clr/1987/1987_3_1619.pdf

(1987)paid on specialcontnbution for the years 1979 and 1981 (£10.964 and £4respectively) The Commissioner, however, refused to make any allowance ordeduction for the payment of theaforesaidamountsasheconsideredthat the said sums were not aliability as at 31st December 1932, that they had been finally determined and paid in 1979 and 1981 respectively and the 5 accounts of theappellants-applicants for thoseyearscouldnot bealteredby later events, and that the aforesaid amounts representing interest paid on special contnbution levied was not an expense wholly and exclusively incurredin theproductionof theincome liableto special contnbution This is an appeal from the judgment of aJudge of this Court, dismissing 1 0 appellants' recourse, whereby the validity of the aforesaid decision of the Commissioner had been impugned Held, dismissing the appeal

(1)The claim of the applicants was correctly rejectedbytherespondent Commissioner assuchwasmadebythembyway of deduction fromtheir taxableincome inrespect of their taxliabilities forthe 15 year 1982,notwithstandingthefactthatsuchamountclaimedtobededucted was neither a liability for the year of 1982, nor was it incurred for the production of their income for such year, but was interest paid in the years 1979and 1981onspecial contnbution for thoseyears (2} Phis case is outside the scope of section 38 of the Assessment and 2 0 Collection ofTaxesLaw 4/78 Thissectiongivesataxpayer thenghttoclaim repayment of tax paid «by wau of deduction or otherwise» within six years from the endof theyear of assessment to which suchclaim relates Wherea taxpayermakesuphisaccountsandsubmitshisreturnstothe Commissioner, asitisthecaseof theappellants,itisnotacasewheretaxispaidbydeduction 2 5 andistherefore outside thescope of section 38 Moreover, finalisedassessmentscannot bechallengedunder section38as theproperprocedureisforanaggnevedtaxpayertomakeanobjectionagainst adecisionof theCommissioner andifnotsatisfiedtofilearecoursewithin of coursetheprescnbedbmelimits Ifhefailstodosowithintimehecannotlater 3 0 try toinvoke the provisions ofsection 38 {3)The fact that special contnbution isitself deductible asamatter of law (section8 of theSpecialContnbution (Temporary Provisions) Law)does not necessanly leadto the conclusion thattheinterest payable thereonmustalso bedeductible asamatter of law The fact that interest, isdeductible on the basisof administrative practice which takes the form of a concession by the respondent Commissioner, cannot by itself defeat a tax payer's tax liability as imposed by law, as concessions do not have the force of lawand do not stnctly form part of the taxcode 1620 35 ^ 3 C.L.R. 5 10 Hellenic Bank Ltd. v. Republic In the present casewhat is in factclaimed by the taxpayer-appellant isfor suchaconcessiontobeappliedretrospectivelyin respectoftheirtax liab titles whichhavealreadybeenpaidandsettledandare inallrespecl finalised Such a claim iscontrary to the generally acceptedpnnciples of administrative lawagainstretrospectivity

(4)The approachofthisCourtasregardsthequestionofconcessionsisthat the Commissioner of Income tax may make concessions provided they are not inconsistent with any statutory provision though the law may not expressly allow them They are applied generally for the benefit of all tax payers not by way of favour but by way of fair administration and they are publicly known Appeal dismissed No order asto costs Cases referredto 15 Singer Sewing Machine Co ν Director of the Department of Inland Revenue

(1979)3 C L R 507, AG ν Seccombe {1911] 2 Κ Β 688 EtonRuralDistnct Council ν ThamesConservators [1950] 1 Ch 540 20 RoseSmith and Co Ltd ν Inland Revenue Commissioners [1933] 17Tax Cases 586, Vesteyand Others ν Commissioner of Inland Revenue, 541C 503, FS Secunties Ltd ν Commissioners of Inland Revenue [1963] 1 W L R 1223, Commissioners of Inland Revenue ν Bates[1968] A C 483, 25 Commissioners of Inland Revenue ν Komer(1969] 1 W L R 554, HadjiPavlouv TheRepublic

(1967)3 C L R 711, Makndesv The Republic

(1983)3 C L R 1381 Appeal. Appeal against thejudgmentof aJudge of theSupreme Court 30 of Cyprus (Pikis, J )given on the 7th February, 1986 (Revisionai Junsdicbon Case No 426/84)*whereby appellants' claim for the deduction of the amounts of £10,964 -and £4 -paid by way of • Reportedin<1986)3CLR 267 1621 Hellenic Bank Ltd.v.Republic

