(1989)19S9AprilS [STYLIANIDES.J.] INTHE MATTER OF ARTICLE 146OFTHE CONSTITUTION ANNON NAVIGATION CO. LTD.ANDOTHERS, Applicants, THE REPUBLIC OF CYPRUS,THROUGH THE INLAND REVENUE DEPARTMENT OFTHE MINISTRY OF FINANCE AND ANOTHER, Respondents. (CoseNo.51/86) Constitutional Law— Equality—ConstitutionArt. 28—Taxation —Wide range and flexibility enjoyed by state — Taxation on foreign corporations may bemore honerousthanthatondomesticcorporations — State allowedtopick andchoosedistricts, objects,persons, methods andeven ratesfor taxationifitdoessoreasonably— WhetherPart IIof 5 the Schedule to the Merchant Shipping(TaxingProvisions) Law, 1963 (Law 47/63), as amended by Law 16/82offends againstprinciple of equality— Question determinedinthenegative. The sole issue in this case was the constitutionality of Part II of the 10 aforesaid Law, whereby ships owned by Cypriots or by Cypriot companies (considered to be Cyprus ships under section 5
(1)(
- a)and (
- b)respectively) are taxed with an annual tonnage tax reduced by 30%, whereas no such reduction was provided in respect of ships, which are considered tobe Cyprusships undersection 5(l)(
- c)of the aforesaid Law, 15 i.e. ships owned by corporations incorporated outside the Republic in which the controlling interest isvested in Cypriots. Following an extensive reference to Cypriot, Greek and other authorities, concerning the principle of equality, the Court concluded, in 20 dismissing the recourse, that in thiscase there exist factors which appear to justify a differentiation as regards the treatment for purposes of 402 3 C.L.R. Ληηοη. Nav.Ltd &Others v.Republic&An. reduction of payable tonnage tax in respect of the two categories of Cyprus ships on the one hand (subsections 5
(1)(a) and (b))on theone hand and the ships owned by the applicants (subsection 5
(1)(c)) onthe other hand. 5 Recourse dismissed. No order as to costs. Casesreferredto: 10 Chnsiodoulou v.Republic(Collectorof Customs)(Nicosia) IR.S.C.C. 1, SpyrouandOthers v. Republic(LicensingAuthority) (No.2)
(1973)3 C.L.R. 627. 15 Papaxenophontos andOthers v.Republic
(1982)3 C.L.R. 1037, TheBoardfor Registration of Architects & CivilEngineers v. Kyriakides
(1966)3 C.L.R. 640, 20 Maddenv.Kentucky [1940]309U.S. 83, Carmichaclv.SouthernCoalCo. [1937]301 U.S. 495, 25 Mikrommatis v. Republic (Minister of Finance andAnother) 2R.S.C.C. 125, Republic (Ministryof Finance) v.Arakian andOthers
(1972)3 C.L.R. 294, 30 Antoniades andOthersv.Republic
(1979)3 C.L.R. 641, Republic andAnother v.Christoudhia andAnother
(1988)3 C.L.R. 2622, 35 Johnston v. Chief Constable of the Royal Ulster Constabulary (Case 222/84) C.M.L.R.,Volume 47(1986:3) p.240, State of Kerala v.HajiK. HajiKuttyNoha AIR 1969SC378, 40 City of Cleburne, Texas, eta/., Petitioners v. CleburneLiving Center, Inc., et al. 473 US432, 87 L Ed2d313, Hanover Fire Ins.Co. v.Carr,
(1926)272 U.S. 494. 403 Annon.Nav.Ltd&Others v.Republic&An.
