(1988)1988 July8 [SAVVIDES, J.] INTHE MATTEROFARTICLE 146OFTHECONSTITUTION ELMA PAPER SACKS CO. LTD., Applicants, v. THE REPUBLIC OFCYPRUS,THROUGH THE COMMISSIONER OFINCOME TAX, Respondent. (CaseNo. 468/85). Special Contribution—Allowances—Naturalwearand tearin respect offixed assetssituatedin the occupiedareasof theRepublic—Whether deductible— Questiondeterminedin thenegative. Special Contribution—Losses capable of being carried forward—Donations duringtheperiod in question—Whether the lossesemanated therefromcan ς be carriedforward—Questiondeterminedinthenegative. The issues thatarose for determinationin theabove case appear suffi ciently from thehereinabove headnotes.TheCourtpointedoutthatin virtue of section 6of theSpecial Contribution(Temporary Provisions) Law, 1978 (Law 34/78) the IncomeTax Laws in force atthetimeapplied mutatis mu- 1 Q tandis.Inthelight of thisrule thequestion whethertheallowances claimed can bededucted or whether thelosses hereinabove referrred tocan becar ried forward must be determined in accordance with such Income Tax Laws. As regards theclaim inrespectof thewear and tearoffixed assets situ- γ$ ated intheoccupiedarea, thematteris governed by section 12
(2)'(a)of the IncomeTax Laws. Thewording of this section leavesnoroomfor doubt.It applies for wear and tear of property "arising outof the use and employ mentof such property in trade,business, profession, vocation or employmem during theyear of assessment". Inthis case itcannotbe said thatthe 20 fixedassets, which aresituated intheoccupiedareaof theRepublic,could 1374 3 C.L.R. ' Elma Paper Sacks v. Republic beusedduring theparticular periodofassessment *..'/• ." . Asregardsthe.question whether thelossemanating from,donationscan becarriedforward, thematterhasalreadybeendecided inthecaseofElma Paper SacksCoLtdv. TheRepublic
(1987)3CJL.R.239.' *'* •' ' 1 · .:," ' * Recoursedismissed. No orderastocosts. ' ' "* ' ' ' ·' Casesreferredto: TsimonLtd. v.Republic
(1980)3C.L.R.321; ' * '' Geo. PavlidesLtd. v.Republic
(1980)3C.L.R.345; 10 In reChans Georghallides, 23C.L.R.249; CapeBrandy Syndicate v. TheCommissioners ofInland Revenue [1921] 12TC358; • - Hellenic BankLtd. v.TheRepublic
(1987)3C.L.R. 1619; Elma Paper SacksCo.Ltd. v.TheRepublic
(1987)3C.L.R.
- 15 Recourse. Recourse against the specialcontribution assessmentsraised onapplicantsfortheyearsofassessment 1975-
- K.Michaelides,fortheapplicants. Y.Lazaroii, for therespondents. 20 Cur.adv. vult. SAVVIDESJ.readthefollowingjudgment.Theapplicantisa «privatecompanyof limited liability incorporatedJon 4.10.
- Duringthematerial'timeitderiveditsincomefromthemanufac1375 Savvides J. Elma Paper Sacks v. Republic
(1988)tureand saleofpaper bags. The applicant company, though it did not submit returns for special contribution, nevertheless, it submitted through its accountants audited accounts andcomputations for incometaxpurposes and special contribution purposes every year.The respon- 5 dent in 1979 proceeded and raised provisional special contribution assessments in accordance with the computations submitted by theapplicant's auditors,pending theexamination of theaccountsand computations. Theapplicant's auditors byletterdated 16thNovember, 1979, 10 objected against such assessments. The respondent dealt with such objection and also with all computations for all quarters which arethesubject matterofthisrecourseandproceeded tothe issue of revised special contribution assessments and informed theapplicant'sauditors accordingly by letterdated 13thDecern- j ^ ber, 1982.The applicant's auditors objected to such revised assessment byletterdated 28thDecember, 1982,on theground that they werenot in accordance with thecomputations submitted by them and requested to be informed of the legal basis of the respondent's decision to disallow the annual wear and tear allowances claimed on fixed assets situated in the occupied areas, pointingout that they werenot awareof