(1987)interest for special contribution for the years 1979 and 1981 respectively, from their '.axable income for the year 1982 was dismissed. G. Triantafyllides,forthe appellants. A. Evangeiou, Senior Counsel of the Republic, for the respondents. 5 Cur. adv. vult. A.LOIZOUJ. read the following judgment ofthe Court.Thisis an appeal from thejudgment ofaJudge ofthisCourtwherebythe recourse of the appellants/applicants against the decision of the 10 respondents to refuse their claim to deduct the amounts of £10,964.-and of £4.- paid by way of interest for special contribution for the years 1979 and 1981 respectively, from the taxableincomeoftheapplicantsfortheyear1982wasdismissed. Theaforesaid amounts were paid asinterestforthe delayinthe 15 discharge of their obligationstomakespecial contributions under the provisions of the Special Contribution (Temporary Provisions),Law 1974 (LawNo.55 of 1974). The assessments raised by the respondents for the aforesaid years made no allowance for the payment of the above amounts 20 and asnoobjections were filed thereto,asprovided undersection 20

(1)of the Assessment and Collection of Taxes Law 1978 to 1979,they became final. InJune 1983the appellants submitted their incometax returns for the year 1982 and claimed by way of deduction from their 25 taxable income the interest paid on special contribution for the years 1979 and 1981 referred to above. The Commissioner, however, refused to make any allowance or deduction for the payment of the aforesaid amounts as he considered that the said sumswere notaliabilityasat31stDecember 1982;theyhadbeen 30 finally determined andpaidin1979and 1981respectivelyandthe accounts of theappellants/applicants forthoseyearscouldnot be altered by later events; and 'that the aforesaid amounts representing interest paid on special contribution levied was not an expense wholly and exclusively incurred in the production of 35 theincome liable tospecial contribution. The appellants/applicants objected against the decision of the respondent Commissioner, throuoh their auditors by letter of 1st 1622 3 CX.R. HellenicBank Ltd. v. Republic A· Loizou J . March, 1984, but as the respondent rejected theirobjection, they filed a recourse The present appeal was filed as against the decision of the Courtdismissing such recourse on theground that special contnbution is deductible from tax payer's income only 5 because of the express provisions of section 8 of the Special Contnbution (Temporary Provisions) Law 1974 (Law No 55 of 1974), otherwise being a form of taxation (see Singer Sewing Machine Co , ν Director of the Department of Inland Revenue

(1979)3 C LR 507 at ρ 511) it would not be so deductible 10 Furthermore it was held that the provisions of section 8 do not extend to the payment of interest for failure to pay special contribution within timeassuch interestis«apayment intendedto compensate the state for the loss suffered for the delay of the tax payer topay his special contribution in time» 15 The main argument of the appellants is that the tnal Judge wrongly dismissed their recourse because interest on special contnbution isdeductible asamatteroflaw andnotmerely by way of concession in thatsince special contnbution is deductible as a matter of law under section 8 of The Special Contnbutions 20 (Temporary Provisions) Law No 34 of 1978, thesame provisions must necessanly extend and apply to interest charged on such special contnbution But even if, it was argued, it is deductible by way of concession, such concession must be offered to everybody since a differentiation between tax payers who owe 25 interest on theirspecial contnbutioninrespect of theyears pnorto 1982 - who are allowed todeduct any interest they pay from their chargeable incomefor income- taxpurposes -andtaxpayers who paid interest on special contnbutionowed pnor to 1982 (like the respondents) and who do notget a deduction,would be contrary 30 toArticle 28 Finally, it was submitted that as the Court has power under section 38 of the Assessment and Collection of Taxes Law 1978 (Law No 4of 1978) (asso renumberedby Law No 41 of 1979) to go back six years andcollect taxdue butnotpaid,inthesame way 35 a tax payer may claim a refund for tax already paid, and though admittedly a claim was not made in respect of the years of 1979 and 1981 butwas instead included inthereturnssubmitted forthe year 1982, nevertheless it could so be done as the claim concerned an expenditure incurred in the sense of section 11 of 40 the Income Tax Laws, that is, it was wholly and exclusively 1623 A. Lolzou J. Hellenic Bank Ltd.v.Republic