(1989)Recourse. Recourse against the assessments raised on applicants wherebytonnagetaxwasleviedontheirshipsinrespect ofthe year 1986. 5 Ph.Clerides, fortheApplicants. Y.Zararou,CounseloftheRepublicB,fortheRespondents. 10 Cur. adv. vult. STYLIANIDES, J. read the following judgment. The applicants by this recourse seek the annulment of the assessmentsraisedonthem,wherebytonnagetaxwasleviedon 15 their shipsin respect of the year 1986,in accordance with the provisions of section 4 of the Merchant Shipping (Taxing Provisions) Law, 1963(LawNo.47/1963)asamended. TheapplicantswereincorporatedoutsidetheRepublic. The 20 Controlling interest therein is vested in Cypriots. They are foreign corporations specially authorized by the Council of Ministers to register their shipsas Cyprus ships under section 5(l)(
- c)of the Merchant Shipping (Registration of Ships,Sales andMortgages)Law, 1963(LawNo.45/1963)asamended. The 25 aforesaid sub-sectionreads:"5.-(
- l)AshipshallnotbedeemedtobeaCyprusship,unless more than one half of the shares of the ship are owned(
- a)byaCypriot; (
- b)byacorporation established andoperatingunderandin accordance withthelawsof theRepublicandhavingits 35 RegisteredOffice intheRepublic;or (
- c)if specially authorized by a decision of the Council of Ministers by a corporation incorporated outside the Republic in which the controlling interest is vested in 40 Cypriots." 404 30 3 C.L.R. Annon.Nav. Ltd &Others v.Republic &An. Stylianides, J. Cyprus ships are charged with annual tonnage taxes at the rates and in accordance with the provision set out in the Schedule to the Merchant Shipping (Taxing Provisions) Law, 1963 (Law No.47/1963) as amended. The second pan of the 5 Schedule,asamendedby Law 16/82,reads:"PART II Notwithstanding anything inthisSchedulecontained10 (
- a)InthecaseofaCyprusshipasthesameisprescribedin paragraph (
- a)of subsection
(1)of section 5 of the Merchant Shipping (Registration of Ships, Sale and Mortgages) Lawsof 1963-1982;and 15 20 (b) inthecaseof aCyprusshipasthesame isprescribedin paragraph (b)of thesame aforesaid sub-section, if the controlling interest in the corporation owning the same is vested in Cypriots, the tonnage tax provided for inPart Iofthis Scheduleshall bereduced by thirty percentum (30%);" Forthe purposes of the Schedule "corporation controlled by Cypriots" in the case of a company means a company 25 controlledbyCypriots ofwhichat least fifty-one percent(51%) of theshares are ownedby Cypriots. In respect of the year 1986 assessments were raised on the applicants,whereby tonnage tax waslevied on their ships at the 30 rates prescribed in the Schedule, without any reduction, as Law 16/82 didnot affect them. They paid the tax levied with reservation of their rights to resort tothe appropriate Court. 35 Theapplicants complain thatthesubjudice decisionsarenull and void, on the ground that the Law under which they were taken isunconstitutional as it violates the principle of equality enshrined inArticle 28.1of the Constitution. 40 Asubjudicedecisionhastobeannulledandbedeclaredtobe null and void and of no effect whatsoever if it was based on an 405 Stylianides, J. Annon. Nav. Ltd &Others v.Republic &An.
(1989)invalid enactment. (See Miltiades Christodoulou and the Republic Collector of Customs Nicosia), 1 R.S.C.C. 1; Savvas Chr. Spyrou and Others (lSo.2) v. Republic (Licensing Authority)
(1973)3C.L.R.627:Papaxenophontos and Others v.Republic {\9S2) 3C.L.R. 1037.) 5 The applicants contend that the reduction of thetonnage tax payable by the other two categories of Cyprus ships is discriminatory against them who paid the full amount of the rate. The provision is unconstitutional as it discriminates 10 between Cyprus ships owned by Cypriots and Cyprus companies on the one hand and foreign corporations in which the controlling interest isvested in Cypriots on the other. The sole issue that falls for determination is the 15 constitutionality of Pan II oftheScheduleto theLaw. A Law is presumed to be constitutional unless declared by this Coun as repugnant or inconsistent with any of the provisions of the Constitution. It is upon a person challenging 20 the constitutionality o\' a lawto establish it beyond reasonable doubt. {The Board for Registration of Architects & Civil Engineers v,Christodoulos Kyriakides
