3 C.L.R. 1988November 19 ι [A.LOEOU. P.) 1 INTHEMATTEROFARTICLE 146OFTHECONSTITUTION COURTISENTERPRISESLIMITED, Applicants, v. THEREPUBLICOFCYPRUS,THROUGH * .1.THEMINISTEROFFINANCE, r 2.THECOMMISSIONEROFINCOMETAX, , Respondents. (CaseNo.535/82). Taxation—Assessmentoftaxes—Judicialcontrol—Principlesapplicable. 5 10 Taxation—Assessmentof.taxes—Absence of accountsprepared by aninde pendentaccountantpracticing intheRepublicanddulyauthorisedbythe MinisterofFinancetoprepareaccounts—Thepowers oftheDirectorofIn landRevenue in such a case—TheAssessment and Collection of Taxes Laws.1978-1979.sections32 and51. InthiscasetheCourtdismissed therecoursefor annulment againstthe subjudiceassessmentsofincometaxonthegroundthat,inthelightof the aforesaid sections32and 51,theabsenceofproperaccountsand theinconsistenciesofapplicants'own "homemade"estimations,theywere reasona bly opentotheCommissioner. 1 Recoursedismissed. Noorderasto costs. ' Casesreferredto: 1 5 MinervaCinetheatricalCo.Ltd. v.TheRepublic
(1975)3CJL.R. 116; Georghiadesv.TheRepublic
(1982)3C.L.R. 659. 2209 Courtis Enterprises v. Republic
(1988)Recourse. Recourseagainst theincometaxassessmentsraisedonapplicantsfortheyears 1978-
- A. TriantqfyHides,fortheapplicants. r A. Evangelou,SeniorCounseloftheRepublic*fortherespon- 5 dents. Cur. adv. vult. A.LOIZOU P.read the following judgment. The applicant Company Courtis Enterprises*Ltd., of Famagusta is a private Company of limited liability deriving its income from general trading and from commission agency. It was incorporated in FamagustawhereithaditstradingoperationstilltheTurkishinvasioninJuly, 1974.In 1976,it startedtore-activate itstrading operationsinNicosia. On23rdMarch, 1981,theysubmitted homemadeincomplete " Trading andProfit and LossA'ccourits'for theyearsended 31st December, 1976to 1980 showing an amount of£7,954.329 as totalprofits.Followingthesubmissionofthesaidincompleteaccounts, the respondent Commissioner requested the applicant Company byhisletterofthe 19thAugust, 1981tosubmittheir 20 balance-sheetsfortheyearsended31stDecember, 1977to1980, andcopies of the bankcurrent accounts for the saidyears.The applicant companyfailed tosubmittheaforesaid balance-sheets andbankstatements. Therefollowed meetings of the accountants of the applicant 25 Company,theirManagingDirectorandtheirlawyerwith officials of theoffice of the respondent Commissioner in the courseof whichproposalswereexchangedwithaviewtoanamicablesettlement. Also during the same time correspondence was exchangedbetweentheparties. 30 2210 3 C.L.R. 5 lO 1 - ΛΛ 3 0 35 GOurtifr;Enterprises,v..Republic; AL, Loizou»R:. By means,of a>letterdated the,l'Sth.July L982,.the applicantCompany gavadetails'and statement*wriicb\were prepared!by/ them andwhich were to;theeffect matme-,total1loss;incurred'andi to be carried' forward1 as at 14th. August 1974,. amounted!to> £13,276;,and u^after(dtedkicting the.netprafit earnedinthey<aars; 1976 to*1980 thereremaHsedthebalance,of losstobe carriediforward asat34sxDecember, 1980, amountingto£
- Inreply; therespondent Commissioner by Msletter dated the 26thiAugust 1982, informed the applicant Company thattrieaccountssubmittedby themwere incompleteandcould notform the basisof theirassessment unless,accountsprepared by anauthor ised auditor,were submitted. The applicant.Company replied by letterdated 26th August 1982, and gavetheirreasons for notsub-* mitting proper accounts prepared by an authorised auditor and again repeated their offer to allow such an amountof loss to be carried forward as at 14th August 1974, so as to absorb thetotal profits earnedduring theyears 1976 to
- These reasons were found to be unjustified .by therespondent Commissioner, who seeing that no agreement could be reached decided to allow the sum of £5,000 as loss tobe carried forward as at 14th August 1974, and to determine the applicant Compa ny's liability to income tax for the years of assessment 1977 to 1980 tothebest of hisjudgment as provided under section 12
(2)(b) of the Assessment and Collection of Taxes Laws 1978 to 1979. The decision of the"respondent Commissioner was com municatedtotheapplicant Company by letterdated 2nd October 1982 and as a result theapplicant Company filed thepresentre course praying as follows: "A Declaration that Assessments Nos. 77/82/10/010, 78/82/ 10/010 and 33/82/10/010 are null and void and of no effect whatsoever and/orthedecisions of theRespondents contained therein including thedecision toimpose incometax onthe Ap plicants amounting to £728.450 mils for the years of assess ment 79/78, or any other sum or at all, is null void and of no. effect whatsoever." 2211 A. Loizou P. Courtis Enterprises v. Republic
(1988)The main submission onbehalf of theapplicant Company was that they should not be penalized for not producing audited ac counts in support of their losses for the year 1973 and 1974 be cause all theessential material on which such accounts could be based is in Famagusta and consequently the applicants are not able toproducethesaid accountsfor 1973 and