(1987)incurred in the production of income. Also since section 38

(2)does not specify how such aclaim can be filed, itcould validly be so filed through the 1982 tax returns. The basic argument on behalf of the respondents, with which we agree, isthat the claim oftheapplicantswascorrectly rejected 5 by the respondent Commissioner as such was made by them by wayof deduction from theirtaxable incomeinrespect oftheirtax liabilities for the year 1982, notwithstanding the fact that such amount claimed tobededucted wasneither aliabilityforthe year of 1982, norwasitincurred for theproduction oftheirincome for 10 such year, but was interest paid in the years 1979 and 1981 on special contribution forthose years. It was further submitted that in any event the provisions of section 38 of Law No. 4 of 1978 which givea tax payer theright toclaim repayment of taxpaidwithinsixyearsfrom theend ofthe 15 yearofassessment towhichsuchclaimrelates,would notapplyto the case of the applicants, sincethe section applies where tax has been paid «by deduction or otherwise» as the expression «or otherwise», should be construed «ejustem generis»; see: A.G. v. Seccombe [1911] 2 K.B.688 at 703;Eton RuralDistrictCouncil 20 v. Thames Conservators fl950] 1 Ch. 540; also Maxwell on Interpretation of Statutes 12th Edition, atp.300, totheeffect that the words «or otherwise» should be restricted to the word that precedes them, inthisinstance being the words «bydeduction». We consider, with all due respect to the trial Judge, that tax is 25 generally paid «bydeduction» where the imposition of such taxis outside the control of the taxpayer, as it isdeducted normally at source bysomebody else, for instance, (a)inrespectofemolumentspursuant tos.49oftheIncomeTax Laws 1961-1981; (b) in respect of dividends pursuant to ss. 35 and 36 of the aforesaid Laws and s. 37 of the Assessment and Collection of TaxesLaws 1978-1979; (c)inrespectofincome derivedfrom propertyorconcern under the direction, control or management of trustees, or income 35 received bythe agentofa nonresident asprovidedbyss.37-39of the Income Tax Lawsand s. 14of theAssessment and Collection ofTaxesLaws; and 1624 30 3 C.L.R. Hellenic Bank Ltd.v.Republic A · Loircu j - (d)inrespectofincome from royalties,premiums,orfilm rentals orincomederivedbypublicentertainersasprovided underss.3033of the Income TaxLaws. Asrightlycontended by counsel for the respondents, where a 5 tax payer makes up his accounts and submits his returns to the Commissioner, as it isthe case of the appellants, it is not a case where taxispaid bydeduction and istherefore outside the scope ofsection 38. Itwasfurther submitted,withwhichwefullyagree,that finalised 10 assessmentscannotbechallenged undersection 38asthe proper procedure is for an aggrieved taxpayer to make an objection against adecision oftheCommissioner and ifnotsatisfied tofilea recoursewithinofcoursetheprescribedtimelimits.Ifhefailstodo so within time he cannot later try to invoke the provisions of 15 section 38. Similar provisions as to time limit appear in the English Taxes Management Act 1970 where in section 118

(4)thereof it is providedthatthe amount oftaxcoveredbyan assessment cannot be altered after an assessment becomes final and conclusive, 20 when an appeal against itisfinally determined orwhere thereisa timelimitforappealing and noappeal hasbeen made within that limit. (See Halsbury's Laws of England (4th Edition),Volume 23 paragraph 1585page 1153.) It was further submitted on behalf of the respondents that 25 interest payable for failure to pay special contribution in timeis, unlikethe contribution itself,notdeductible from incomeliableto tax. On thispoint itwasstated bythe trial Court: 30 35 «Special contribution levied under the provisions of the Special Contribution (Temporary Provisions) Law 1974 (as amended) are deductible from the tax-payers' chargeable incomenotbecauseoftheirintrinsicnaturebutbecause ofthe expressstatutory provisionsofs.8ofthe Law.Otherwise, the payments would not be deductible from the chargeable incomebeing,astheSupremeCourtacknowledged inSinger Sewing v. The Republic

(1973)3 C.L.R. 507, a species of taxation.Taxpaymentisnot,because ofitsnature, deductible from the chargeable incomeofthetax-payer. Itrepresents,as 1625 A. Loizou J . Hellenic Bank Ltd.v.Republic