(1966)3C.L.R.640.) Where a tax is challenged as discriminatory, the burden is 25 upon the person attacking the legislative arrangements to negative every conceivable basis which might support it (Madden v. Kentucky [1940] 309 U.S. 83;, Carmichaet v. Southern Coal Co.|1937]301U.S.495). 30 The principle of equality iswe!!embedded in our system of law from theestablishment ofthe Republic andit is safeguarded by Anicle 2Sof the Constitution. This Coun has dealt with the principle of equality in a number of cases including Argiris Mikrommatis and the Republic (Minister of Finance and 35 Another) 2 R.S.C.C. 125, 131; Republic (Ministry of Finance) v.iMshianArakian and Others
(1972)3 C.L.R.294; Antoniades and Others v. Republic
(1979)3 C.L.R. 641; Papaxenophontos and Others v.Republic (supra). 40 In the recent decision of the Full Bench in TheRepublic of Cyprus, Through The Attorney-General of the Republic 406 3 C.L.R. Ληηοη.Nav.Ltd &Others v. Republic &An. Stylianidcs. J. and Another v. Maria Christoudhia and Another
(1988)3 C.L.R.2622) it was said:- 25 "Anicle 28 of the Constitution safeguards the right of equality and embodies the principle of non-discrimination, which is a fundamental principle in democratic societies. It does not,however, forbid distinctions intreatmentwhich are founded on an objective assessment of essentially different factual circumstances which, being based on the public interest, strike a fair balance between the protection of the interest of the community.Anicle 2S is violated only when the differentiation is not based on objective and reasonable justification. The existence of such justification must be assessed in relation to the aim and effects of the measure underconsideration,regard being hadtotheprinciples which normally prevail in democratic societies. Anicle 2S is likewiseviolated when it isclearly established that there isno reasonable relationship of proponionality between the means employed and the aim sought to be realized. (See European Coun of Human Rights Belgian Linguistic Case, Series A. Volume 6, p. 34. paragraph 10, with regard to Anicle 14of theEuropeanConvention. See,also, Johnston v. Chief Constable of the Royal Ulster Constabulary (Case 222/S4) C.M.L.R. Volume 47 (1986:3) p. 240. paragraphs
(18)and
(38).) 30 Article 2S of the Constitution was judicially considered in numerous cases, staning from Argiris Mikrommatis and the Republic (Minister of Finance and Another)! R.S.C.C, 125, in which it was said at p. 131:- 5 10 15 20 35 'Intheopinionof theCoun theterm'equalbefore thelaw' in paragraph 1of Anicle 2S does not convey the notion of exact arithmetical equality but it safeguards only against arbitrary differentiations and does not exclude reasonable distinctions which have to be made in view of the intrinsic nature of things. Likewise, the term 'discrimination' in paragraph 2 of Anicle 28 does not exclude reasonable distinctions as aforesaid." 40 Bare equality of treatment regardless of the inequality of realities is neither justice nor homage to the constitutional 407 Stylianides, J. Annon. Nav. Ltd & Others v.Republic & An.
(1989)principle. Classification is for governmental or legislative judgment. Itordinarily becomes ajudicial question only whenit has been drawn and is then subjected to the relevant constitutional tests. Where objects, persons or transactions essentially dissimilarare treated uniformly, discrimination may 5 result, for, in our view,refusal to make arational classification may itself insome casesoperate asdenial ofequality - (State of Kerala v.HajiK. HajiKuttyNahaAIR 1969 SC378, as per Shah,J.). 10 Thesame principles areenunciatedinanumber of judgments of the European Coun of Human Rights and by the Greek Council of State- (see,interalia,Decision 3160/76, where it was said:15 Όυχ ήττον δεν αποκλείει ηαρχήαύτητην ευρείαν ευχέρειαντουνομοθέτουόπως,αναλόγωςπροςτηνφύσιντου υπό ρύθμισιν θέματος και εν όψει των εκάστοτε ειδικών συνθηκών,προβαίνει εις την θέσπισα διακρίσεων δίκαιολογουμένων εκ της συνδρομής ειδικών περιπτώσεων ήεκ 20 λόγων εξυπηρετούντων τογενικόν συμφέρον.' In Decision 1852/77 we read:*Επειδήεντωπλαισίωτηςδιάτουάρθρου4 παρ. 1 του 25 Συντάγματος καθιερουμένης αρχής της ισότηταςπαρέχε ται εις τον νομοθέτην ευρεία ευχέρεια όπως, συντρεχουσών ειδικών εις δεδομένην περίπτωσιν συνθηκών, θεσπί ζει, κατά παρέκκλισιν ατό των γενικώς ισχυόντων,κανό νας ειδικούς βάσει αντικειμενικών κριτηρίων όικαιολογη- 