anynewlegislation disallowingannualwearandtearfor specialcontribution purposes. The respondent having considered the applicant's objections decidedon24.1.83todeterminetheobjections bymaintaining the revised assessments and informed the applicant of his reasoned decision by letter dated 24th January, 1983,stating that there is nonewlegislation on thematterand thataccording totheexisting legislation theapplicant was notentitled toanycapital deduction on capital assets which are situated intheoccupied areasandthat suchdeductions were wrongly granted inthepast. Attherequestof theapplicant'sauditorsameeting washeldat theoffice of therespondent on the 1stFebruary, 1983, between therespondent,twoof thedirectorsof theapplicantcompany and 1376 25 30 3 C.L.R. Elma Paper Sacks v. Republic Sawides J. 1 5 lO ,c 2 5 3 " 35 oneof theirauditorsduring which therepresentatives of theappli cantpersisted thatfixed assets located in theoccupied areas were eligible towear and tear allowances as they were not considered as assets which ceased permanently anddefinitely tobe used in the business. The applicant's auditors wrote on the 3rd February, 1983, a letter to therespondent putting down in writing their views on the matter.The respondent by letter dated 17th February, 1983, informed theapplicantthathehaddecided towithdraw his determinationof theobjections against thespecial contributionassess ments for thequarters in question and thata new decision was to be taken on thematter. Such new decision was communicatedto the applicant by letterdated 6th February, 1985,informing itthat the respondent decided to maintain his original decision as regards thedisallowance of wear and teardeductions inrespect of assets situated in theoccupied areas as assets notused in theap plicant's trade or business. In addition therespondent decided to disallow for thepurposes of special contribution, ashedid for in come tax purposes, thedonations andcontributionsclaimed tobe deductible as losses to be carried over to future years of assessment.Final special contribution assessments for the quarters in question were attached totheaforesaid letter. As aresult, theap plicantfiledthepresent recourse praying for adeclarationthat;(A) The special contribution assessments Nos2A2634/l/80x4/80x,2Α2634/1/79Χ - 4/79x,2A2634/l/78x - 4/78x, 2A2634/1/ 77 - 4/77, A2634/1/76 -4/76, 2A2634/3/75 -4/75x dated 8/2/ 1985 raised by therespondentarenull andvoid of noeffect what soever. (B) Thedecisions of therespondent toimpose special contribution tax on theapplicant amounting to£142.20 for theyear of assessment 1975, £2079 for theyear of assessment 1976, £1039 for the year of assessment 1977, £3656 for the year of assess ment 1978, £1675 for theyear of assessment 1979, £487.30 for the year of assessment 1980 are null and void and of no effect whatsoever. 1377 Savvides J. Elma Paper Sacks v. Republic
(1988)(C)Thedecision of therespondent incomputing thelosses for the years 1981 - 1983,not tocarry over the loss arising out of two donations or contributions made in 1981,and 1983 is null and void andofnoeffect whatsoever. (D) Costs. 5 The legalgroundsraised bytheapplicant'scounsel in support of therecoursearethefc lowing: 1. The respondent's decision not to allow deductions for exhaustion and wearandtearofproperty situatedintheoccupied areas is contrary to sections 6 and 10of Law 34/78,and s. 12
(2)10 (a)of theIncomeTax Laws 1961to 1983and iswronginlaw. 2. The respondent's decision not tocarry over tofuture years of assessment thelossarisingoutof agift ordonation iscontrary to s.6 of Law 34/78 and s.11
(1)(
- f)of the Income Tax Laws 1961 to 1983and wrong in law. 15 3. The resulting computations acted upon by the respondent arewronginfact andin law. 4. Therespondent acted upon amaterial misconception of the law and facts. The questions which pose for consideration in this recourse ^0 may briefly besummarised asfollows: (a)Whether theapplicant isentitled towearandtear allowance in respect of fixed assets within theTurkish occupied areas and whether the refusal of the respondent to allow such deduction wastheproperoneinthecircumstancesofthecase. (
