(1988)198SDecember23 [SAWIDES, J.] INTHEMATTEROFARTICLE 146OFTHECONSTITUTION PHANOSG.IONIDES, Applicant, v. THEREPUBLICOFCYPRUS,THROUGH THECOMMISSIONEROFINCOME TAX, Respondent. (CaseNo.62/82). Taxation—Income tax—Whatisincome. Taxation—Specialcontribution—Whethertaxpayermayapplythe"cashbasis" method as regard his income taxassessment and,at the same timethe "earningbasis" methodas regardsspecialcontribution—Reasonablyopen to therespondenttoadopt,contrarytothetaxpayerswishes,the"cashba sis" methodfor special contributionpurposes, i.e.themethod, whichthe taxpaperchosetousefor incometaxpurposes. Taxation—incometax—Deductibleexpenses—TheIncome TaxLaws, 1962— 198L,sections 13(e) andφ—-Butforsection8 oftheSpecialContribution (Temporary Provisions) Law, 1978 (Law34/78), special contribution would not have been a deductibleexpense—Now thatit is deductible,it mustbedeductedtogetherwithallotherdeductibleexpenses—The "earned incomerelief"isapplicableontheamountleftaftersuchdeductions. Taxation—Assessment—Incometaxandspecial contribution—Thetwometh ods thatmaybe usedincomputingtheincomeliabletothetax—Whatisthe "cashbasis"methodandwhatthe"earningbasis"method. The first question which arisesis whether incomeearnedpriorto1st October, 1974,butactuallyreceivedafter thatdate,isliable tospecialcon tribution. 2576 3 C.L.R. 5 Ionides v. Republic Asregardsthisquestionitmustbenotedthattheapplicanthadelectedto followforincometaxpurposes—asindeedhewasentitledtodo,the"cash basis",asopposed the "earningbasis"methodof computinghisincome. Suchelectionwasmadebeforetheenactmentofthelegislationconcerning specialcontribution. Theessential difference between the two methods isthat under the "earningbasis"methodrevenueischargeabletotaxintheperiodthatitbecomesduewhereasunderthe"cashbasis"methoditischargeableonthe dateitisactuallyreceived. 10 15 20 25 30 Thesecond question which posesfor consideration iswhetherinassessinghisincomeliabletoincometaxearnedincomereliefshouldbeallowedontheapplicant's incomebefore deducting therefrom thespecial contributionpayable.Theamountofspecialcontributionisadeductibleexpenseinvirue of theSpecial Contribution (Temporary Provisions)Law 1978(Law34/78). Held,dismissing therecourse:
(1)Ineffect theapplicant'spositionis thatheisentitledtofollowthe"cashbasis"systemwhichhehimselfelected for incometaxpurposesasthemethod tofollow for incometaxassessmentsandthe"earningbasis"methodforspecialcontributionpurposes.By usingtheonemethodfor onepurposeandtheothermethodfor another purposeheistryingtogetthebenefitofbothmethods.Therespondentsdecisiontoconsidersuchachoiceasunacceptableandthatthemethodtobe followed for specialcontribution purposesshouldbethethesameasthat followedinrespectofincometaxwas,reasonablyopentohim.