30 μένους εκ γενικωτέρου κοινωνικού ήδημοσίου συμφέρο ντος, τούτο δε πάντως εντός των ακραίων ορίων,πέραν των οποίων η ρύθμισίς αντίκειται εις το κοινόν περί δι καίουσυναίσθημα.' In thecaseof City of Cleburne, Texas, et ah, Petitioners v.Cleburne LivingCenter, Inc., et al. 473US 432,87LEd 2d 313, it was saidat p.440:'... the Courts have themselves devised standards for 40 determining the validity of state legislation or other official action that is challenged as denying equal protection. The 408 35 3 C.L.R. Annon.Nav. Ltd &Others v. Republic &An. Stylianides, J. 5 general ruleisthatlegislation ispresumedtobevalidandwill be sustained if the classification drawn by the statute is rationally relatedtoalegitimate stateinterest... When social or economic legislation is at issue, the Equal Protection CauseallowstheStateswide latitude."' TheGreekCouncilof State,inrelationtoArticle 4
(1)ofthe Constitution of 1975 which provides thatthe Greeks are equal before theLaw,heldinCaseNo.895/86. ISomico Vema (Legal 10 Tribune)
(1988)Part2,p.334, that:- 15 20 25 "... εάν γίνει με νόμο δικαιολογημένηειδική ρύθμισηγια ορισμένη κατηγορίαπροσώπων και αποκλεισθεί απότη ρύθμιση αυτή,κατ'αδικαιολόγητηδυσμενήδιάκριση,άλλη κατηγορία προσώπων, ως προςτην οποία, λόγω τηςου σιώδους ομοιότηταςτων περιπτώσεων, συντρέχει οίδιος λόγος που δικαιολογεί την ειδική εκείνη μεταχείριση,η διάταξηπουεισάγει τηδυσμενήαυτήδιάκρισηείναιανί σχυρηως αντισυνταγματική. Προςαποκατάστασηδε της συνταγματικής αρχήςτης ισότηταςπρέπεινα εφαρμοσθεί και για εκείνους εις βάροςτων οποίων έγινε η δυσμενής διάκριση,ηδιάταξηπουισχύειγιατηνκατηγορίαυπέρτης οποίας εθεσπίσθη η ειδική ρύθμιση..." (See, also, Greek Council of State,Cases 4/87, 5/1987,and Cases53/1983, 1S21/1983, 1411/1984,1107/1986Alios Pagos.) In Basu's Commentary on the Constitution of India, 6th Edition, Volume B, at p. 262, on the "Equal Protection and 30 Aliens", we read that the State may not discriminate against a person simply onthegroundthatheis analien. Inthepresent case thetonnagetax is prescribed by theLaw. TheStateby legislation madeaconcession of 30% totwoout of 35 the three categories of Cyprus ships. The owners of the two above categories are Cypriots, either physical persons orlegal entities,corporations registered andoperating intheRepublic. Theapplicants,ontheotherhand, areincorporatedabroad. For the registration of their ships in Cyprus the authority of the 40 Council of Ministers is required;such authority may begivenif the controlling interest, that is 51%of the shares, is vestedin Cypriots. 409 Stylianides,J. Annon. Nav. Ltd &Others v.Republic &An.
(1989)The power of the State toclassify for purposes of taxation is of wide range and flexibility. A State may impose on foreign corporations taxation more onerous than that imposed on domestic corporations, as acondition for the privilege of doing business within the state. It would be arbitrary to subject a 5 foreign corporation to discriminatory taxation after it hasbuilt upabusiness under an unequivocal licenceto dobusinessinthe State -(Hanover Fire Ins. Co.v.Carr [1926]272 U.S.494). In tax matters, the State is allowed to pick and choose 10 districts, objects, persons, methods and even rates for taxation if it does so reasonably. The ownership of ships isdifferent from the carrying out of business inthecountry, evenupon licence. Iftwo corporations, 15 a local and a foreign, earn' onbusiness in Cyprus they are inall respectssameexcept oftheorigin oftheone.Inthepresent case a Cypriot anda Cypriot company have objective dissimilarities in respect of the social, economic and other aspects from a foreign company. The ownership of the ships is not an 20 operation or business in the country, is not the same as the carrying on of other business intheRepublic. In my view, there exist factors which appear to justify a differentiation as regards the treatment for purposes of 25 reduction of payable tonnage tax in respect of the two categories of Cyprus shipson the onehand andtheships owned by the applicants on the other. The Law challenged is neither inconsistent nor repugnant to the Constitution. It does not violate the principle of equality. 30 For all the foregoing reasons, this recourse fails and it is hereby dismissed, but in all the circumstances of the case no order for costs ismade. 35 Recourse dismissed.No orderas tocosts. 410