(1989)1989March21 [STYLIANIDES,J.] INTHE MATTER OFARTICLE 146 OFTHECONSTITUTION IOANNISMAVRIDES, Applicant, v. THEREPUBLICOFCYPRUS,THROUGHTHE DIRECTOROF INLANDREVENUE, Respondents. (CaseNo. 243/84) Taxation — Assessment and collection of taxes — Interest — "Unjustifiable omission" in section 42
(2)of the Assessmentand Collection ofTaxesLaws1978-1979—Meaningof. Interpretation of statutes — Intention of legislature— Should be 5 gathered from the words used, giving them their ordinaryand naturalmeaning. Wordsandphrases — "Unjustifiable omission" in section42
(2)of the AssessmentandCollection ofTaxesLaws 1978-
- The applicant, who derived his income from the exercise of his profession as a doctor, failed tosubmitreturns of income tax for the years of assessment 1979/78, 1979, 1980, 1981 and
- The respondent, exercising hisrelevant powers,sent notices in writing to 15 the applicant requiring thelattertomakethereturns of income taxin respect of theaforesaid years. Theapplicant didnot respond. Asaresult therespondentraisedassessmentsundersection 13
(3)of the aforesaid laws. The applicant objected. Following meetings and 20 exchange of views a compromise was reached and as a result the respondent raised the final assessment, but demanded payment of 362 \0 3 C.L.R. Mavrides v. Republic interest at 9% per annum as from the 1st day of December in respect of the tax payable for each of the above years as from the 1st day of December of the respective year. 5 By means of this recourse the applicant impugns the decision relating to interest. Held, dismissing the recourse: 10 15 20 L The intention of the legislature should be gathered by the words used, giving to them their ordinary and natural meaning. Taxing enactments are interpreted strictly and any ambiguity is resolved in the favour of the tax payer. For interest to be payable under section 42
(2)of the aforesaid legislation, there must be an "unjustifiable omission". 2. In thiscasetheapplicant failedtosubmit thenecessary returns of income tax as required by law. He even failed to comply with the notices in writing, and, as a result, the respondent invoked his powers under section 13
(3)of the aforesaid legislation. The omission is self evident. At no stage any justification was rendered. To say the least, the sub judice decision wasreasonably open to the respondent. 25 3. Nothingintheagreement asregards theamount ofthe taxable income reached between the applicant and the respondent precluded the latter from demanding payment of interest as aforesaid. 30 4 - Onct interest becomes payable undersection 42
(2)of thesaid legislation, it runs until full payment of the tax. The interest does not cease to run, when an agreement was reached as to the amount of the tax. The applicant's position that interest ceasesto be payable,following final assessment, is untenable. 35 Recourse dismissed. No order as to costs. Casesreferred to: 40 Michaelidouv.Republic
(1985)3C.L.R.1836, 363 Mavrides v.Republic
(1989)SyriansandAnotherν Republic
(1978)3CLR 177, Commissioners of InlandRevenue ν Herbert[1913jAC 326 Recourse. 5 Recourseagainst thedecisionoftherespondenttoimpose on applicant interest at the rate of 9% per annum on the tax payablebyhimfor theyears ofassessment 1979/78,1979,1980, 1981 and
- 10 Ρ Ioannides, for theApplicant Y. Lazarou, CounseloftheRepublicB, forthe Respondents. Cur adv vult STYLIANIDES,J.readthefollowing judgment. Bymeans of thepresent recourse theapplicantchallenges thevalidity of the decision of the Director of Inland Revenue (the 20 "Respondent"), whereby interest attherate of 9%per annum was imposed onthetax payable by theapplicantfor the years of assessment 1979/78, 1979, 1980, 1981 and
- Thesalient facts of thecase are:- 25 The applicant, a doctor, was abroad and returned to Nicosia in 1977 Hederives his incomefrom theexercise of his profession He failed to submit returns of income.The Respondent, in exercise of his power under section 5
(2)of 30 theAssessment andCollectionofTaxes Law, 1978 (Law No. 4/78), as amended by Laws 23/78 and 41/79, (the "Law"), sent Notices in writing to the applicant - (1st February, 1979,20th February, 1980,26th February, 1981,2nd March, 1982, 1st March, 1983 for the years of assessment 1979/78, 35 1979, 1980, 1981, 1982, respectively) requiring thereby the applicant, within prescribed time, to render a return of the object of the tax. The applicant didnot respond The Respondent, under section 13
(3)of the Law raised 40 assessments onthevarious datesasfollows:- 364 15 3 C.L.R. 5 Mavrides v.Republic Stylianides, J. Year of Assessment Income Assessed £ Date onwhich assessed 1979/78 1979/79 6,965 7,163 20.5.80 25.5.80 1980 1981 14,698 13,741 25.5.82 25.5.83 Theapplicantobjectedtotheassessmentsraisedfortheyears 10 of assessment 1979/78, 1980and1981. On 13th September, 1982, the Respondent, by registered letter, required applicant, under sections 5
(2), 20