(2)The"word "income" however, isnot defined in the IncomeTax Laws.However,accordingtotheprinciplesofcommercialaccountancythe incomeofabusinessisthesurplusofreceiptsoveroutgoingsandexpenses incurredbythebusiness.Inthelightofsections 13(e)and 13(j)oftheIncomeTaxLaws1961-1981thespecialcontributionbeingessentiallyatax will notbe an allowable deduction. Section 8, however, of Law 34/78 treatsthespecialcontributionpayableasadeductibleexpense. Sincethespecialcontributionpayableistreatedunderthelawasanexpenseitfallstobedeductedwithallotheroutgoingsandexpensesfromthe receiptsofthebusinessbeforeearnedincomereliefisgiven. 35 Recoursedismissed. Noorderastocosts. 2577 Ionidesv.Republic
(1988)Casesreferredto: lA.C. v.Morrison[1932]17T.C325; MinervaCinetheatricalCo.Ltdv.TheRepublic
(1975)3GLA. 116; CourtisEnterprisesLtd.v.TheRepublic
(1988)3GLA.2209. Recourse. Recourseagainsttheassessmentsraisedonapplicant forspecialcontributionleviedonhisincomefor thequartersendingin theyears 1975and 1976andalsotheassessmentsforincometax foryears1976and 1977(yearsofincome1975and1976). Chr.Triantajyllides,fortheapplicant JQ A. Evangelou,SeniorCounseloftheRepublic,fortherespondent. Cur. adv. vult. SAWIDES J.readthefollowingjudgment Applicantbythis recoursechallenges theassessments for specialcontribution le- 15 viedonhisincomefor thequartersendingintheyears 1975and 1976andalsotheassessmentsforincometaxfortheyearsofassessment 1976, 1977 (yearsof income 1975and 1976) which wereraised anddeterminedbytherespondent Commissionerof IncomeTaxaspernoticesofassessmentcommunicatedtotheap- 20 plicant Theapplicantderiveshisincomefrom hispracticeas.TaxConsultant, from pensions from theRepublicof Cyprus and Social InsuranceFund,from emolumentsfrom theNicosia RaceClub, frominterestandrents. Applicant upon startinghisownpracticeofTaxConsultancy in February, 1966adoptedthe"cashbasis"methodforcomput2578 25 3 C.L.R. lonides v.Republic SavvidesJ. ing theprofits orgainsfromhispracticefor incometax purposes. Such·methodis oneof thetwoalternative methodswellknownin theaccountingpractice, theone being the"earningbasis" method andtheotherthe"cashbasis". 5 ΙΟ <- The"earnings" methodistheusual methodwhereby profits or gains from business arecomputedfor incometax purposes and which produces more accurate results than the "cash" method. According tothis methodtherevenue of theprofessional busi nessman iscomputedatthevalue ofservicesrenderedduringthe periodnotwithstanding thatattheterminaldateamountsare out standing eitherinrespectof work inprogress orunpaidaccounts for completed services.According tothe"cash basis"method the profits from business arecomputedonthebasisof theexcessof theactualcashreceipts during theyear over thecashoutiays and expenses actually disbursed or paid during the year. Thus the maindifference between thetwo modes is thatunderthe"earn ings" methoduncollectedfees are brought intoaccount whereas underthe"cashbasis"methodtheyareignored. •In hiscomputationfor therelevantperiods onthe"cash"basis for income tax purposes applicant included theDirector's fees and/orSecretary's fees when received. jc Upon theenactmentof theSpecial Contribution (Temporary Provisions) Law, No.55/74of 1st November, 1974 levyingspe cial contribution onthequarterly income of every personother thanemoluments from any office or employment,applicant ad dressed totherespondentCommissioner aletterdated 12thMay, 1975,touchingamongstotherpointsthe"cashbasis"method ado pted by him for income tax purposes and Secretary's fees re ceivedfromcompanies. 30 Therespondent commissioner having considered applicant's representations decidedthattheapplicantshouldfollow the"cash basis"methodfor special contributionpurposes as well and fur thermorethatSecretary's fees aretreatedfor thepurposes of spe cial contributionas Director'sfeesprovided they areconsidered 2579 |j SavvidesJ. Ionidesv.Republic
(1988)asemoluments and taxed (for income taxpurposes) oncurrent year basis.Therespondent communicated toapplicant hisdecisionbyletterdated23rdMay,1975.Thecontentsofsuchletter readasfollows: "The Special Contribution (Temporary Provisions) Law 5 No.55/74 Irefer toyourletterdated 12thinstantontheabovesubject andwishtoinformyouasfollows:
(1)Transferoflosses The transfer of lossesof previous quarters to the subse- 10 quentquarterisnotallowedasinthecaseoflossesforpreviousyears.
(2)Adoptionof the'cashbasis'method IagreewithyouthattheobjectofLaw55/74istoinclude intheSpecialContributionprofitsandincomefromtheperiod '* asfrom1.10.74till 31.12.75.In thecase howeverofprofessionals such as,advocates,doctors,etc, you adopt the'cash basis'methodfor incometaxpurposes,thenthesamemethod should be followed for purposes of special contribution as weU. 20
- Interest collected by membersof the Social Insurance Fund SuchincomeisincomesubjecttotheprovisionsofLaw55/ 74 and not income orother benefit emanatingfromtheemploymentofsuchmember.
