clr/1988/1988_3_999.pdf

(2). Taxation—Assessmentandcollectionoftaxes—SpecialContribution—Burden ofsatisfyingCourtthatanassessmentisexcessiveliesonapplicant—Laws 34178and55174,section6. Due inquiry—Assessments of income tax and special contribution— Disallowingdeductionofsalaryofoneofthedirectorsandofthesecretary ofacompanylimitedbysharesandregisteredunderCap. 773—Failureto askthe otherdirectorwhatsuchdirector'sdutieswereandfailuretoask such director herselfinrespect ofherduties—Moreover, though respondentconcludedthatsuchdirectorwasnotconversantwiththebusinessof thecompany,shewasneverquestionedaboutsuchbusinessatall—Subjudice assessmentsannulledfor lackofdueinquiry—Andformisconception offact. Misconception offact—Presumptionthatan administrative decisionwas reachedaftercorrectascertainmentoffacts—Displacediflitigantsucceeds inraisingprobabilityofmisconception. Thefactsofthiscaseareinshortthattherespondentdisalloweddeduc- 999 Savva & Co.v. Republic

(1988)tionofthesalariesofoneofthedirectorsandofthesecretaryoftheapplicantcompany,because:(a)Duringathreedayinvestigationofthecompany'sbooksatthelatter'soffice thedirectordidnotshowupforworkduringthefirsttwodays,whilstonthethirdsheappeared,butsheonlymake coffees forthestaff,(b)Thesecretarydidnotshowupduringthesaidperi- 5 odfor work,and(c)Severalphonecallsweremadeatthecompany's office, butthereplywas,always,thatthesaiddirectorwasathome. ThelegalprinciplesexpoundedbytheCourtinannullingthesubjudice decisionaswellasthefactual reasons,whichledtotheconclusionforlack of dueinquiry andmisconceptionoffact,sufficiently appearinthehead- 10 notehereinabove. Subjudicedecisionannulled. Costsinfavourofapplicants. Casesreferredto: Koussounidesv.TheRepublic

(1966)3C.L.R.1; , 15 Makridesv.TheRepublic

(1967)3C.L.R.146; LilianGeorghiadesv. TheRepublic

(1982)3CJ-.R.659; Hadjipaschaliv.TheRepublic

(1980)3C.L.R. 101; Antoniou v.TheRepublic

(1978)3C.L.R. 308; Tourpeldv.TheRepublic

(1973)3C.L.R.592; loannidesv.TheRepublic

(1972)3C.L.R. 318; 20 Aristidou v.TheRepublic

(1983)3C.L.R.

1. Recourse. Recourse against the income tax assessment raised on applicants for the yers 1978 -
2. 25 / . ErotocritoUy for the applicants. 1000 3C.L.R. Savva& Co.v.Republic Y.LazaroUyiortherespondents. \Cwr. adv. vult. KOURRISJ.readthefollowingjudgment.Bythepresentre.course,theapplicantchallengesthevalidityofthedecisionofthe CommissionerofIncomeTaxcontainedinhisletterof2ndFebruary, 1985,whereby tax amounting to £18,552 was imposed upontheapplicantcompanyinrespectoftheyears1978-
3. Facts: ApplicantisN.Sawa andCo.Ltd.,aprivatecompanywhich wasregisteredon 11.2.77totakeoverasfrom21.4.77thebusinessofthepartnership "N.Sawa&Co".Thesharecapitalofthe company has been, since its formation £20,000 divided into 20,000sharesof£1each.Theshareholdersofthecompanyhave beenMr.NicodemosSawa (holderof6,050sharesor30.25%); Mrs. Maroulla Sawa, wife of Mr. N. Savva, holder of 4,950 sharesor24.75%);andtheirdaughtersMarina,AnnaandMyrto, eachholding3,000sharesof 15%.Thedirectorsofthecompany wereN. Savva, andMrs. Maroulla Sawa. Miss Marina Sawa wasthesecretaryofthecompany. During the years, subject matter of this recourse, applicant companyderiveditsincomefromtheimportandsaleofsewing machinesandaccessories. Applicantcompanysubmitted accountsandcomputations for the years 1977 - 1980 through Messrs. Lantsias &Kashoulis, andfor theyears 1981- 1983throughitsnewauditorsMessrs. Makridesand Michaelides.The accountsandcomputations for theyears 1977-1980wereexaminedin 1982andwereaccepted bytherespondentcommissionersubjecttocertainagreed adjustments,whichincludeddisallowanceofpartof thesalary ofone ofthedirectors,namelyMarinaSawa. Followingtheexaminationofthesaidaccountsandagreedad1001 KourrisJ. Savva& Co.v.Republic

