clr/1989/1989_3A_709.pdf

(1)and 5

(1)m conjunction with the Merchant Shipping (Taxing Provisions) Law, 1963 (Law 47/63),as substitutedbysection2ol Law34/65— Effectof repealandsubstitution of section 15

(1)ot theaforesaid Income TaxLawby section 10ot the Income Tax (Amendment)Law,1969(Law60/69)— TheInterpretation '-aw.Cap 1. section 10

(2)—Refusaltocarryforv,'ardlossessustainedby reason of theoperation of aship duringtheyears 1965-196Son ground thatastheprofits from theoperationof theshipwouldnot betaxable, the 709 Lavar Ship.Co.Ltd v.Republic&Another

(1989)losses couldnot be carried forward — Interpretation contraryto aforesaidlegalprovisions—-Subjudice decision annulled. Thesolequestionthatcallsondeterminationinthiscaseiswhetherthe losses suffered by theapplicants from theoperation of theirshipCuriun 5 underCyprusflagduringtheyears 1965-68couldbecarried forwardand besetoff against theirprofits from othersourcesinsubsequentyears. Therespondent Commissioner rejected suchacourseon theground thatsincetheprofits from theoperation oftheshipcouldnot becharged 10 to tax by reason of section 3 of the Merchant Shipping (Taxing Provisions)Lawof 1963.nolossescouldbeallowedtobecarriedforward for IncomeTaxlosses. The Court did not accept such interpretation. Such interpretation 15 qualifies the word "loss"in section 15

(1)of Law58/61. It amounts to addingwords to thestatute. Theprofits from theoperation of theship wouldbetaxableundersection5

(1)of Law58/61,butforsection 3(a) of the Merchant Shipping(TaxingProvisions) Law 1963 (Law47/63). Itis noteworthy that section 3 of Law 47/63 begins with the words 20 "independently of any provision contained in the Income Tax Legislation...notaxshallbeimposed...foraperiodof 10years...". Loss incurred in the operation of the ship in the circumstances set out in section 3.whichamount to traderbusiness,isalosscovered bysection 15.Itwouldbeunreasonable toaccept that thelossfrom theoperation 25 ofaship,towhichthelegislatureintendedtoaccordbeneficial treatment byexemption, wouldnotbeallowed. Theamendment of 1969doesnot changetheposition. Inanyeventinthepresentcase,section 10

(2)ofthe Interpretation l*aw.Cap.1 isapplicable,asnocontraryintentionappears intheamendinglegislationof 1969,witheffect thatanyrightorprivilege 30 acquiredoraccrued before theamendingenactment isnot affected. Subjudicedecisionannulled.Noorderas tocosts. 35 Casesreferredto: Vickers, Sons&Maxim, Limitedv. Evansfl910]A.C. 444, Thompson v. Gootd&Co. /1910]A.C. 409, Stockv. FrankJones(Tipton) Ltd. [1978] 1 AllE.R. 948, 710 40 3 C.L.R. L.nar Ship.Co.Ltd \.Republic & Vnothcr Shah \ liarnet London ΒC [19S3] 1 Ml ER 226 \la\fair Propert\tompanv, Dartlcttν MavfairProperty Company llS9S}2thD 28 5 Rothes ν Kirkcald\ Waterworks Commissioner [I88I-S2I 7A C694 Artcimou ν Piocopiou1I966JIQ li 87S 10 Re \ldr\on-\\-i!sons \\ill Trusts 11968] th 268 Gordon Grant and Compam (196^)limited ν 4/iomey General of TnmdadandTobago - Judgment deli\aedon23id March 1981 15 Recourse. 20 Recourse against the lelusal ot the respondents to allow applicants to carry forward and be set oft against their profits from other sources the losses sutfeied by them from the operation of theships ''Cunum"during theyear 1965-196S Chr.Demetnades. for the Applicants 25 A. Evangdou. Senior Counsel of the Republic, tor the Respondents Cur advvult. STYLIANIDES. J. read the following judgment The sole question that calls for determination in this case is whether the 30 losses suftered by the applicants from the operation of the ship "CURIUM", under Cyprus flag, during the years 1965-1968, may be earned forward andbe set oft against their profits from other sources in subsequent years 35 The tacts of the case over which there is no dispute are as follows- The applicants is a pnvate company ot limited liability incorporated and registered m this country on 6th July. 1965. 40 They were the owners of the steamship "CURIUM", registered as Cyprus ship 711 Stylianides. J. Lavar Ship.Co.Ltd v.Republic & Another

(1989)Applicants1 income from the commencement of business 6th July, 1965, to 31st December. 196S. derived from the operation of the said ship. During this period they incurred losses from the operation of the said ship. They submitted audited accounts through their auditors for all years up to and 5 inclusive the year