- b)Whether the respondent in computing the losses for the yeas 1981 - 1983properly exercised hisdiscretion in refusing to allow thecarryingoverof thelossesarisingoutof twodonations madein 1981and 1983. 1378 3 C.L.R. Elma Paper Sacks v. Republic Sawides J. I shall deal with question (
- a)first. 5 ΙΟ 20 Counsel for the applicantcontendedthatinthelight of thede cisions of this court in Tsimon Ltd. v.Republic
(1980)3 C.L.R. 321 and Geo. Pavlides Ltd. v. Republic
(1980)3 C.L.R. 345, fixed assets in areas occupied by theTurks arepresumed tocon tinue tobe in theuse and employment of their respective owners and as such they are subject to wear and tear allowance. He sub mitted thatsince such allowances were madefor thepurposes of income tax they should have also been made for thepurposes of theSpecial ContributionLaw by virtue of which theprovisions of the IncomeTax Laws are applicable in this respect. He further made reference tocircular No. 1982/15issued by therespondent on 5.8.1982 whereby such allowances were granted concessionally for income tax purposes but notfor special contributionpur poses. Counsel disagreed that such allowances are concessional andargued thatonceitwas decided thatfixed assets intheTurk ish occupied areas were not permanently lost, they were in the use and employment of their owners, even fictitiously, both for incometax and special contribution purposes. The law on thebasis of which thejubjudice decision was tak en is the Special Contribution (Temporary Provisions) Law, 1978 (Law 34/78). Section 3of thesaid law provides as follows:- 25 30 3. Διάτηντριμηνίαντηναρχομένηναπό της 1ης Απρι λίου, 1978 και δι*εκάστην επομένην τριμηνίαν, διαρκούοϊΐζ της ισχύος τουπαρόντος Νόμου, επιβάλλεταικαι εισ πράττεται εισφορά,κατάτουςσυντελεστάςκαισύμφωνος προς ταςδιατάξεις τας εν τω Πίνάκιαναγραφομένας, επί του εισοδήματος παντός προσώπουπροερχομένουεξοιασ δήποτεπηγήςετέραςή αμοιβής. Section6 of such law provides as follows:6. At διατάξεις των εκάστοτεεν ισχύι περί Φορολογίας 1379 Savvides J. Elma Paper Sacks v. Republic
(1988)του Εισοδήματος Νόμωνκαί των περί Καθορισμού του ΠοσοΰκαιΑνακτήσεως ΦόρωνΝόμων,εφαρμόζονται, τη ρουμένωντων αναλογιών,υπόταςεντωΠίνακιαναφερομένας τροποποιήσεις,αλλ' ουδεμίαπροσωπικήέκπτωσις παραχωρείται και ουδέν εισόδημα απαλλάττεταιτης ει- $ αφοράς εξαιρέσειAnd theEnglish trai slation:("
- Forthequarter beginning as from the 1st April, 1978 andfor every subsequent quarterduring theperiod when this Law shall beinforce thereshall beleviedandcollected acon- io tribution,attherates andinaccordancewith theprovisions set forth in theSchedule,ontheincomeof every person which is derived from any source otherthanemoluments.
- Theprovisions of theIncomeTax Lawsand theTaxes (Quantifying andRecovery) Lawsinforce atthetimeshall ap- 15 ply, mutatis mutandis, subject totheamendments set forth in theSchedule, but nopersonal allowance shall be granted and noincomeshall beexemptfromthecontribution save ") Alsounderparagraph 2of theSchedule toLaw 34/78thefollowingprovision is made: 20 "
- Τηρουμένων των διατάξεων της παραγράφου 3, προςπροσδιορισμόντουεισοδήματοςεκπίπτονταιάπασαι αι δυνάμειτων εκάστοτε ενισχύιπερίΦορολογίαςτουΕι σοδήματοςΝόμωνεπιτρεπόμεναιεκπτώσειςεξαιρέσει των ακολούθων:" ("Subject to the provisions of paragraph 3 in ascertaining theincomethereshall beallowedall deductions underthe pro visionsof theIncomeTax Lawsinforce atthetime,exceptthe following:"). 1380 25 30 3 C.L.R. Elma Paper Sacksv. Republic Sawides J. Therelevantprovisionsof theIncomeTax Laws 1961 - 1981 in respect of wear and tear allowancefor fixed assetswhich, by virtueof section 6of Law 34/78aremade applicablein comput ing theincome taxchargeabletospecialcontribution, read as fol5 lows: ·• 5 "12.-