- Remuneration ofDirectors of Companies -Law54/74 Secretary's fees by companies should also be,treated on the sametaxbasisasremunerationofDirectorsofCompaniesprovidedthattheywereconsideredasremunerationandweresub2580 ^ 3C.L.R. Ionidesv.Republic SavvidesJ. jecttoincometaxonthebasisofthecurrentyear." Applicant did neither reply torespondent's Commissioner's letterof23rdMay, 1975nordidhesendanycomputationofincomeliabletospecialcontributionoraccountsandcomputationof 5 chargeable income for income tax purposes for the respective yearsinduetime.Applicantsubmittedaccountsandcomputation of chargeable incomefor incometaxpurposesinrespectof the years 1975and 1976inDecember, 1978.Inthemeantimeapplicantasprovided byregulations2and3 oftheSpecialContribulO tion (Temporary Provisions) Regulations, 1975 had submitted quarterlyreportsfor specialcontributiononvariousdatesforthe respectivequartersfortheyear 1975and 1976andhadpaidtemporary contribution on thebasis of suchreturns.In accordance with theaforesaid provisions of theregulations the respondent ,c Commissioner had to accept unquestionably the said returns thoughnotsupportedbyanyaccountsandcomputationsastothe basisonwhichapplicant arrived attheincomedeclaredtherein, pending the final determination of applicant's income for the years1975and1976inaccordancewiththeprovisionsof regulation 4oftheabove-mentionedRegulations.· TherespondentCommissionerraisedassessmentsforincome taxfortheyears 1976and 1977(yearsofincome1975and1976) onthe20thFebruary, 1979soonafter thecompletion oftheexaminationofthereturnsofincomeandaccountssubmittedbythe applicant Applicantfailed tosubmittogetherwiththe aforesaid accountsseparatecomputationsofincomeliabletospecialcontribution.Henceasprovidedunderregulation4oftheSpecialContributions (Temporary Provisions) Regulations 1975,and upon thebasisoftheletterdated23rdMay,1975therespondentCommissionercomputedthespecialcontributionpayablebyapplicant ™ forthequartersendingfortheyears 1975and 1976.Thespecial contribution so computed amounted to £1,560 for 1975and £1,574for 1976whichbeinganallowabledeductionforincome taxpurposeswereshownasadeductionfromtheincometaxas35 sessmentsrespectively. 2581 SavvidesJ. Ionidesv. Republic
(1988)Theapplicantobjected againsttheaboveassessmentsbyletters dated the26thFebruary, 1979,exhibits5and6,and 10thApril, 1979,exhibit9.1finditnecessary tomakereference tothecontentsof suchletters asin fact theyform thebasisof thewritten addressof counsel for applicant in supportof applicant'sobjec- 5 tion. Theletterdated26th February, 1979,exhibit5,readsasfollows: "IrefertotheNoticeofAssessmentdated20.2.79issuedin respect of my income for the yearof assessment 1977
(76), 10 andwouldinform you thatIobject tothesaidassessmenton thefollowing grounds: (a)Ihavenotbeenallowed£225reductioninrespectof interestfromGovernmentBonds. (b)Thespecialcontribution deductedisundulyhighasnot 15 allmyprofessional incomefor 1976,whichisreturnedfor incometaxpurposesonthecashbasis,isliabletospecial contribution for thereason thatcollectionsfor workdone before 1.10.74paidtomeduring 1976shouldbeexcluded fromassessment to special contribution. Noexplanation 20 wasgivenastohowitwascomputedat£
- (c)Thetotalofmypensionshouldbe£2522not£
- (d)TheamountoftheE.T.Reliefshouldbehigher. (e)Theallowanceof£532inrespectoflifeassurancepremiaandcontributionstovariousfunds iswrongasduring 25 19761didnotpayanylifeassurancepremia." Theletter dated 26th February, 1979,exhibit 6,readsasfollows: "Irefer totheNoticeofAssessment (Code3)forwarded to 2582 3C.L.R. Ionidesv.Republic SavvidesJ. mewithoutanycoveringletterreasoningyourdeterminationof theobjectionandwouldinviteattentiontothefollowing: (a) The special contribution deducted for 1975 is much higherthanwhatIhavepaid. 5 (b)Theearnedincomerelief allowedtomeislowerobviouslybyreason ofanoverdeduction of specialcontribution. (c)Mychargeableincomefortheyear1976
(75)shpuldbe higher. 10 (d)Thetaxpaidbymeinrespectofmyliabilityfortheyear of-assessment 1976
(75)is not £645 but £645 plus £100 paid on 28.12.78 and another £100 paid on 5.2.
