(1989)19S9May17 [KOURRIS.J.] INTHE MATTER OF ARTICLE 146OFTHE CONSTITUTION DAFNISPANAYIDES. Applicant. v. THE REPUBLIC OF CYPRUS.THROUGH THE COMMISSIONER OF INCOME TAX. Respondent. (Ctisc So. I013/S5) Taxation — Income tax — Retirement of employee ot company upon giving to the company t\\cl\cmonths' notice ol termination ot his employment — Payment by company to suchemployee of one year's emoluments — Rightly suchpayment wassubjected to income tax — Preference andanalysisofprinciplesderivedfrom authorities. 5 Taxation — Income tax — Terminationot employment by the employee giving notice ol termination — Employer giving the car. which the employee hadbeen using during theperiod of his employment, tosuch employee — Thevalueol thecarrightlysubjected to income tax. \0 Taxation — Income lax — Representationallowance— TheIncome Tax Law 1961-1977,section 5
(1)φ) — Suchallowancesarcsubject to income tax. 15 Tuxation— Income tax— Representation expenses — Failure by applicant togive explanationsrelatingtosuchexpenses — Eltectolsuchfailure— In the absence of evidence to substantiateassertion thatapplicant had incurred such expenses, it wasreasonably open to respondent not to allow deductionot suchexpenses. The applicant gave in accordance with a term inhtsagreement a12- 578 20 3 C.L.R. 5 ]0 15 20 Panayides v. Republic month notice inwnting lor terminationof his employment as aGeneral Managerof theCyprus Phasoun PlantationsCo. Ltd. Inaccordancewith the contract beiwccn theapplicant andthesaid company,the latter paid to the applicant the sum of £8.500, i.e. applicant's emoluments for one year. The company gave him also thecar,which he was using, when he was holding thepost of General Manager. The issues raised in this case were the taxability of thesaid payment of £8.500, theexcessiveness of the value of thecar,thesubjection to lax of therepresentation allowance thai ihe applicant received, therelusal to deduct rcprcseniation expenses as claimed by theapplicant. Having analysed various authorities on the subject, the Court concluded that in the present case ihc payment ol £S500 did noi represent compensation for loss of otlicc or damage for wrongful dismissal. It was obvious from the correspondence that the sum in question was paid as emoluments arising from his contract ol employment. ' n [ hc light of this conclusion and of the principle:», appearing in the aforesaid Hcadnotcs.the Courtdismissed this recourse. Recourse dismissed. No order as to costs. 25 Casey referredto: Hochsirasser v.Mayes [1959] Ch. 22 al.p.33: 30 Henry v.Fosterf1931}16T.C. 605. Daleν De Soissons[1950132 T.C. I IS. Fitikidesv.Republic
(1973)3 C.1..R.
- 35 " Stylianidcs v. CY.T.A. andAnother (I9S9) 3 C.LR.
- .\coclcous v.Republic(I9S6)3 C.LR.2633.40 Nicou v.Republic(I9S3)3 C.LR.
- Panayiotou v..Republic^I9S4)3 C.LR. S57, 579 - Panayides v. Republic
(1989)Pavlou v.Republic(19SS)3C.LR.
- Zcvlaris v.Republic and Another (19SS)3C.LR.
- Georghiadesv.Republic (S9S2) 3C.LR.
- 5 Recourse. Recourse against the income tax assessments raised on applicant for the years 1975-
- 10 A. Haviaras. for the Applicant. Y. Lazarou.Counsel of theRepublic B.for the Respondent. 15 Cur. adv.vult. KOURRIS, J. read the following judgment. The present recourse isdirected against thedecision ottheCommissionerof Income Tax, hereinafter referred to as "the respondent", ?0 whereby income tax amounting to£6.496.30wasimposed upon the applicant in respect of the years
- 1976and
- Applicant is Mr. Dafnis Panayides of Limassol who derived his income at the material time from salaried senices rendered 25 to the Cyprus Phasotiri Plantations Co.LtdasGeneral Manager and to Agraria Limited, where hewas a Director. Under paragraph 12of his contract ofhis employment with the Cyprus Phasotiri Plantations Co. Ltd.hegave a 12months' 30 notice for the termination of his employment and the said company paid to him the sum of £S,500 which was his emoluments for one year. The company also gave him a car under registration No. EJ 4S9which he was using when he was holding the post of General Manager. 35 Also, the applicant received in 1976 from Phasouri Plantations Co. Ltd., commissions amounting to £958 and £1.947 for the year
- as well as representation allowance amounting to £516 and £1000 accordingly. Also the applicant 40 received from Agraria Limited £200 as representation allowance in respect of the years 1976 and 1977 as well 5S0 3 C.L.R. Panayides v.Republic Kourris. J. remuneration amounting to£570and£940 respectively. During the meeting of 15.9.1984 between the applicant and the officer examining his case, he was informed of the 5 Commissioner's decision to assess him on the above amounts. On 18.9.1985,the Commissioner communicated hisdecision to applicant by letter (appendix (i) to the opposition) with the relevant notices of tax payable (appendices "j", "k","1"). 10 15 In the present' case, the following issues fall for determination:
(1)Taxability of the lump sum payment, amounting to £8,500 which was made to the applicant on the termination of his employment. The question whether a lump sum received constitutes income assessabletotaxhasgiven risetoconsiderable litigation both here and in England, where similar legal provisions are in 20 force. The decided cases establish that, in order to be taxable suchpayments,mustbemadeinrespect oftheemployment that a pre-arranged payment which the service agreement provides shall be paid on determination of office is such payment and hence taxable, that a payment which represents compensation 25 for lossof office isinreality damagesfor breach ofcontract and thus escapes tax and that the fact that a payment is given a particularname isnotconclusiveandtheCourt willexaminethe true nature of such payment. 30 As UpJohn, J. stated in Hochstrasser v.Mayes [1959] Ch. 22 at.p.33: "The payment must bemade inreference to theservices the employee renders by virtue of his office and it must be 35 something inthe nature ofarewardfor services past,present or future". Also, in the case of Henry v. Foster [1931] 16T.C. 605, where a company's articles of association provided for the 40 payment of "compensation for loss of office" in the event of a person ceasingtobeaDirector after 5ormoreyears'serviceby reason of death or any other cause other than misconduct, 581 Kourris, J. Panayides v. Republic
(1989)bankruptcy, lunacy or incompetence, it was held that the payment which the retiring Director received constituted a profit of the office of Director. Lawrence, L.J. stated "the payment to the respondent whatever the parties may have chosen to call it, was a payment which the company had 5 contracted to make to himas part of his remuneration for his services asDirector''. Further, in the case of Dalev.De Soissons[1950]32T.C. 118,theassistant to a Managing Directorwas, undertheterms 10 of his sen-ice agreement, entitled to the sum of £10.000 if the company terminated his employment as they were entitled to do,on a specified date.Itwas contendedby"thetax payer that the payment so made was not assessable to tax as it was payment for compensation for loss of office andthus in reality 15 damages for breach of contract. Thiscontentionwas rejected by the Court of Appeal, where the words of Roxburgh J., at first instance, were cited with approval: "In the present case (the taxpayer) surrendered norights.Hegot exactly what he was entitled to get under his contract of employment. Accordingly 20 thepayment in my judgment,falls within thetaxable class". Also, similar judicial pronouncements were made in a number of cases in Cyprus. In Renos Fitikides v.The Republic
(1973)3C.LR. 15, a payment made to an employee under the terms of his employment providing for the payment of gratuity upon voluntary retirement was treatedas a delayed benefit deriving from employment and as such was found to be chargeable to 30 incometax. The Court came to the same conclusion in Ahstotelis Styiianides v. ΟΥ.ΤΛ. and Another
(1989)3 C.L.R.5 and Evrypides i\eocleousv. TheRepublic
(1986)3C.LR. 2633. 35 Thelegalposition inrelationtothechargeability ofgratuities to incometax was summarized by Pikis,J.asfollows: "Ineednotgo throughthe caselaw soelaborately referred to by Hadjianastassiou, J. Ishall only refer tothecase of Corbett 40 v. Duff, Dale v.Duff, Feebury v.Abbot [1941] 1All E.R. 5112, that draws if Imay say so with respect, thedemarcation 582 25 3 C.L.R. Panayides v. Republic Kourris, J. line between payment qualifying as benefits deriving from employment andpayments outsidethatrange ofbenefits. Itisa fine linemakingitallmorenecessary tosiftthefacts relevant to theparticularpaymentinordertoascertain itssignificance from 5 thestandpoint of thetax payer. If thebenefit accords with the reasonable expectations of the recipient of the payment as a benefit expected toaccrue from his employment, itconstitutes anemolumentderiving from hisemployment andassuch liable totax". 10 Iamof theviewthatthepaymentunderconsideration in the present case does notrepresent compensation for lossof office or damages for wrongful dismissal for it is obvious from the correspondence between theapplicant andhis employer dated 15 29,4.1977 and 30.5.1977 (attached to the opposition as appendices E & F ) that the initiative andthe request for the termination of theapplicant'semploymentcamefrom him.Itis also plainly obvious from thesaid correspondence, particularly paragraph 2 of theletter dated29.4.1977, andparagraph (b)of 20 theletter dated 30.5.1977, thatthesumin question was paidto the applicant as emoluments arising from his contract of employment.Therefore, thesaid amountisliable totax. 25