(3)and 30of the Law,to submit within twomonths from the receipt ofsuch 15 letter, his returns of income for the years of assessment 1979, 1980 and statement of his assets and liabilities of his personal and professional property in Cyprus and abroad as at 31st December, 1981, in order to enable the examination of his objections to the assessments. 20 Applicant didnot comply. On 12th June, 1983, applicant's accountants - Ioannou, Zampelas & Co. - submitted a Statement of Assets and 25 Liabilities of applicant as at 31st December, 1982, and computation ofincomeandanalysisthereof fortheperiod from the 1st February, 1977to 31st December, 1982. Thereafter meetings on the matter took place between the 30 applicant's accountants andthe Respondent. In September, 1983,an agreement wasreached for the total amount tax payable by the applicant for the aforesaid years of assessment. 35 In consequence thereof,in October, 1983,assessments were raised for the saidyears. On 25th October, 1983, he objected to the aforesaid 40 assessments. His accountants submitted on 12th December, 1983, revised statement of assets and Liabilities as at 31st December, 1982, and requested reconsideration of the whole 365 Stylianides, J. Mavrides v. Republic
(1989)matter in the light of the additional information made available thereby to the Respondent. Thisnew Capital Statementandtherelevant documentswere examined and, ultimately, in the end of January, a new 5 agreement was reached on theincome tax payable. On 2nd March, 1984, in pursuant of this agreement, Assessments andNotices of thetax payable wereserved on the applicant. The Respondent, thereby, demanded interest at the 10 rate of9%as from 1stDecember, 1979, 1stJuly, 1980,1st July, 1981,1st July, 1982and 1stJuly, 1983,ontheamount ofthetax payable for the years of assessment 1979/78, 1979, 19S0, 1981 and 1982, respectively, on the ground that the delay in the making of the assessments was due to the taxpayer's 15 unjustifiable omission. Hence this recourse. The grounds of law on which it is based, as set out in the 20 recourse are:1. The act and/or decision complained of isin thenatureof retrospective taxation in violation of Article 24 of the Constitution. 25 2. The actand/ordecisionwastaken incontravention ofthe Law. 3. It is the product of excess and/or abuse of power. 30 4. It lacks duereasoning. In Michaelidou v. Republic
(1985)3 C.L.R. 1836, this Court heldthat the nature of interest cleariy takes it out of the 35 ambit of "tax". Interest in these taxing laws is neither tax nor penalty. Therefore, the constitutional provision prohibiting imposition retrospectively oftax isnot applicable. In his address, counsel for the applicant did not pursue the 40 issueof constitutionality. Heconcentrated onthe construction and application ofsection41and42,particularly paragraph2of 366 3 C.L.R. Mavrides v. Republic Stylianides, J. section 42 of the Law, and submitted that the Respondent misinterpreted and misapplied this statutory provision. He, further, contended that the agreement as to the amount of tax payableprecluded theRespondent from demanding payment of 5 interest. Iwent through theagreement reachedbetween theapplicant andtheRespondent. Itconfines itself tothetax payableby the taxpayer. There is nothing indicating that the Respondent 10 waived the collection of interest or even that the question of interest was discussed or raised. There is no document supporting applicant's allegation. This ground is without any merit. 15 20 25 30 The material part of section 42, as amendedby Laws23/78 and41/79,before its amendment by Law 164/87,which has no bearing onthiscase,read:"42.- (I)Εάνοφόροςδενκαταβληθή μέχριχηςεντωάρθρω41 καθοριζομένηςημερομηνίας,ούτοςεισπράττεταιεί τε μετάποσού ίσου προςπέντε τοις εκατόνεπίτουποσού του πληρωτέου φόρου είτε μετάτόκου,απότηςημερομη νίας κατά τηνοποίανοφείλεται οφόρος,προς εννέατοις εκατόνετησίως,οσάκιςοούτωπληρωτέοςτόκος, υπερβαίνητοποσόντο ίσονπροςπέντετοις εκατόντουπληρωτέ ου φόρου.
(2)Οσάκις ηκαθυστέρησις εις τηνδιενέργειαν βεβαιώ σεως οφείλεται εις αδικαιολόγητον παράλειψιντου φορολογουμένου καταβάλλεταιτόκος προς εννέα τοις εκατόν ετησίωςαπότηςπρώτηςημέραςτουΔεκεμβρίου, τουέτους εις το οποίον αναφέρεταιη βεβαίωσις,ανεξαρτήτωςτου έτους εντωοποίωόντωςεγένετο η τοιαύτη βεβαίωσις: 35 Νοείταιότιοκαταβαλλόμενοςτόκοςενσχέσειπροςοι ονδήποτε φορολογικόν έτοςτοοποίονπροηγείταιτου φο ρολογικού έτουςτουαρχομένουτην ΙηνΙανουαρίου, 1978, είναιπροςέξι τοιςεκατόν ετησίως- 40 Νοείταιπεραιτέρωότιαπότουφορολογικούέτους 1979 και εντεύθεν ο εξ 9%ετήσιος τόκοςκαταβάλλεται απότης 1ης Ιουλίουτουέτους τουαμέσως επομένουτουφορολο367 Stylianides, J. Mavrides v. Republic
(1989)γικού έτους εις τοοποίον αναφέρεται η βεβαίωσις." ("42 -
(1)if the tax is not paid by the date prescribed in section 41, it shall be collectedeitherwith asum equal to five percentum ontheamountof thetax payable, orwith interest 5 from the date when tax is dueat therate of nine percentum per annum,where the interest so payable exceeds the sum equal to five per centumof thetax payable.