- (e)Thetotalqfmypensionshouldbe£2091 not£
- 1* 2.Withregardtospecialcontribution,Iwouldobservethat 1 havenotyetreceivedanynoticesof assessment.IreservethereforemyrighttoobjectwhenIreceivethem." Theletterdated 10thApril, 1979,exhibit9,readsasfollows: 2fl "Iherebyobjecttotheassessmentsraisedonmeforspecialcontributionpurposesinrespectofmyincomeforthe years 1975and
- ' * 2.Theobjection isbasedonthefollowinggrounds: 25 (a)The assessment of specialcontribution on thetotalof myincomeforeachyearasdeclaredforincometaxpurposesiserroneous. (b)Myincomeforeachoftheaforesaid yearswas"declared 2583 Savvides J. Ionides v. Republic
(1988)forincometaxpurposesonthecashbasisasthetotalof thecollectionsoffeesmadeeachyearirrespectiveofthe yearinwhichserviceswererenderedorthefeescollected accrued to me.However, Section 3of the Special Contribution (TemporaryProvisions)Law,55of 1974, g makesitabundantlyclearthatspecialcontributionshall be assessed on the income of any person from any sourceexceptemolumentsforthequarterbeginning 1st October, 1974,andfor eachsubsequentquarter andthe quantumofmyincometobeassessedtospecialcontri- «Q butionshouldbetheincomeearnedbymefromservices renderedafter 1.10.74andcannotincludereceiptsrealizedafter 1stOctober, 1974,butrelatingtoservices renderedbymebefore 1stOctober,
- (c)Thefact thatIchosefor thesakeofsimplicityto return 1 5 for income taxpurposesmy incomeon thecash basis doesnotinvolveanylegalobligationformetoinclude inmyincomeliabletospecialcontributionfeescollected by me after 1.10.74but actually earned byme before 1stOctober, 1974.1canquotehereastrikinginstance ofthisviz,thecollectionofasumof£2200whichI received during the quarter from 1.6.75to 30.9.75 for valuationworkdonefortheCyprusMinesCorporation in 1973.Certainotherbigsumspayabletomein respect ofservicesrenderedyearsbefore 1.10.74butcollected through Court proceedings after 1st October, 1974, ^5 havesimilarly beenincluded inmyreturnsforincome taxpurposesfor 1975and
- (d)Apart from what is statedin para (c),part of my fees representsdirector'sfeesorfeesformyactingasSecre- 30 taryofCompanieswhichIhaveincludedforincometax purposes in myprofessional receiptsasandwhencollected.The wholeof suchfees wasexemptedfromassessment to special contribution being^remuneration from employmentandasthevarioussumsreceivedwere 35 below£500fromeachemployer,theywerenotliableto 2584 3C.L.R. Ionidesv.Republic SavvidesJ. deductionundertheEmoluments(TemporaryReduction) Law,54of
- 5 10' 15 . (e)Acitizenhasnolegalobligationtoagreeinthematterof hisliabilitytoincometaxorothertaxtoadoptthemethodwhichismostbeneficial totheRevenuebutisfreeto choosethelegal method whichresultsin hispayinga loweramountoftax,howeverrepugnantthislegal right ofacitizenmaybetotheRevenueAuthorities.Thereis' amplelegalauthorityonthis. (f)Investmentincomeabroadcannotbemadeliabletospe-< cial contribution without specific provision therefor in therelevant taxation law,andinanycasesuchincome earnedbefore 11.7.75cannotbemade liabletospecial • contribution assuchinclusionmeansimposition oftax withretrospectiveeffect contrarytotherelevantprovisionsintheConstitutionoftheRepublic. 3.Forthereasonshereinbefore statedyouarekindlyrequested toreconsidertheassessmentsraised." 20 25 30 TherespondentCommissionerafter carefully consideringthe contentsoftheobjectionscontainedintheaforesaid lettersdecidedtodeterminetie saidassessmentsraisedbothfor incometax andspecialcontributionspurposeswithcertainadjustmentsmade torectifycertain mistakes in allowances granted to applicant. Suchdecisionwascommunicated totheapplicantbyletterdated 25thNovember, 1981,andtherelevantnoticeoftaxpayableattachedthereto.Thecontentsofsuchletterareasfollows: "Withreference toyourletterdated26.2.79youarehereby informed thatyourviewinconnectionwiththeassessmentof specialcontributionfor theyears 1975and 1976cannotbeaceeptedasyouhaveelectedpreviouslythemethodofassesment ofyourincomeonthebasisofcashcollectionsandsuchmethodshouldbefollowed alsofor thepurposesofassessmentof specialcontribution. 2585 SavvidesJ. Ionidesv.Republic