(2)Taxability of Representation Allowance andAmount tobe Deductedtherefrom as Representation Expenses. The relevant legislation provision governing the taxability for sums paid to employees as representation allowances is s.5(l)(b) of the Income Tax Laws 1961-1977,which reads as 30 follows:"5-(I) Τηρουμένων των διατάξεων του παρόντος Νόμου, δι' έκαστον φορολογικόν έτος επιβάλλεται, βάσειφορολογι κώνσυντελεστών ειδικότερονεντοιςεφεξής καθοριζομένων, 35 φόροςεπίτουεισοδήματος εκτωνκατωτέρωαναφερομένων πηγών παντός προσώπου,τουκτώμενουήπροκύπτοντοςεν τη Δημοκρατίαήαποστελλομένουκαιλαμβανομένουειςτην Δημοκρατίαεκτωνκατωτέρωαναφερομένωνπηγών, ήτοι:40 (α) (β) Κέρδη ή άλλα οφέλη εξ'οιουδήποτε αξιώματοςή μι583 Kourris, J. Panayides v. Republic
(1989)σθωτο')νυπηρεσιών, ανεξαρτήτωςτουαντο υποκείμε νο της φορολογίαςπαρέχειτας υπηρεσίαςαυτούεν -Κύπρωή αλλαχού. περιλαμβανομένηςτης κατ'εκτίμησιν ετησίαςαξίαςκαταλύματος,στέγηςκαιδιατροφής ή οικίας,ως καιπαντόςετέρου επιδόματος χρηματι- 5 κής ή άλληςμορφής,χορηγουμένουαναφορικώς προς παρεχομένας μισθωτόςυπηρεσίας"'. It is obvious from above provision that representation allowances are liable totax as allowances granted inrespect of 10 employment. The allegation that such allowances are exempt from tax cannotstand. Thesameapplies totheallegation that theamountwhichwas deducted as representation expenses is inadequate. It was 15 reasonably open to theCommissionertoreachthisconclusion considering also that no evidence of any kind was adducedby the applicant tosubstantiate his assertion that hehadincurred such expenses. 20 The effect of failure by an applicant to submit to the respondent Commissioner the relevant information has been commented on in a number of cases, including Nicou v. The Republic
(1983)3C.L.R. 1113 at p. 1118.Panayiotou v. The Republic
(1984)3 C.L.R. 857, Stavros Pavlou v. The 25 Republic
(1988)3 C.L.R. 1125, and CostasZevlaris v.The Republic
(1988)3 C.L.R. 720. Furthermore,it is expressly provided by law anditiswellsettledthatintax cases the burden of proof thatanassessment isexcessiverests onthetaxpayer. 30
(3)Commissions The commissions which the applicant was assessed are the same as those declaredby his employer andare shown onthe documentwhichis attachedtotheopposition asappendix H. 35 Bearing inmindthatnoevidence was adducedto contradict these amounts, I think that it was reasonably open to the respondenttoreachtheconclusionwhichhe did. 40
(4)Valueof CarEJ489whichwas transferred tothe applicant on theterminationof hisemployment. 584 3 C.L.R. Panayides v. Republic Kourris, J. The car in question is a Wolsely and was purchased by the applicant's employer in 1971for £1,460. Bearing inmindtheincrease incarpricesinthe period19715 1977, as well as the fact that the car was used by the management and was,therefore, in good condition, and taking into consideration the fact that no evidence was adduced proving otherwise, I am of the opinion that the respondent's decision to value the vehicle at £500 was reasonably open to 10 him. The allegation that the sub judice decision lacks due reasoning cannot stand. The'reasons behind the respondent's decision were conveyed to the applicant orally at a meeting 15 which took place on 15.9.1984 between himself and the officer examining hiscase,aswellasin writingon 18.9.1985 (appendix (i) attached to the opposition). The jurisdiction of the Court is confined to a review of the 20 legalityoftheaction oftheadministration withinthecompassof their authority. Provided they operate within the framework of their powers,theadministration isthearbiter ofthe fact-finding process. And so long as inquiry into the factual background is adequate and the decision is reasonably open to the 25 administration, the Court will sustain it as a valid exercise of their powers. (Georghiades v. TheRepublic
(1982)3 C.L.R. 659). It isevident from alltheforegoing and from thefacts set out 30 in the opposition and the attachments thereto, that the inquiry which the respondent carried out into the factual background was adequate. Furthermore, inthecircumstances of the present case,it wasreasonably open to therespondent to reach the sub judice decision. 35 For allthe above reasons,the recourse isdismissed,but with no order for costs. 40 Recourse dismissed. No orderas tocosts. 585