(1987)1987Αρη! 7 (TRIANTAFYLLIDES Ρ MALACHTOSSAWIDES STYLIANIDES AND KOURRIS JJ ] DEMETRIOSLORDOS, Appellant, ν THEREPUBLICOFCYPRUSTHROUGH THECOMMISSIONEROFINCOME TAX, Respondents (RewsionaiJurisdictionAppealNo530) Special Contnbution — TheSpecial Contnbution (Temporary Provisions) Law34/ 78, section 3 — Special contribution isassessed andimposed quarterly in watertight compartments — Dividend received from a company limited — Rightly treatedasincome accruedin thequarter when itwasdeclaredor paid Company Law — Dividend — Meaning of—A declaration ofdividend createsa debt enforceable immediately or in the future, according to whether the dividend isorisnotexpressedto bepayable atafuture date 5 The respondent Commissioner treatedthe dividend of£3,197receivedby the appellant from «Lordos Polysac {Limassol) Ltd»on 308 79as income liable toSpecial Contnbution for the quarter that ended on309 79 and the 1 0 dividend of £1,119 received from thesame company bytheapplicantor) 1 980asincome liable to Special Contribution forthequarter that endedon 30 880 As a result he raised assessments accordingly The appellant objectedon thegroundthateachdividendshouldbetreated as dividend forthe whole year andshould, therefore, forthepurposes of 1 5 Special Contribution equally spread over the four quarters ofthe year The respondent turned down this objection andasa result the appellant fileda recourseforannulment The recoursewas eventually dismissedbyaJudgeof this Court Hence the present appeal Held, dismissing the appeal
(1)Thematter inissue isgoverned bysection 3 ofLaw34/78 and the Regulations made under Law 55/74
(2)The special contnbution legislation has as its basis the quarter andnot 462 20 Lordos 3 C.L.R. v. Republic the year. Itintendsfor speedy levyingand recovery of revenue Itisassessed andimposedquarterlyinwatertightcompartments.Itislevied andpaidonthe income of every person inaparticularquarterdenved from anysourceother thanemoluments. 5 1U
(3)Dividend is an income denved from the ownership of shares in a company. Dividendsarepaid outof profits, but nottheprofits or necessanly alltheprofits arenecessanly distnbutedby way ofdividends.Theshareholder 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 orinthefuture, accordingtowhetherthedividend is or is not expressed to be payable at a future date Dividends are not connected with the year inwhich theprofits were made,but accrue on the dateof theirdeclarationorstipulatedtimeof payment
(4)The dividends in question were not declared and did notbecomean 15 enforceable debt until30 8 79 and 1.9 80, respectively. Theincomeaccrued to the taxpayer only on those dates
(5)Inthelight of theabove thisappeal has tobe dismissed Appealdismissed. No orderastocosts 20 Casesreferredto• The Singer Sewing Machine Company ν The Director of the Departmentof InlandRevenue
(1979)3 C LR.507. The Bank of Cyprus (Holdings) Ltd ν The Republic
(1985)3 C L R. 1883; 25 Bondv BarrowHaematite Steel Co [1902) 1Ch,353; Godfrey Phillips Ltd v. Investment TrustCorporation Ltd [1953] 1All E.R. 7; Potelv.lR.C [1971]2All ΕR. 504 Appeal. 30 Appeal againstthejudgmentof aJudgeof the Supreme Court of Cyprus (Loris,J.)given onthe 14thOctober, 1985(Revisional Jurisdiction Case No. 263/82)* by virtue of which appellant's Reportedin
(1985)3C.LB. 1876 463 Lordos v. Republic
(1987)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, forthe appellant. A. Evangelou, Senior Counsel of the Republic, for the respondents. Cur.adv. vult. TRIANTAFYLLIDES P.: The judgment of the Court will be 10 delivered byMr.Justice Stylianides. STYLIANIDES J.: This appeal involves a single question: Whether income in the form of dividend ofa shareholder isliable to special contribution for the specific quarter in which it is declared and paid or whether it isspread over the whole year. 15 The salient facts of the caseare:The appellant, who under section 5 of the Assessment and Collection of Taxes Laws. 1978-1979, was required to submit returns of hisincome, failed to do so for the years 1975-
- Examination of the returns of income submitted by the 20 Company «Lordos Poiysac (Limassol) Ltd.,» for the years 1979 and 1980,revealed that ithaddeclared andpaiddividendstoeach shareholder on 30th August, 1979,and on 1stSeptember,
- Appellant's name appeared in the list of the said Company's shareholders as having received a dividend of £3,
- - on 25 30.8.79 and £1,119.- on 1.9.