(1)Εντωπαρόντιάρθρω'στοιχεία παγίουενεργη τικού*σημαίνει εγκαταστάσεις, μηχανήματαή κτίριαπερι λαμβανομένων και καταλυμάτων των υπαλλήλων, άτινα ανήκουσιν εις πρόσωπον ασκούν εμπορικήν ήβιομηχανικήν εν γένει επιχείρησιν, επιτήδευμα ή βιοτεχνίαν τινά, ελευθέρων ή αλλό τι επάγγελμα ή παρέχον μισθωτός υπηρεσίαςκαιάτιναχρησιμοποιούνται υπότουπροσώπου τούτου εντητοιαύτηεμπορικήήβιομηχανική επιχειρήσει, επιτηδεύματιήβιοτεχνία, ελευθερίω ήάλλω επαγγέλματι, ήυπηρεσία 0
(2)Κατάτον προσδιορισμόν τουφορολογητέου εισοδή ματος προσώπου ασκούντος εμπορικήν ή βιομηχανικήν τίνα επιχείρησιν, επιτήδευμα ή βιοτεχνίαν τινά, ελευθέριον ήάλλο τι επάγγελμα,ήπαρέχοντος μισθωτάςυπηρεσίας,θαχορηγήται- 0 5 0 (α)τηρουμένων των διατάξεωντου παρόντοςάρθρου, έκπτωσις ευλόγου τινός ποσού διάτην μείωσιν αξίαςκαι φθοράν ήνυφίστανταιτατοιαύταστοιχεία ως εκτηςχρή. σεως αυτών εν τη εμπορική ή βιομηχανική επιχειρήσει, επιτηδεύματιήβιοτεχνία, ελευθερίω ήάλλω επαγγέλματι, ή εν τη παροχή μισθωτών υπηρεσιών, κατά την διάρκεια τουφο(Χ)λσγικού έτους:" ("12
(1)In this section 'property' means plant, machinery orbuildings,including employees'dwellings,owner by aperson engaged in atrade, business,profession,vocation orem ployment and used and employed by such person in such trade, business, profession, vocation or employ ment 1381 Savvides J. Elma Paper Sacks v. Republic
(1988)
(2)Inascertainingthechargeableincomeofanypersonengaged in a trade, business,profession, vocation or employmentthereshallbeallowed(a)subject totheprovisionsofthissection,adeductionofa reasonableamountforexhaustionandwearandtearofproper- 5 ty arisingout of theuseandemployment of such propertyin the trade,business,profession, vocation oremploymentduringtheyearofassessment:"). Counsel for the respondent in supporting the subjudiceassessments based hisargumentson theexpressprovision in sec- 10 tion 12concerningpropertyusedandemployedduring theyear of assessment andsubmitted thatpropertieswithin theoccupied areaswereneitherusednoremployedinthetradeoftheapplicant and, therefore, any deduction for wear and tear could not be granted in respect thereof. Concerning thecasesof Tsimon and 15 Pavlideson whichtheapplicantreliedcounsel submittedthatno inferencecanbedrawnfrom suchdecisionsthatthepropertiesin theoccupied areascontinued tobeintheuseandemploymentof theirrespectiveownersbutwhatthecourtdecidedwasthatsuch propertiesdidnotdefinitely ceasetobeusedfor thepurposesof 2 n tradeastobeconsidered aspermanenlty lostinthesenseofsection 12
(3)(b)oftheIncomeTaxLaws. Before proceeding toconstrue theprovisions of the relevant laws, Ishall briefly deal withthereference madetothecasesof TsimonandPavlides(supra). Theissuein both thesaidcasesrested of theconstructionof section 12
(3)and
(4)of theIncomeTaxLawsandin particular on whetherproperties situated withintheTurkishoccupied areas and which had become inaccessible to their owners due tothe Turkish occupation,which followed theTurkish invasion,could ™ beconsideredastotallylostandassuchdeductiblefromthecomputation ofcapital allowance intheyearly balancingstatements. Bothcasesturnedonthequestion astowhethersuchassestshad "definitely" ceased to beused forthepurposes of theirowners' 1382 3 C.L.R. Elma Paper Sacks v.Republic Savvides J. trade asenvisaged by section 12
(3)(b)of the Income Tax Laws orthat thetrade or businessof their,owners was "definitely and permanently discontinued" asenvisaged by s. 12
(3)(c)of theIncomeTaxLaws. 5 The above cases aredistinguishable from the present case in which theconstruction of thewords'"used andemployed" in sub - section
(1)of section 12 and "use and employment of such property during the year of assesssment" in sub - section