(1988)justmentstothesubmittedcomputationsfortheabovementioned years,assessmentswereraisedbytherespondentCommissioner inaccordancewiththeadjustedcomputations. In 1984theaccounts andcomputations fortheyears 19811983wereexaminedbytherespondentCommissioner. 5 Theexaminationinvolvedtheinspectionofthebooksofapplicant company, which wascarriedout,bypriorarrangementand agreementwiththeDirectorN.Sawa andtheauditorsoftheapplicantcompanyatthecompany'spremises. Theexamination ofthebookslastedfor3daysandwascar- 10 ried outbytwomembersoftheassessing staff.Duringthe first twodaysoftheexamination,theassessingofficers noticed that neitherMrs.MaroullaSawanorMissMarinaSawawereworkingintheapplicantcompany'spremises.Onthethirdday,however,Mrs.Maroulla Sawa showedupbuttheassessing officers noticedthat shewasholdingcertain documentsonlyonce.She 15 wasalsoobservedtobemakingsomecoffees forthestaff. Atlaterdatestheassessingofficers inafollow-upofthecase inquiredatthecompany'spremisesbytelephoningwhetherMrs. Maroulla Sawa wasworking,buttherepliesreceivedwerethat shewasathome.Atonetimewhenthehusbandwasabroad,that particularinquiryalsoestablishedthatshewasagainathome.As . 20 regardsMissMarinaSawa, shewasattendingsecondaryschool up toJune, 1978andshedidnotleave Cyprus until October, 1979whenshewentabroadtoattenduniversity. FollowingtheresultoftheexaminationofwhetherMissMaroullaSawaandMissMarinaSawarenderedanyservicestothe 25 company, therespondent Commissionerreachedtheconclusion that theydidnotrender anyservicestothecompany and,therefore,theirsalarieschargedintheaccountsinrespectofallyears, including theyears 1977- 1980,forthealleged services were disallowed. 1002 3 C.L.R 5 10 ,- 2Q os Savva &Co. v. Republic KourrisJ. The respondent Commissioner then issued revised assess­ mentsdated20.12.84, inrespect of theyears since the company was registered in 1977, inthelight of thenew facts which were established asaresult of theexaminations carriedout.Thedeci-, sion of therespondent Commissioner torevise the assessments for theyears 1981,1982and 1983 was communicatedtothe au­ ditors, Messrs. Makrides and Michaelides by letter dated 20.12.1984(appendixΒtotheopposition)andthedecision tore­ visetheassessments for theyears 1977 -1980 wascommunicatedtotheapplicantcompany by letterdated20.12.84(appendixC tothe opposition). On 16.1.1985, the auditors of applicant company lodged an objection inwriting against theIncomeTax andspecial contribu­ tion assessments raised on 20.12.1984 by their letter dated 16.1.85 (appendix Dtotheopposition).Following the said ob­ jections, applicant company's auditors,called upon therespon­ dent Commissioner to discuss the objections. The respondent Commissioner decided tomaintain his decision of 20.12.1984 andproceededon2.2.1985with thedeterminationof the income taxandspecial contributionassessments, subject matterof thisrecourse.Hisdecision was communicatedtoapplicantcompanyby letterdated2.2.1985(appendixΕtothe Opposition). Theapplicantcompany,feelingaggrievedwith thedecision of therespondentCommissionerfiled thepresentrecourse alleging, mainly thattherespondentCommissionerfailed tocarryoutadue proper inquiry.into the facts and circumstances of the present case. TlieLaw: 30 Inview of thepresumption of legality of administrative acts, thesubjudice assessments shouldbepresumedtobevalidunless theapplicantsucceeds toprove thecontrary.InthecaseofKoussoumides v. TheRepublic

(1966)3C.L.R. 1,it was established thatinarecourse totheSupreme CourtunderArticle 146 of the Constitutionitis ontheapplicantonwhomliestheinitialburden 1003 KourrisJ. Savva &Co.v. Republic

(1988)ofproof tosatisfy theCourtthatitshouldinterferewiththesubjectmatteroftherecourse.Thiswasfollowed inthecaseofRallis Makrides. TheRepublic*

(1967)3C.L.R. 146at p. 153.In the case of Lillian Georhiades v. The Republic,

(1982)3C.L.R. 659, atpp.667 -669,theFullBenchof theSupremeCourthas g made itabundantlyclear thatiftherespondent's decision isone which wasreasonablyopentothem,thenthisCourtwillnotdisturbsame.Furthermore,inincometaxcasesitisexpesslystated intherelevantlawsthattheburdentosatisfy theCourtthatanassessmentisexcessive,isonthepersonwhoattackssame.(Sees. ,Q 21