(1988)Ienclose noticesof assessment of taxaswellasnoticesof verification ofcontributionfor theyears 1975 and 1976. If you donotagree with my above decision you canfilea recourse totheSupremeCourtwithin 75daysfromthedateof thisletter." 5 As aresult applicantchallenged theabove decision byfiling thisrecoursepraying for: 1.Adeclarationtotheeffect tothattheassessments raised by therespondentfor levyingthespecial contributiononapplicant's incomefor theyears 1975 and 1976 arebasedonerroneouscom- 10 putations of the income liable to special contribution and are wrong inthat: (a)They includeincomewhich hadbeenearnedby theappli cant in respect of services rendered prior to 30th September, 1974,butwas actually collectedduringtheyears 1975and 1976; 15 (b)They included incomewhich accrued totheapplicant by way of fees in his capacity as Directoror Secretary of various companies before the 1st September, 1974 butactually collected intheyears 1975and 1976; (c) Theyrequirepaymentby theapplicantofinterestattherate 20 of 6% ontheagreed balanceof specialcontributions; And they are,therefore, null andvoidandof noeffect what soever. 2.Adeclaration totheeffect thattheassessments raised forin cometaxpurposes ontheapplicant's incomefor eachoftheyears 1976
(75)and 1977
(76)have beenbased onerroneouscomputa tionof thechargeable income andare,therefore, null andvoid andof noeffect whatsoever. Lengthy arguments have beenadvanced bycounsel for appli2586 "Λ. 2 ^ 3C.L.R. Ionidesv.Republic SavvidesJ. cantinsupportoftheobjectionsraisedagainsttheassessmentsto which counsel for therespondentanswered by his written address. 5 Afterprolongedadjournmentsontheapplicationoftheparties inaneffort toexplorethepossibilityofasettlementandorofnarrowing theissuesmostofthemattersindisputehadbeensettled asitappearsinthewrittenaddressinreply,ofcounselforapplicant.Accordingtosuchaddressthefollowinghadbeenagreed: (a)Theapplicantwasfreetoadoptanylawfulmethodofcom10 putationof theprofitsfor specialcontribution purposesandthat hewasnot bound tofollow the same method thechosefor incometaxpurposes. (b)Thefeesreceived from Directorship andSecretaryshipof companies(andinferentiallyfromexecutorshipandasadministra15 tor of estates or liquidator of companies) should be treated as "emoluments"forspecialcontributionpurposes. (c)Nointerest/on specialcontribution.If anywaseventually payableitwouldnotbeclaimedbytherevenue. 20 (d)Therespondentwouldgranttheapplicantincomereliefon thebalanceofthenetreceiptsafterdeductionofspecialcontributionandnotonthenetprofitsastheapplicantclaimed. 25 (e)Though the respondent agreed that special contribution shouldbeleviedonprofits madeafter 1stOctober, 1974,stillas theapplicanthasadoptedthe"cashbasis"methodforincometax purposestherepondentwasnotpreparedtoexcludefromassessmenttospecialcontributionfeesfor servicesrenderedbefore 1st October, 1974,butcollectedafter thatdate.Thispoint,therefore, remains indisputealongwiththeundermentioned: A.Whetherspecialcontribution ispayableonincomeearned 30 priorto1stOctober,1974,butcollectedafter1stOctober, 1974. 2587 SavvidesJ. Ionidesv.Republic