(1987)stated in Simon's Taxes(3rd Ed. B,para Bl,590) the State's portion ofthe profit, not adisbursement for theproductionof income.» There isnospecific provision intheLawregarding interest paid on special contribution but, as submitted by the respondents, upon consideration ofthedecisionoftheFullBenchin TheSinger Sewing Machine Case (supra), inwhich however, no reference is made as to what interest amounts to, the lespondent Commissionerdecided thatsuchexemption shouldalsoextend to interest 5 *" We feci, however, that the fact that special contribution isitself deductible, as a matter of Law. does not necessarily lead to a conclusion that the interest payable must alsobe deductible asa matter of law. The trialJudge stated on thispoint: 15 «The exemption authorised by s. 8 of the Special Contribution (TemporaryProvisions)Lawdoesnot extend to the payment of interest levied for failure to pay special contribution within the statutory period. It is a payment primanly intended to compensate the State for the loss 20 suffered from the delay in receiving a special contribution. Neither on principle nor on authority can its deduction be justified from the chargeable income.» The fact that interest, as explained above, isdeductible on the basis of administrative practice which takes the form of a 25 concession by the respondent Commissioner, cannot by itself defeat ataxpayer's taxliabilityasimposed bylaw,asconcessions do nothavethe force oflawand donotstrictlyformpartofthetax code (see Halsbury's Laws of England 4th Edition Volume 23 paragraph 1681,page 1213). 30 There is no dispute in the present case whether such practice existswhichinanyeventisnotaquestion oflawbutitisatalltimes a question of fact. (See Rose Smith and Co. Ltd., v. Inland Revenue Commissioners [1933] 17Tax Cases586). Weconsider therefore thatconcessionsarewithinthediscretion 35 of the Commissioner to give or not and though they are of a general application they will not be granted for purposes of tax avoidance. They normally operate to mitigate what would 1626 3CUR. Hellenic Bank Ltd.v.Republic A. LoUou J. otherwisebetheunintentionallyharsheffectofcertainprovisionsof theTaxActsifappliedstrictly,thoughsomeareineffect additional exemptionsfrom taxliability(Halsbury'sLawsofEngland(4thEd.) Vol.23para. 1681). 5 Nevertheless, in the present case what isin fact claimed by the taxpayer/appellant, is for such a concession to be applied retrospectively inrespectoftheirtaxliabilitieswhich have already been paidandsettledand are inallrespectsfinalised, whichclaim weconsidertobecontrarytothegenerallyaccepted principlesof 10 administrative tawagainst retrospectivity. Whilston thisquestion of concessions we feel ituseful to give ourapproach toit.InEnglandreference ismadetoitintheBritish Tax Encyclopedia, Whitman and Wheatcroft on Income Tax, second editionatpp.33-34.whichweneednotreproducehereas 15 in the case of Vestey and others v. Commissioner of Inland Revenue, 54 T.C. p. 503, Lord Edmond Davies dealt at some length and reviewed the position in England regarding the question on concessions at pp. 599B-601A of his opinion. We shallonlyrefer toabrief passage whichreads: 20 25 30 35 «Ithasrecently been pointed outinanarticletowhich Iam considerably indebted (David W. Williams, 'Extra Statutory Concessions' 1979 British Tax Review 137) that Sir Stafford Crippssaidin1949thattheyhadcomeintoexistence 'without anyparticular legalauthority under anyActof Parliament but bytheInland Revenue undermyauthority' (466H.C.Deb.,6 July 1949, col. 2267). And, despite the reliance sometimes placed upon the Income and Corporation TaxesAct1970,s. 115

(2), the TaxesManagement Act 1970,s1,and the Inland Revenue Regulation Act1890,s 1,thefact isthatthereexists nostatutorysupportfortheassessmentprocedure adoptedin the present case. And, even were there some statutory or other basis for the published list of concessions, Walton J. [1979]Ch 198,204, madethe importantpoint that: '.... they do represent a published code, which applies indifferently to all those who fall, or who can bring themselves, within its scope. What isclaimed by the Crown now is something radically different. There is no published code, and no necessity for the treatment of allthose whoare inconsimilu casualike.Inone case theCrown can remitone 1627 A. Loizou J. HeUenic BankLtd. v. Republic