- Therespondent Commissioner, holdingtheviewthat 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 thedividendispaid,wasearnedby 30 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 3 5 contribution for the quarters ended on 30.9.79 and 30.9.80, respectively. 464 5 3 C.L.R. Lordos v. Republic Stylianldes J. Assessments were raised for the aforesaid quarters accordingly and the relevant notices were sent tothe appellant on 152 82 Theappellant objected thattherespondent erroneously treated the whole amount of the dividend received by him as income of 5 thequarterinwhichthe dividendwasdeclared, maintainingthatit should be considered to be income of the whole year, spread equally over four quarters oftheyear, 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 10 determination ofthe 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 15 dividends isliable tospecial contnbution for the quarter that they are declared and/or the stipulated date of payment Counsel for the appellant submitted that dividend accrues throughout thepenod dunng which the profit towhich itrelatesis realized, that the reference to quarters inthe statutory enactment 20 inissuerelatesonlytocomputations, adividend isayearly receipt of income and as regardsspecial contnbution itshould be spread over the year, that isthe reasonable construction and application of the special contnbution legislation, that Section 3 of the Law makesaprovision regardingtheimposition andcollection and not 25 the computation of the taxinthe form ofspecial contnbution He submitted, when invited by this Court to address as regards the application of Regulation 4 of the 1975 Regulations, that this Regulation lendssupport tohisargument asatthe end of the day anassessment ismadeonayearlybasisandanadjustment ismade 30 on a yearly basis Counsel fortherespondents, on the other hand, submitted that special contnbution ismeasured 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 35 assessment isdifferent whereas the pnnciples applicable are the same,that the relevant time of taxation ofthe dividend isthetime when finally dividends are declared or the time stipulated for payment. WithregardtotheRegulations,hesaidthat Regulations 2 and 3 provide how a taxpayer declares his income for special 465 Styllanldes J . Lordos v. Republic
(1987)contribution purposes andRegulation4 makes provision in cases where noreturnsof incomearesubmitted totheCommissioneror where the returns of income show less income than that finally determined. Special contribution was introduced in this country for the first 5 time by The Special Contribution (Temporary Provisions) Law, 1974 (No.55 of 1974) for the purpose of making provisions for meeting theabnormal situationandrelevant matters,thatisto say, the situation created as aconsequence of the Turkish invasion. It isa legislation oftemporarycharacterdesigned totidyover agrave 10 emergency andtoenable theGovernmenttoraise revenue forthe 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/
- The 15 materialsection for thiscase—Section 3— was amendedby Law No.22/
- Thatamendmentisnotrelevant forthepurposes ofthis case. The Special Contribution (Temporary Provisions) Law, 1978, (No. 34 of 1978) came intooperation on 1st April, 1978, and by 20 virtue of subsequent enactments it continues to be the Law applicable. The matter isgoverned by s.3 of Law No. 34/78and 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, 25 Official Gazette No. 1170 of 14.2.75), which, however, survived and are inforce by virtue of s.10 of Law No. 34/
- Section 3 of Law No.34/78reads as follows:«
- Δια την τριμηνίαν την αρχομένην από της 1ης Απριλίου, 1978 και δι' εκάοτην επομένην τριμηνίαν, 30 διαρκούσης της ισχύος τ ο υ παρόντος Νόμου, επιβάλλεται και εισπράττεται εισφορά, κατά τους συντελεοτάς και συμφώνως προς τ α ςδιατάξεις τας εν τ ω Πινάκι αναγραφόμενος, επί τ ο υ εισοδήματος παντός προσώπου προερχομένου εξ οιασδήποτε 35 πηγής ετέρας ή αμοιβής». («