(1988)B. Whether earned income relief should be granted on the grossamountofpensionfromGovernmentandSocialInsurance Fundandonthenetprofitsfrompreviousreceiptsbeforedeductionofanyspecialcontributionpayable. Whenthecasewasfixedforclarifications counselforrespon- 5 dent statedthat in fact twopointsremained in issue before the Court, namely,
(1)Whether earned incomerelief should beallowed ontheapplicant's incomebeforedeductingtherefrom the special contribution payable;
(2)whether theincomewhich the applicantearnedpriortotheenactmentoftheSpecialContribution IQ Law butcollected after thelawcameinforce,isliabletospecial contribution. Judgment wassubsquentlyreserved. Inthecourseofperusingthecontentsofthewrittenaddressof counsel on both sides in whichtheir argumentswereadvanced 15 andtheclarifications madeIfound itnecessarytoreopenthecase andinvitecounseltostate: (a)Incasetherecoursefails whatwouldbetheeffect ofcertainadmissionsmadebythem. (b)Inthecasetherecoursesucceedstowhatextentadmissions 20 madebycounselforapplicantwillaffect theprayersought; (c)Whetherinthecircumstancesthereexistedanypossibility for an undertaking bytherespondent tomakenewassessments bearinginmindadmissionsalreadymadeastothedeductibilityof certainitemsnotdeductedsothatthenewassessmentswill repre- 25 sent thecorrect situation subject totherightof theapplicant to challenge suchnewassessments. In answer to the questions put and in further clarifications counselforrespondentstatedthefollowing: "Asregardspoint(a)thestatementswhichhavebeenmade 30 25Ci» 3 C.L.R. 5 Ionidesv. Republic SavvidesJ. by the applicantinhiswritten address,itis agreed thatthe ap plicantwasfreetoadoptanylawful methodofcomputationfor special contributionpurposes. Oncehowever hefollowsone method he must stick to it and he cannotchangemethods whenever itis suitable todoso.Theapplicantinthepresent caseineffect wants tofollow the'cashbasis'inrespectof his incomeafter 1974andthe 'earningbasis'methodinrespectof his incomeprior toΊ974.This inmy humble submission he cannotdo. IQ As regards statementΒinhiswritten address inreply,itis agreed thatfees received from Directorships and Secretary ships of companiesshould be treatedasemolumentsfor spe cial contribution purposes. We have accepted his pointthat theyshouldbetreatedasemoluments. Ig We also agree inrespect ofpointCthattherewould be no intereston special contribution;if anywas eventually payable itwouldnotbeclaimedbytherevenue. We alsoagreeonpoint Dinhisreply.As far as pointDis concernedoncetheappli canthas'adoptedeitherthe cashbasisorthe earnings basis he • mustfollow itinrespectof hisreceipts.Inthe presentcasehe has adopted the 'cash basis' for special contributionandin' cometax purposes. Therefore, theincomewhich wasearned priorto 1974 butwas collectedafter thatdatedis taxable." «« ί Counsel for applicant stated thathe hadnofurther clarificay- tions tomakeanddidnotdisputethe statementsmadebycounsel for therespondentonthequestionsraised bythe Court. ' Inthelight of thestatementsmadebycounselfor the applicant in his written address inreply'and counsel forrespondentiii his clarifications concerningtheeliminationof certainissuesIshall proceedtodealwiththeissueswhichhave beenleft forconsiderationbythis Court. Thefirstquestionwhich arises is whetherincometamed^ior to 1stOctober,1974,butactuallyreceived after thatdate,is liable, .2589 SavvidesJ. Ionidesv.Republic