(2)Whenever thedelay in making anassessment is dueto 10 the taxpayer's unjustifiable omission, interest at the rate of nine per centum per annum shall be payable from the first day of Decemberof theyear towhich theassessment relates, irrespective of theyear inwhich suchassessment was actually made: 15 Provided thattheinterest payable with regard toany year of assessment preceding theyear of assessment beginningon the 1st January, 1978. shall be at the rate of six percentum per annum; 20 Provided further thatas from theyear of assessment 1979 and thereafter, the annual interest at 9% shall be payable as from the 1st of July of the year next following the year of assessment to which theassessment refers.") 25 Counsel for the applicant argued that, before imposing or demandinginterest undersub-section
(2)ofsection42,a finding, duly reasoned,of "unjustifiable omission"shouldbemadebythe Respondent; and that in the present case this is missing. 30 Furthermore, there was no unjustifiable omission by the taxpayer. Interest is payable, if at all, during the period of unjustifiable omission and certainly not after the date of assessment to which objection is made by the taxpayer. The period required for determination of the objection should not 35 count to the detriment of the_taxpayer by the imposition of interest. TheRespondent'sdiscretion for thedemandof interest could have only been exercised, if at all, with regard to the period November 1982 to June 1983. 40 Counsel for the Respondent, on the other hand, submitted that every taxpayer hasadutytoreturnhisincome, irrespective 368 3 C.L.R. Mavrides v.Republic Stylianides, J. of whether or not he was given notice to do so by the Respondent. That sub-section
(2)of section 42 operates when there is an unjustifiable omission. In this case there was unjustifiable omission which caused delay in making the 5 assessments,asthetaxpayer didnot submit income tax returns, as he was duty bound, and even did not do so after he was required in writing by the Respondent. The period for which interest ispayableisfrom thedatesprovidedinthe Lawuntilthe tax is paid: and that the word "assessment" in sub-section
(2)10 meansthefinal assessment andnot theinitialassessment against which thetaxpayer raises objection. It is plain that this case turns on the construction and application of the relevant statutory provisions. 15 The general rule, as in all other statutes, is to gather the intention of the legislature from the words used, giving them their ordinary andnatural meaning -(Syrimis and Another v. Republic
(1978)3C.L.R. 177). 20 Itiswellsettledthattaxingenactmentsareconsideredstrictly and any ambiguity is resolved in favour of the taxpayer (Commissioners of InlandRevenue v.Herbert,)[1913]A.C., 326). 25 For interest to be payable, under sub-section
(2)of section 42, there must be unjustifiable omission. In Michaelidou v. Republic (supra) it wassaidat p. 1852:30 35 "'Omission' means a failure to give any notice, make any return, produce or furnish any document or other information requiredbyorunderthelaw.Theomission must be unjustifiable. A distinction must be made between unjustifiable andunreasonable. Itisupon the Administration to determine, in each particular case, subject to judicial review bythis Court,whether an omission isunjustifiable or not." Section 5
(1)of the Law casts a duty on every person 40 chargeable with tax to give notice to the Director by the prescribed date in any year of assessment that he is so chargeable. 369 Stylianides, J. Mavrides v.Republic
(1989)The applicant did not perform his such duty, neither he was exempted by the proviso to this sub-section. Furthermore, notices in writing, under sub-section
(2), were given to the applicant on the dates aforesaid but hefailed to submit returns. The Respondent invoked hispowersundersection 13
(3). These 5 objections were raised by the applicant. Omission of the taxpayer inthiscaseisself-evident. Atnostageany justification was rendered. It was, to say the least, reasonably open to the Respondent to find that there wasan unjustifiable omission. 10 Section 42shouldberead asawholeandinconjunction with section41. The statutory provisions about interest in sub-section
(2)of section 42 of the Lawareameasurefortheavoidance oflossto 15 the State by an unjustifiable omission of the taxpayer, causing delay inmaking an assessment. Sub-section
(2), including the provisos, appoint the dates as from which the tax carries interest. Interest is payable after 20 those dates,until the payment ofthetax. The language of the Law is plain, that whenever there is a delayinmaking an assessment, dueto ataxpayer's unjustifiable omission, interest at the prescribed rate is payable as from the 25 dateset out in thesecond proviso,until thepayment of the tax. The sub judice decision, as set out in the Notices sent, sufficiently meets the requirements of the Law. It is duly reasoned and the reasoning is funher supplemented by the 30 material in the file. For the foregoing reasons, this recourse fails. It is hereby dismissed with no order astocosts. 35 Recourse dismissed. No orderas tocosts. 370