(2)of section 12isunder consideration. 10 Itiswellestablishedbyourcaselawthatwhen theCourt deals withfiscal legislationithastoexaminecarefully theprovisionsof the relevant laws and in the present case whether any claim for exemption or deduction for wear and tear of property can find support intherelevantprovisions of thelaw. 15 In acasestatedin 1958undertheprovisionsofthelawthenin force, theHigh Court, inthematter of ChartsGeorghallides, 23 C.L.R. 249 held atp.256: 20 25 30 "Onedealing with fiscal legislation shouldcarefully examine first, whether the taxpayer is clearly within the words of theprovisions by which heischarged with taxand, secondly, ifheclaimsanyexemption ordeduction from tax-towhichliability iseither admittedorestablished -whether suchclaim is clearly supported by the relevant provision of the Law. In a disputedcase theonus tosatisfy theCourt astoliability topay tax is on the Tax Authorities and theonus to support aclaim for exemption ordeduction allowanceison thetaxpayer." On the principle that the provisions of a statute should be strictly interpreted, Rowlatt, J. inCapeBrandy Syndicate v.The Commissioners of inland Revenue [1921] 12T.C. 358 had this tosay atp.366:" in taxation you have to look simply at what is clearly said there 1383 Savvides J. Elma Paper Sacks v. Republic
(1988)is nopresumption as to tax;you read nothing in; youimply nothing,butyoulookfairly atwhatissaidandatwhatissaid clearlyandthatisthetax." Inthepresentcasebylookingfairly atthelanguageofthelaw there isnoroom for doubt orambiguity.Thewords in s. 12
(2)5 (a)areclear.Adeductionfor theexhaustionandwearandtearof property canonly beclaimed ifit arose"outof theuseandemploymentof suchproperty"inthetrade,businessetc."duringthe yearofassessment". The deduction claimed is allowed for income tax purposes 10 onlybywayofconcession.Astothelegaleffect of suchconcessions,itwasheld bytheFullBenchofthisCourt,inthecaseof the HellenicBankLtdv.TheRepublic
(1987)3C.L.R. 1619at p. 1626thatthey"donothavetheforceoflawanddonotstrictly form partoftaxcode". 15 It is an undisputed fact in the present case that though the property of theapplicant issituatedwithin theTurkishoccupied areasitstillbelongstoitandhasnotbeen "definitely" and"permanently" lost. Nevertheless, suchproperty wasinaccessibleto theapplicantduetoenemyoccupation andatnotimeduring the 20 years ofassesmentit had beenusedandemployed intheapplicant's tradeorbusiness. BearinginmindtheaboveIfindthatitwasreasonablyopento therespondenttofind thatadeductionforwearandtearinrespect of suchpropertiescouldnotbeallowed. Thisdisposesofthefirst question.Ishall nowproceedtothe secondquestion. Thequestionastowhetherdonationsmadebytheapplicantin 1981 and 1983could beincluded in the taxablelosses for such years,tobecarriedforward andsetoff againstthecompany'sfu- 30 ture incomehasalready beenansweredbymein CaseNo.469/ 85of thesameapplicant (seeElmaPaperSacks Co. Ltd.v. The 1384 25 3 C.L.R. Elma Paper Sacks v. Republic SavvidesJ. Republic
(1987)3C.L.R.239) inwhich thecomputationsforin cometax purposes for thesame years were inissue. Inthe said case Iconcludedasfollows,atp. 244:5 1Q 15 "Bearing inmindtheprovisions of section 11
(1)(0 of the IncomeTaxLaws 1961 -1981,1 agree with thesubmission of counselfor therespondent,that,inascertaining the chargeable income, therespodentcorrecdy construedtheprovisions ofthe law as applicable to 'taxable loss' and not 'accounting loss'.The proviso toparagraph (0dealswith losseswhichcan becarriedforward andsetoff against future income;as such, theycannotbetreatedotherwise than'taxable losses'. There spondent, therefore, was entitled to deduct such donations from the taxable lossestobecarried forward." Ifully indorsetheabove andhaving sofound, theapplicant's claimthatfor thepurposes of specialcontributionitisentitledtocarry overthelossarising outof twodonationsmadein 1981and 1983, fails. -.•„.;'. < '· . · <* In theresult therecourse is hereby dismissed but in thecir cumstancesImakeno orderfor costs. .' • ' 20 ,, 1 > , « , * . Recoursedismissed. Noorderas tocosts. '.*· • in „ i , , ' \ . . . . - 'J · ' , ' "''' Γ. ,. ί- 1385 " . Γ