(1988)tospecialcontribution. Counselfortheapplicantcontendedthattheimpositionofspecialcontributiontotheincomeearnedbyapplicantpriorto1stOctober, 1974,thedatewhentheSpecial Contribution (Temporary Provisions)Law 1974(Law55/74)cameintoforce,butcollected 5 afterthatdateisretrospectivetaxationand,therefore,contraryto Article24totheConstitution. Counselfor therespondent submitted thatsuchcontention is untenableinviewofthefactthatapplicantfollowed the"cashbasis" method for computing hisprofits for income tax purposes 10 andtherefore hewasboundtofollow thesamemethodforspecial contributions. The"cashbasis"methodasalreadyexplainedisoneoftwoalternative methodsused for computing theprofits, theotherone beingthe "earningsbasis"method.Thelatterismorefrequently 15 usedbeing moreaccurate.Underthismethod sumsduebutnot yetpaid whetherdebitsorcreditsarebroughtintoaccount.The "cash basis"method on theotherhand takesinto account only sumsofmoneyactuallyspentorreceivedregardlessofwhenthey becamedue.Thevalueoftheworkinprogressisbroughtintoac- 20 countonan"earningbasis"butisignoredona"cashbasis".See IA.C.V. Morrison[1932] 17 T.C.325. Thustheessentialdifference betweenthetwomethodsisthat underthe"earningbasis"methodrevenueischargeabletotaxin the period that it becomes due whereasunder the "cash basis" 25 methoditischargeableonthedateitisactuallyreceived.Itfollows,therefore, that aperson using the "cash basis"methodin computingtheprofitsofhispracticefor specialcontributionpurposes will be taxed on income received after the 1st October, 1974,thoughearnedpriortothatdate.Italsofollowsthatshould ^ thespecialcontributionlawsberepealedanyincomereceivedafterthatdatewhichwasearnedpreviouslywillescapetax. Itiscommongroundthatataxpayerincomputinghisprofits 2590 3 C.L.R. Ionidesv.Republic SavvidesJ. - eitherfor incometaxpurposesorfor special contributionpurpos es has,achoicetofollow eitherthe"earningbasis"methodorthe "cashbasis" method. 5 10 15 «Λ 25 OQ Theapplicant inthepresentcase atall materialtimestothe presentrecourseelectedthe"cashbasis"methodfor thepurpose of computation of his incometax andhis tax was assessed as a resultof computationsmade on such basis. When the Special ContributionLaw cameinto force theapplicantsought tofollow the "cash basis" system which hehimself electedfor income tax purposesasthemethodtofollowfor incometaxassessments and the"earningbasis"method for special contribution purposes.By using theonemethodfor onepurpose andtheothermethodfor anotherpurposeheis trying toget the.benefit of both methods. Therespondentconsidered suchchoiceasunacceptableand in making his assessments thought fit thatoncetheapplicanthad adoptedandmadeuseof the"cash basis"method for incometax purposes hecouldnotutilizethe"earningbasis"methodfor spe- v cial contributionpurposes as such choiceof twodifferent meth odsfor similar taxationsfor thepurposeof enjoying the benefits ofbothof themiscontrarytotheaccountingpractice. Itiswellestablished thatadecisionagainst anincometaxas sessment cannot be disturbed by this Court if it is a decision whichcouldreasonablyandproperly inlaw andfact bereached bythetaxingauthority.See, interalia,MinervaCinetheatricalCo. Ltdv.the Republic
(1975)3C.L.R. 116andCourtis Enterpris es Ltd. v. TheRepublic,
(1988)3C.L.R. 2209. Bearing inmind theprinciples governing judicial controlof taxationdecisions I have cometotheconclusionthatitwasrea sonably opentotherespondentCommissionertodecidethatonce theapplicantelectedthe"cashbasis'·' methodfor incometaxpur poses hecouldnotadoptthe"earning basis" methodfor special contributionpurposes.Therefore,applicant'scomplaintinthis re spectfails. . '' 2591 Savvides J. Ionides v. Republic
