and are liable to special contribution for the respective quarters. In view of the aforesaid the appeal is dismissed and the sub judice decision is confirmed. In all the circumstances of the case we make no order as to costs. Appeal dismissed. No order as to costs. cylaw.org: Από το ΚΙΝOΠ/CyLii για τον Παγκύπριο Δικηγορικό Σύλλογο