- 5 Itwas thecase of therespondent Commissioner thattheclaim of the applicant Company for losseswas rejected as no evidence or proper accounts prepared by an authorised auditor were pro duced insupport of such losses;and that,instead applicant Com- JQ pany submitted home-madeincompleteestimates of expenses and receipts which provided norecord of thetransactionsenteredinto by thebusiness or valuation of its trading work. It was further argued on behalf of the respondent Commis sioner that the method employed by the applicant Company "in γ$ estimating theirreceipts was itself inconsistent in thatwhile onthe one hand theexpenses were estimated on a rising trend-therate of annual increase in 1973, was 29% and in 1974 35% -there ceipts were estimated on declining trend so thatin 1973 accord ing totheirestimates they fell by 40% in comparison with 1972 -n whilst no receipts were estimated for the first eight months of normal trading in 1974". Finallyit was submitted "thatinthelight of such facts, namely, the absence of reliable audited accounts, the lack of any documentary evidence tosubstantiate the alleged expenditure and theobvious inconsistency of his home-madeesti mations, the respondent Commissioner was fully justified in re questing the estimations and refusing to allow the losses or ex penditureclaimed and indeed was expressly empowered todo so by virtue of theprovisions contained in sections 32 and51 of the Assessment and Collection of Taxes Laws 1978 - 1979". 30 The aforesaid sections read as follows: "
- Any accounts,and any computationsrelating totheob ject of the tax produced to theDirectoror accompanying any return of the object of thetaxrendered totheDirector,may,at 2212 3 C.L.R. 5 1Q ,c Courtis Enterprises v. Republic A. Loizou P. the Director's discretion, not be considered if they have not beenpreparedandcertified byanindependent accountantpracticing in the Republic duly authorised by theMinister of Finance toprepare accounts and computations of the object of thetax.TheMinisterofFinancemay,onissuing suchauthorisation, impose such conditions as to him may appear necessary or advisable for the purpose of ensuring preparation and . submission of accounts showing a'true and correct statement withregard totrade,business,profession orvocation: Provided thattheMinisterofFinancemay atanytimewithdraw such authorisation from any practicing accountant or a memberofra firm of suchaccountants,ifan accountant's competenceor.conduct in thematterof preparation of accountsor computations of chargeable incomejustifies such an actionon thepartoftheMinisterofFinance: Provided further that any decision of the.Minister of Finance under this section may be subject to review by the - -_CouncilofMinistersinaccordance with Regulationsmade under section-
- 20
- Deductions from theamountof theobject of thetax allowable under the provisions of the Law whereby the tax is imposed maynot bemadefor thepurposes of thisLaw unless properaccounts,tothesatisfaction of theDirector, andacomputation showing the assessable object of the tax prepared by 2<r an independent practicing accountant approved by the Minister of Finance as in section 32, are produced to the Director, and a finding by the Director that any such accounts or computations are unsatisfactory shall not be a ground of objection under the provisions of sub-section
(2)of section 20." 30 In the course of the hearing detailed affidavits were filed by the parties giving their respective versions on the previous factual aspects of the case. I need not g o into the contents of these affidavits. Suffice it to say that the contention of the respondent about obvious inconsistencies "of the h o m e - m a d e estimations" of the 2213 Δ» Leizou P. Courtis Enterprises v. Republic
(1988)applicantCompany/isfully borneoutby thematerialbeforeme. Thesubjjidice.decisionbeingadecision against anincome tax assessment cannot bedisturbed!by thdsCourtif it isadecision whichcoukfreasonably andproperly,inlaw, andfact be reached by theTaxing Authority. (Seeihteralia,MinervaCinetkeatrical 5 Co.Ltd.v..77M? Republic(19Έ5)3CL.R. 116.Seealso the ex positionoiFthelawgoverningjudicial!reviewoftaxationdecisions by Pikis L,in- Georghiades v. TheRepublic
(1982)3 C.L.R. 659 atpgt 667-669). Taking into consideration thejninciples governingjudicial 10 controloftaxationdecisions,theaforequoted provisions ofsec tions 32and51andthematerialbefore therespondent Commis sioner,particularly the said inconsistencies andtheabsenceof proper accounts,I hold that thesubjudice decision was one whichcouldreasonably andproperly betakenbytheTaxing Au- ^ thoiity. Therecoursemust, therefore, fail and is hereby dis missedwith noorderas tocosts. Recoursedismissed. Noorderasto costs. 2214