(1988)Thesecond question which poses for considerationis whether earnedincomereliefshouldbeallowedontheapplicant'sincome before deductingtherefrom thespecial contributionpayable. Ac cording totheprovisions of s.21 of theIncomeTaxLaws 19611981 anindividual isentitledtoadeductionequal tothe1/1Oth of 5 hidearnedincomeincomputing hischargeable income."Earned income" is defined by s. 2 of theIncomeTax Laws as meaning any incomederived from any trade,business, profession, voca tion,employment,pension orannuityif suchpensionorannuity is grantedonaccountorinrespectofemployment. «, Theword "income"however, is notdefined inthe IncomeTax Laws. However, according totheprinciples of commercial ac countancytheincomeof abusinessis thesurplus ofreceipts over outgoings and expenses incurred by thebusiness. As a general rule amountspayable inrespectof taxandotherdutiesarenotal- . lowable deductions in computing theincomeof a business be cause these payments are made after theprofit has been ascer tained andas such they are notexpenses incurred in producing the income.This rule finds support in theprovisions of s. 13(e) and(j)of theIncomeTax Laws 1961-1981whichprovide,asfol- % lows: "Προς εξεύρεσιν του φορολογητέουεισοδήματοςπρο σώπουτινόςδενθαεκπίπτωνταιταακόλουθα - (ε) πάσα δαπάνη ή έξοδον όπερ δεν αντιπροσωπεύει 25 ποσόν εξολοκλήρουκαιαποκλειστικώςδιατεθένήδαπανηθένπροςτονσκοπόνκτήσεωςτουεισοδήματος. (κ) παν ποσόν καταβληθένή καταβλητέονυπό μορφήν φόρουδυνάμειτουπαρόντοςΝόμουήυπόμορφήνπρόσω- 30 πικήςεισφοράς." 2592 3C.L.R. lonides v.Republic SavvidesJ. ThetranslationinEnglishisasfollows: (13.Forthepurposeofascertainingthechargeableincome ofanypersonnodeductionshallbeallowedinrespectof 5 (e)anydisbursementsorexpensesnotbeingmoneywholly andexclusivelylaidoutorexpendedforthepurposeofacquiringtheincome; (j)anyamountspaidorpayableinrespectoftaxunderthis Laworinrespectofpersonaltax;). Undernormalcircumstances,therefore,thespecial contributionbeingessentiallyataxwillnotbeanallowabledeductionby virtueoftheprovisionsofs.13(e)and(j)whichareapplicablein respect of a special contribution byvirtueof s.6 of the Special Contribution (TemporaryProvisions)Law,No. 34/78. Section 8,however,ofLaw34/78treatsthespecialcontribution payableasadeductibleexpensebyprovidingthatnotwithstandinganyprovisionoftheIncomeTaxLawsinforce forthe timebeing thecontribution payable underthislaw shall bedeductedfromthechargeable income of every person. Since the ** contributionpayableistreatedunderthelawasanexpenseitfalls tobedeductedwithallotheroutgoingsandexpensesfrom thereceiptsofthebusinessbeforeearnedincomereliefisgiven. Iagreewiththesubmissionofcounselfortherespondentthat todootherwiseitwouldmeanthatthetaxpayerwill bereceiving adoublereliefonthesameiteminthatcontributionbeingdeductedfromthechargeableincomewillalsoqualify forearnedincome relief somethingwhichiscontrarytotheintentionofthelegislature. Inconclusion Ifindthatthedecisionof therespondenttore2593 SavvidesJ. Ionidesv.Republic
(1988)fuse earned income relief asclaimed by the applicant on the amountofanyspecialcontributionspayableandwhichunderthe law are deductible expenses from the income was reasonably opentohim. Theaboveissuesweretheonlyissuesleftfordeterminationby 5 this Court. On allother questions thepartiesreached anagreement andcertain undertakingsweretaken bytherespondenton thebasisofsuchagreementtomakethenecessary readjustments inrespectofmattersagreedasentitlingtheapplicanttosuch readjustments. li In the result this recourse fails subject to the readjustments agreeduponbetweentheparties.Inthecircumstancesofthecase Imakenoorderforcosts Recoursedismissed. Noorderastocosts. 2594