1. The accounts for the period 6th July. 1965.-31st December, 1966and the years 1967to 1974 were examined and accepted. in so far as the profit - chargeable income of each year was 10 concerned, but the losses in respect of the operation of the ship upto the date of its sale were not accepted. On 7th June.
2. applicants' auditors indicated in writing their disagreement with the revised computation by the 15 Respondent. The Respondent raised assessments on 3rd April. 1978.for the tax pavable for the aforesaid vears. 20 On 27th August, 1979,the applicants' auditors objected to the said assessments, on the ground that the losses from the operation of the ship were not deducted. The objection was rejected on the ground that it was out of time. The applicants paidthetaximposedfor thoseyearswiththereservation oftheir 25 rightsto demand deduction of the said loss in the future and/or claim a refund with interest. The accounts of the applicants for the years 1976-1980 showed losses. The accounts submitted for 1981 showed a 30 chargeable profit, but not after deducting the losses incurred priorto 1969inrespect oftheoperation oftheship"CURIUM". The assessment for 1981wasraised on 15th October,
3. 35 On 28th November, 1983, applicants' advocate raised objection to the aforesaid assessment, on the ground that the accounts for the year in question, not only didnot indicate any profit, but, on the contrary, indicated substantial losses,carried forward from previous years,incurred prior to 1969,from the 40 ownership and operation of the Cyprus flag ship, which could be carried forward for purposes of assessment for tax and they 712 3 C.L.R. Lavar Ship. Co. Ltd v.Republic &Another Stylianides, J. were deductibleandproperlycarriedfonvard untilexhausted,as all other losses which were deductible at the time they were incurred. 5 The objection was considered and the assessment was determined under section 20

(5)of the Assessment and Collection ofTaxes Laws 197S-1979 by the Respondent No.

1. Hisdecision wascommunicated totheapplicantsbyletter dated 24th November, 1984.The material part thereof reads:- 10 15 20 "The losses claimed by you to have been incurred from the operation of a ship under the Cyprus flag during the period from 6th July. 1965 to 31.12.1968 cannot be carried forward and be set against other income because the profits from theoperation ofsuchashipcouldnot becharged totax duetothe provisions of Section 3ofthe Merchant Shipping (TaxingProvisions) Lawof
2. Sincetheprofits couldnot betaxed,nolossescouldbeallowedfor incometax purposes. Therefore the amount of the loss from the operation being £60.475 cannot be carried forward. The amount of the loss hasbeen computed as follows:- 25 Amount of lossfrom the operation oftheshipas per auditor's letter dated 7/6/1977 30 (Years 1966-196S) Less Balancing charge on the sale ofthe ship

(1969)£ £82,177 £3,942 Profit as per Sch.l to the 1969accounts (8620-2482) 6,138 35 Previous years adjustments made in 1974as per auditor's letterof 7/6/77 11.622 21.702 40 Total amount of the lossfrom theoperation ofthe ship 713 £60,475 ===== Stylianides. J. Lavar Ship. Co. Ltd v. Republic &Another

(1989)In the circumstances I have decided to reject your objection andmaintain theoriginal assessment.'" Hencethis recourse. 5 The resolution of the question posed depends on the true construction and application of section 15

(1)in conjunction with section 5

(1)of the IncomeTax Lawsandsection 3(a)ofthe Merchant Shipping (Taxing Provisions) Law, 1963 (Law No. 47/63). as substituted by section 2 of Law 34/65. 10 Section 15

(1)of the Income Tax (Foreign Persons) Law, 1961 (Law No.5S/61) reads as follows:"15. -

(1)Οσάκις το ποσόν ζημία:επισυμβάσης εντός του 15 έτους του προηγουμένου του φορολογικού έτους ενεμπο­ ρική ήβιομηχανικήεπιχειρήσει, επιτηδεύματι ή βιοτεχνία. ελευθέριο; ήάλλω τινί επαγγέλματι ασκούμενο) υφ'οιου­ δήποτε ποοσο')πουείτε ατομικούς είτε εταιρικό');,είναιτο­ σούτον ο')στε να μηδύναταινα συμψηφισθή καθ' ο/.οκλη- 20 ρίαν μετάτου εξ ετέριον πηγο')νεισοδήματος αυτούδιάτο ίδιονφορολογικόν έτος.τοποσόντηςτοιαύτηςζημίας, κα­ τάτην έκτασινκαθ'ηναύτηδενσυμψηφίζεται,θα μεταφέρηταικαι,τηρουμένων τωνκατώτερο)όιατάξεοη',θασυμψηφίζηται μετά του εισοδήματος πον επομένων ετο>ν μέ- 25 χρις ου η τοιαύτη ζημία αποσβεσθή." Thissection was repealed andsubstituted by section 10ofthe IncomeTax (Amendment) Law. 1969 (Law No. 60/69). 30 Section 5