- Forthe quarter beginning as from the 1st April, 1978, and for every subsequent quarterduring theperiod when this Law shall be in force, there shall be levied and collected a 466 3 C.L.R. Lordos v. Republic Styllanldes J. contribution attheratesandinaccordancewiththe provisions set forth intheSchedule,on theincomeof any person which isdenved from any source otherthan emoluments») Sections 3 of Laws No 55/74, 15/76 and 34/78, except as 5 regards emoluments,are identically castandworded Theoriginal Law startedwith thequarterbeginning asfrom 1stOctober, 1974, Law No 15/76 withthequarterbeginning 1stApnl, 1976, and 1st Apnl again is the date of theoperationof Law No 34/78 The intentionof the legislator is expressed in the words of the 10 Law The special contnbution legislation has as its basis the quarter and not the year It intends for speedy levying and recovery of revenue Special contnbution is assessed and imposed quarterly in watertight compartments - (The Singer Sewing Machine Company ν The Directorof the Department of 15 InlandRevenue,
(1979)3 CLR 507, 510) Itinvolves a scheme for the payment of special contnbution assessed on the basis of income ina particularquarter Thetaxpayer isrequired tosubmit quarterly returns of income liable to this form of taxation The contnbution islevied andpaid ontheincomeof every person ina 20 particular quarter denved from any source other than emoluments Dividend is an incomedenved from the ownership of sharesin a company With regard tothemeaningof «dividend» andthenght of the shareholder, in the case of The Bank of Cyprus (Holdings) 25 Ltd ν TheRepublic
(1985)3CLR 1883,thefollowing was said at ρ 1891- 30 35 «The ordinary meaning of 'dividend' is a share of profits, whether at a fixed rate or otherwise, allocated tothe holders of shares in a company - (Henry ν Great Northern Railway Co,
(1857), 1 DeG & J 606, Chelsea Water Works Co ν Metropolitan WaterBoard, [1904] 2 ΚΒ 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 majonty of the share holders Hecannotsue for such a dividend untilhe has been given aspecial titleby itsdeclaration.Untilthen,nodoubt,the profits are profits in the hands of the company until it has properly disposed ofthem 467 Styllanldes J. Lordos v. Republic
(1987)Provision ismadeeitherinthememorandum ofassociation orinthearticlesandoccasionally inboth ofthese instruments, but the manner in which they are to be declared and paid is usuallystatedinthearticles—(SeetheCompaniesLaw,Cap. 113, Schedule I, Table «A», Arts. 114-122, relating to 5 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 10 profit of the Company before the declaration of a dividend. The declaration of a dividend by a Company creates a debt enforceable immediatelyorinthefuture, accordingtowhetherthe dividend isor isnot expressed tobe payable ata future date. The shareholders can sue the Company for the dividend. Dividends 15 arenotconnected withtheyearinwhichtheprofitsweremadebut accrue on the date of their declaration or stipulated time of payment — (Bond v. Barrow Haematite Steel Co., [1902] 1Ch. 353; Godfrey PhillipsLtd. v. Investment TrustCorporation Ltd., [1953] 1AllE.R. 7; Potelv. IRC, [1971]2AllE.R. 504). 20 The object of taxation ofspecial contribution isthe income that accrues within aparticularquarter.TheIncomeTaxLawsand the Assessment and RecoveryofTaxlegislation areapplicable mutatis mutandis under s.6 of Law No. 34/78 which, however, leaves unaffected the provision of s.3 that makes the measurement, 25 levying and collection of the special contribution quarterly. The relevant regulations are modelled on aquarterly basis. The income from dividends accrues on the date of its declaration orstipulated time of payment. Thedividendsinthepresent casewerenotdeclared anddidnot 30 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 therespective quarters. 35 In view of the aforesaid the appeal isdismissed and the subjudice decision is confirmed. Inallthecircumstancesofthecasewemakenoorderastocosts. Appeal dismissed. No orderastocosts. 468 AD