(2)of the Assessment and Collection of TaxesLaws 19781979).Thislawappliesalsotothespecialcontribution casesby virtueofs.6ofLaws34/78and55/74. The issuewhich falls for determination inthepresentcaseis whetheritwasreasonablyopentotherespondentCommissioner «,toreachtheconclusion thatMrs.MaroullaSawaandMissMarinaSawa,whowereDirectorandSecretaryintheapplicantcompanyrespectively,didnotrenderanyservicestothecompanyand hencedisallowedtheirsalariesinrespectoftheyears 1978-1983 asaproperdeductionincomputingtheapplicant'staxableliability. 20 Counsel for therespondent submitted that the decision was reasonably opentotherespondentCommissionerinthelightof thematerialbefore himwhichwasasfollows:-

(1)twoassessing officers carriedoutaninvestigation intotheapplicantcompany's booksatitspremiseswhichlastedfor3daysandduringthattime 2 ^ Miss Marina Sawa never showed up for work whileMrs.MaroullaSawamadeherappearanceonthethirdday;whileshewas there shedid nothing but makecoffee and behavein amanner whichindicatedthatshewasnotconversantwiththecompany's business; 30 (ii) several telephone calls were made by theassessing officers to the company's premises atdifferent dates and times so astocheck whetherMrs.Maroulla Sawa wasactually atwork, but the repliesreceived werealways the same,namely thatshe 1004 3 C.L.R. Savva & Co. v. Republic Kourris J. wasathome. 5 Counselfortheapplicantsubmittedthataproperand sufficient inquirywasnotcarriedoutbecauseMrs.MaroullaSawa wasin chargeof thewarehouse of thecompany and also.in chargeof costingandthatherpresenceintheoffice ofthecompanywasnot alwaysnecessary. Further,he said,in thecaseof Miss Sawa, therespondents havenottaken intoaccountaperiodofoveroneyear,i.e. from June 1978tillOctober, 1979whenshewasinCyprusandworkingasthe secretary of thecompany. Furthermore,they alleged 10 that during summervacations she used tocometo Cyprusand renderherservicesassecretaryofthecompany andthatshewas certainlyentidedtoasalary. Itisobviousthattheassessingofficers failed toaskMr.Sawa 15 whatdutieswereallocated toMrs.Sawa andfurthermore, they havenever asked Mrs.Sawa herself what her duties wereand whatservicessherendered tothecompany;furthermore, theassessingoffices reached theconclusion that Mrs.Sawa wasnot conversant with the company's business when she was never questionedaboutthecompany'sbusinessatall. 20 Inviewoftheabove,Ihavereachedtheconclusionthattherespondent Commissionerin reaching hisdecision, failed toconductaproperinquiryintothematter. Itisawell-establishedprincipleofadministrativelawthatfailureby anadministrativeorgan tomakeadueand/orproperinquiryisagroundforannulmentandthisgroundhasbeenrepeatedly reiterated by this Court as sufficient by itself to cause an annulment of the administrativeactconcerned. (See,inter alia, Hadjipaschaliv.TheRepublic,

(1980)3C.L.R. 101;Antoniou 30 v.TheRepublic,

(1978)3C.L.R.308;Tourpekiv.TheRepublic .

(1973)3 C.L.R. 592; Ioannides v. The Republic,

(1972)3 C.L.R. 318). 25 1005 KourrisJ. Savva& Co.v. Republic

(1988)It wasfurther held in thecaseofAristidou v.TheRepublic,

(1983)3C.L.R.1332thatthepresumptionthatanadministrative decisionisreached after acorrectascertainmentofrelevantfacts canberebuttedifalitigantsucceedsinestablishingthatthereexistsatleastaprobabilitythatamisconceptionhasledtothetaking g ofthedecisioncomplained of. Inthepresentcase,Iamsatisfied thatthereexistsaquitereasonableprobabilitythatafactualmisconceptionhasledtothetakingof thesubjudicedecision,andforthisreason,too,itshould beannulled. 10 Therespondent Commissionerhastore-examine nowtheassessments underconsideration anddecideafresh ontheminthe lightofthisjudgment. For all the abovereasons, therecourse suceeds,and thesub judicedecision isannulledwithcostsinfavouroftheapplicants tobeassessedbytheRegistrar. 15 Subjudicedecisionannulledwith costsinfavourofapplicants. 1006