(1987)1987October17 (A LOIZOU J] INTHE MATTER OFARTICLE 146 OFTHE CONSTITUTION SERAFINO SHOE INDUSTRY& TRADING CO LTD Applicant, ν THE REPUBLICOF CYPRUS, THROUGH THE MINISTER OF FINANCE, Respondent (Case No 497/86) Income tax— Exemptions—Foreign exchangeimportedintotheRepublic— The Income TaxLaws 1961-1984,section 8{x)— Whether the 3%/6% relief thereunder applies inrespectof foreign exchange imported for the purpose of reimbursingthe exporterof locallymanufacturedgoods for the freightand insurance charges,whichsuch exporter had paid in respect of such goods exported by him — Question answeredin the negative 5 Construction of Statutes — Taxingprovisions — Pnnctples applicable to their construction Thesole issueinthiscaseiswhether applicantcompany isentitledin virtue of section 8(X)* of the Income Tax Laws 1961-1984 to the 3%/6% 10 exemptionontheforeign exchange importedintotheRepublicattnbutableto freight and insurance charges initially paid by theapplicant company andin respect of which the applicantwas reimbursed by theforeign purchasers Held, dismissing the recourse
(1)Taxing provisions must be stnctly construed The taxpayer must be given the benefit of the doubt, but in the 1 5 absence of any ambiguity the words must be given their ordinary meaning Stnct interpretationapplies tothetaxpayer justas muchtotheRevenue Any hardshipproduced by theliteral constructionsisnotarelevant consideration Where an exception from taxation is granted, such exception is to be construed stnctly and anyambiguity construed against thetaxpayer** 20
(2)The wording of paragraph (x)of s 8 isclear and unambiguous andthe words have tobe giventheirnaturalmeaning Thesignificant partof itarethe words «derived from» read in conjunction with the words «export of locally manufactured orproduced products »That is,foreign exchange which stems 'Quoted atρ 1318 ** Theaforesaidprinciples ofconstruction areexpoundedin Butterworth'sUK Tax Guide 1986-87atρ 93 TherelevantpassagewascitedbytheCourtwithapproval 1316 3 C.L.R. 5 Seraf.nov. Republic directlyfrom theexportof thelocallymanufacturedgoodsasopposedtothe foreign exchange denved from the payment by the exporter of freight and insuranceonbehalf oftheforeign purchaserandrefunded tohimbythelatter. Such freight and insurancedo notamount toexport of goods butconstitute the necessary facilities for the export of thegoodslocally manufactured. Recoursedismissed. No orderastocosts. CasesreferredtoCzpe BrandySyndicate v.I.R.C [1921] 1K.B 64, 10 /?eM)cWe//iiva/re
(1855)11 Exch.452, Tennantν Smith [1892]AC. 150, ReJoynson's Will Trusts, Gaddum v,I.R.C. (1954]Ch.567; IRC v.Hinchy [1960] 1All E.R.505; Liftmanv.Barron [1951] 2All E.R.393; 15 AC . Pnnce ErnestAugustus of Hanover [1957]AC 436. v Recourse. Recourse against the decision of the respondent whereby the 3%-6% exemption on the foreign exchange imported from certain exports would not be granted on such part of the foreign 20 exchange as itisattributabletoinsurance andfreight charges. X.Xenopoulos, for theapplicant. A. Evangelou, Senior Counsel of the Republic, for the respondent. Cur,adv.vult. 25 A. LOIZOUJ. read the following judgment. By the present recourse, the applicant company seeksa declaration of theCourt that the act and/or decision of the respondent Commissioner communicatedtothemby letterdated 17thJune, 1986, by which the 3%/6% exemption on the foreign exchange imported from 30 certainexports would notbe granted on suchforeign exchange so importedas being attributable to insurance andfreight charges, is null andvoid and with nolegal effect whatsoever. The applicant company is a private company with limited liability registered undertheCompaniesLawCap. 113andhasan 1317 A. Lolzou J. Serafino v. Republic
(1987)issued share capital of 300.000 shares of one pound each. It derived its income, during the material time, from the manufacturing of shoes. It submitted audited accounts for the relevant yearsand upon theassessmentsbeing communicated to them by letter dated 14th April, 1986, the applicant company 5 objected to them on the ground that the 3%/6% exemption on foreign exchange attributable toexportexpenses should not have been disallowed. The respondent Commissioner of Income Tax, having considered theobjection filedonbehalfoftheapplicantcompany, 10 maintained his original decision, determined the objection accordingly, and informed them of hisduly reasoned decision by letterdated 17thJune, 1986(AppendixD),upon receiptofwhich the applicant company filed the present recourse. The sole issue for determination in this recourse is whether the applicant 15 company is entitled to 3%/6% exemption on the foreign exchange imported into the Republic attributable to freight and insurance charges paid by them and reimbursed by the foreign purchasers. Section 8(
- x)of the Income Tax Laws 1961-1984, in so far as 20 relevant, reads:«8(