(1987)third, in another one-half, and inyet anothercase the whole, of thetaxproperly payable, atitsown sweetwilland pleasure If this is indeed so, we are back to the days of the Star Chamber Again, I wanttomake itcrystal clearthatnobody is suggestingthattheCrownhasorindeedever would, so utilise 5 thepowers which itclaimstobnng aboutunjust results, The root of theevilisthatitclaimsthatithas,infact, thenghttodo so ' Judicial comment regarding extra-statutory concessions has been mixed Speaking 'in no spint of cnhcism' Donovan 10 L J observed in FS Secunties Ltd, ν Commissioners of Inland Revenue [1963] 1 W L R 1223, 1233 'This is a difficult code to administer, and practical considerations no doubt justify at times some departure from stnct law for the common convenience of the Revenue and the taxpayer ' 15 Even Lord Upjohn spoke with two voices In 1968 he said in Commissioners of InlandRevenue ν Bates [1968] A C 483, 516 The Commissioners, realising the monstrous result of givingeffect tothetrueconstructionof thesection,have infact 20 worked out what they consider to be an equitable way of operating it which seems to them to result in a fair system of taxation I amquite unabletounderstanduponwhat principle they can properly do so Yet inthefollowing year hesaid inCommissioners ofInland 25 Revenue ν Korner [1969] 1 W L R 554. 558, of an unpublished concession 'This practice is very old, works great justice between theCrownandthesubject and Itrustwill never be disturbed '» InCyprus this Court had theoccasion torefer toconcessionary 30 policies and practices though it was not called upon directly to adjudicate on them Inthe case of HadjiPavlou ν The Republic ( 1 9 6 7 ) 3 C L R 711,atpp 719-720Tnantafyllides, J , as he then was said the following «Regarding the issue concerning the disbursement of 35 £315 -, for the funeral expenses of the late Chairman of the Applicant, Mr Chnstodoulos Haggipavlu, counsel for the Applicant hasnotputhiscase higher thanthis Thoughitisnot in the stnct sense a tradinq expense, nevertheless, it is a disbursement which na& oeen ueated in the past as 40 1628 3 C.L.R. Hellenic BankLtd.v.Republic A. Loizou J. deductible, bywayof established practice of the IncomeTax Authorities in the United Kingdom, it is an accepted concession. 5 Nospecific instances inCyprushave been referred tosoas toshowthatasimila; practiceha?been established inCyprus, too, and thustolay. possibly, the foundation for a complaint by the Applicant that it has been discriminated against by meansof thesubjudice decision of the Respondent.» A more recent one is the case of Makrides v. The Republic 10

(1983)3 C.L.R.

1. Reference is made to a concessionary arrangement but at p.
2. Pikis, J., emphasized that the legitimacy of the concessionary arrangement was not probed in those proceedings, notbeingan issuebefore him,and concluded by saying «to the extent that the decision in Federation of 15 Selfemployed [\9S\] 2AllE.R.93,mayberelevantinCyprusand, I express no opinion on the subject, it suggests that a concessionarypolicymaybeevolvedprovideditisnotunlawful or ultraviresthelaw.» The practice of extra statutory concessions is claimed to stem 20 from theprovisionsofsection 3

(1)ofthe IncomeTaxLaws19611986 and under section 4 of the Assessment and Collection of Taxes Law 1978, which imposes upon the Commissioner of IncomeTaxthe responsibility for due administration of the Law. In our view the Commissioner of Income Tax may make 25 concessions provided they are not inconsistent with any statutory provision thoughtheLawmaynotexpresslyallowthem.Theyare applied generally for the benefit of all tax-payers not by way of favour but by way of fair administration and they are publicly known. 30 35 Itmay be said here that similar provisions to our section 38

(2)appear insection 33ofthe English TaxesManagement Act1970, where itisprovided insubsection 1 thereof: «

(1)If any person who has paid tax charged under an assessment alleges that the assessment was excessive by reason of some error ormistake ina return, hemaybynotice in writing at any time not later than sixyears after the end of theyearof assessment (or,iftheassessment isto corporation tax,theendoftheaccountingperiod)inwhichthe assessment wasmade, make a claimtotheboard for relief.» 1629 Hellenic Bank Ltd.v.Republic

(1987)The proviso tosubsection

(2)thereof statesas follows: «Provided that no relief shallbe given underthissection in respect of an error or mistake as to the basis on which the liability of the'claimant ought tohave been computed where thereturn wasinfactmadeonthebasisorinaccordancewith 5 the practice generally prevailing at the time when the return was made.» It is evident therefore from the above proviso that no relief is available where the returns were made «on the basis or in accordance withthepracticegenerally prevailing». 10 In the present instance there is no question of the appellants having paid beyond their tax liability according to law. The assessments for the years 1979and 1981 were not done in error inorderthat theCourtmightbeunder adutytorectify such error, but they were made in accordance with the legal provisions in 15 force atthe time. Inconclusion we are of the opinion that the trialCourtrightly decided that the respondent Commissioner correctly rejected the claimoftheappellants. Intheresultthisappeal isdismissed,butin thecircumstances there willbeno orderastocosts. 20 Appeal dismissedwith no orderastocosts. 1630