- x)three per centum of the foreign exchange imported into the Republic which isderived from the export of locally manufactured orproduced products,.... Provided that in the case of exports which fall within a 25 category of products specified by the Minister ofFinance and approved by the Council of Ministers, which in his opinion need increased encouragement inattainingorincreasingtheir export, the Minister of Finance may, under such terms and restrictions as he may set out in his decision, increase the 30 amount of the foreign exchange soexempted up toa further rate of three per centum.» 1318 3 C.L.R. 5 Serafino v.Republic A.Lolzou J. Nodoubt, taxingprovisionsmust beconstrued strictly. In Cape BrandySyndicate v.I.R.C, [1921] 1K.B.64atp. 71,Rowlatt, J. said: \ «In a taxing act, one has to look merely at what is clearly said.There isnoroom foranyintendment.Thereisno equity abouttax.there isnopresumption astoatax.Nothingistobe read in, nothing isto be implied. One can only look fairly at thelanguage used.» «Thisprinciple»,aspointed outinButterworth'sU.K.TaxGuide 10 1986-87 p.93,«hastwo consequences:Thefirstisthatitisforthe Crown to establish that the subject falls within the charge. This meansthatifthewordsareambiguousthesubjectisentitledtothe benefit of the doubt. But the principle isnot that the subject isto havethebenefit ifonanyargument thatingenuitycansuggestthe 15 act does not appear perfectly accurate but only if, after careful examination of all the causes, a judicial mind still entertains reasonabledoubtsastowhatthelegislatureintended.Ifthereisno ambiguity the words must take their natural meaning.» Insupport oftheaforesaid proposition,reference ismadetothe 20 cases of in Re Mickiethwaite [1855] 11 Exch. 452 approved in Tennantv. Smith [1892]A.C.150. 25 30 «The second consequence is that strict interpretation applies tothe taxpayerjustasmuchastothe Revenue.Soif a literal interpretation produces a construction whereby hardship falls on innocent beneficiaries by the rights, monstrous or otherwise, conferred on the Inland Revenue, that interpretation must be adhered to and the hardship produced is not a relevant consideration. Further where an exception from taxation isgivenbyastatute,thatexceptionis to be construed strictly and any ambiguity construed against the taxpayer. It isas well to recall here that support of the very highest authority can be found for general and apparently irreconsilable propositions.» 35 Insupport of the aforesaid proposition reference ismade toin Re Joynson s Will Trusts, Gaddum v.IRC[1954]Ch. 567;IRCv. Hinchy [1960] 1 All E.R. 505, 38 T.C. 625; Littman v. Barron 1319 A. Loizou J. Serafino v. Republic
(1987)[1951]2 All E.R.393; A-G v. PrinceErnestAugustus of Hanover [1957] A.C 436. With these principles of interpretationinmind,I turn now tothe issuesbefore me. Ithas been argued on behalf of theapplicant company thatitis 5 quite clear that the said 3%-6% tax exemption is granted on the foreign exchange which hasbeen importedinCyprus asaresultof theexport of products manufactured locally andthatitcovers also the freight and insurance costs and expenses. Consequently it is applied on the CIFtotal price of exports which arepaid in Cyprus 10 inlocalcurrencyandtherefore donotaffect themoney remittedto Cyprus, that is «the foreign exchange imported into the Republic...» and as such should not affect the calculation of the 3%/6% allowance. Itwas further argued thatthere isnodistinction between freight 15 and insurance charges and the costs of the materials, as all expenses fall under the definition of cost of sale. Ithas been the respondent's submission thattheinterpretation given by learned counsel for the applicant company tothe words in paragraph (x)of the law, gives tothem a strained meaning and 20 infringes the above principles of strict interpretation. Looking fairly at the language used, and in particular the words «derived from the export of locally manufactured orproduced products»,it was submitted, thatthe interpretation mostappropriate isthatthe exemption hi question isrestricted tothe foreign exhange directly 25 attributable tothe manufacture of thegoods exported as opposed tothe foreign exchange attributable tothecarriage of such goods, e.g. insurance and freight costs. I find myself unable to agree with the submission of learned counsel for the applicant company and the interpretation he placed on the relevant words of s.8, para, χof the Law. The wording of paragraph (x) of s. 8 is clear and unambiguous •andthe words have to be given their natural meaning. Itallows exemption from tax on the foreign exchange derived from the export of locally manufactured or produced products. The significant parts of it are the words «derived from» read in conjunction with the words «export of locally manufactured or produced products.» That is, foreign exchange which stems directly from the export of the locally manufactured goods as 1320 30 35 3C.L.R. Serafino v.Republic A. LolzouJ opposed totheforeign exchangederivedfrom thepaymentbythe exporter of freight and insurance on behalf of the foreign purchaser and refunded to him by the latter. Such freight and insurance do not amount to export of goods but constitute the 5 necessary facilities for the export of goods locally manufactured Thisapproach comeswithintheobject ofthisprovision whichisto givean incentivebywayoftaxrelief forthe localindustryand not aprofitonthepaymentofthefreightandinsurancechargeshere. 10 Intheresult,therecourseisdismissedwithnoorderastocosts. Recourse dismissed. No orderastocosts. 1321