(1)of thesame Laws reads:"5. -

(1)Τηρουμένων τωνδιατάξεωντουπαρόντος Νό­ μου,δι' έκαστονφορολογικόν έτος επιβάλλεται,βάσει φο­ ρολογικών συντελεστών ειδικοπερον εντοις εφεξής καθο- 35 ριζομένων, φόρος επί του εισοδήματος εκ τωνκατωτέρω αναφερομένωνπηγώνπαντόςπροσώπου,τουκτώμενουή προκύπτοντος εν τη Δημοκρατία ή αποστελλομένου και λαμβανομένουειςτηνΔημοκρατίανεκτωνκατωτέρωανα­ φερομένων πηγών,ήτοι:40 (α) κέρδη ή άλλα οφέλη εξ οιασδήποτε εμπορικής ήβιο714 3 C.L.R. Lavar Ship.Co.Ltd v. Republic &Another 5 Stylianides, J. μηχανικής επιχειρήσεως, εκ της ασκήσεως επιτηδεύμα­ τος ή βιοτεχνίας τινός, εξ ελευθερίου ή άλλου τινός επαγγέλματος,δι* οιανδήποτεχρονικήνπερίοδονη τοι­ αύτη εμπορικήή βιομηχανική επιχείρησις. επιτήδευμα, βιοτεχνίαήεπάγγελμα καιαν ενασκήται·" Cyprus is an Island in the Eastern Mediterranean, at the cross-roads of three continents, but nevertheless in modern times, prior to the establishment of the Republic, there was 10 substantially no shipping. In 1963 a number of laws were enacted for regulation, control andencouragement of shipping. Section 3(a) of the Merchant Shipping (Taxing Provisions) Law. 1963 (Law No.47/63). as substituted by section 2 of the 15 Merchant Shipping (Taxing Provisions) (Amendment) Law, 1965 (Law No. 34/65).intendedto exempt from income tax the owner of a Cyprus ship, income derived from the use and operation of such ship in navigating operation between Cyprus and pons abroad,or between ports abroad (other thana fishing 20 operation). The provisions of section 15

(1)is averbatim reproduction of section 14

(1)of the Income Tax Law, Cap. 323 of the 1959 edition,andwith slightmodification of section 14

(1)of Law 6/41 25 (Cap. 297 of the 1949 edition). Income Tax Legislation was introducedinthiscountry in 1941 by the IncomeTax Law (Law No. 6 of 1941). Thestructure andprovision of the IncomeTax Legislation, including theparticular provision for allowances of trade losses were introduced from the Model Ordinance 30 annexed as Appendix ItotheReport of the Inter-Departmental Committee on Income Tax in the Colonies not Possessing Responsible Government, Presented to Parliament in December, 1922.Cmd.

1. 35 40 At p. 8 of theReport,paragraph 21, we read:"
2. Deduction in respect of trade losses. - Where the basis of assessment isthatof theprofits of thepreceding year, the question at once arises as to some provision for setting off losses against future profits; and dissatisfaction has been causedincertain Colonies where noarrangement of this kind has been made. The quotable case for such a provision is 715 Strlianides, J. Lavar Ship.Co.Ltd v.Republic &Another

(1989)obvious, andwas recognised by theRoyal Commission,who stated in their Report (para. 4S2):'We think,therefore,thatthetaxpayer might legitimately feel some grievance if under the new system he were not 5 enabled to carry forward his loss against future profits, and we accordingly suggest that the existing provision by which repayment of tax is granted in cases of loss by reference to the aggregate income of the year, should continue in force, and that any balance of loss not so dealt 10 with should be permittedto be carried fonvard...'" Counsel for the applicants submitted that in section 15

(1), before 1969 amendment, the word "loss" ('"ζημιά") was not qualified inanymannerandtheextent of theapplication of such 15 provision is equally unqualified and unrestricted. That it is not permissible to add words or qualifications to an otherwise unqualified word or provision. That the profits of theowner of a ship from the operation of the ship is profit taxable under section 5(l)(a)of the IncomeTax Legislation. Thatthis profit is 20 not exempted from taxation underany of the provisions of the Income Tax Legislation. Only section 3 of the Merchant Shipping (Taxing Provisions) Law, a provision limited in time, persons (owners), nationality of ship and scope of operations, exempted it. This is aspecial exemption thatit was intendedto 25 encourage and promote ship-ownership in this young developing country. That equitable or purposive construction shouldbe applied. Finally hesubmittedthattheloss in this case is allowable and transferable under section 15

(1)and the Respondent misdirectedhimself astothelaw. With regard tothe 30 amendment to section 15

(1)by Law 60/

1. he argued that it makes a differentiation between gains or profits taxable under section 5 and gains or profits taxable under other special provisions, namely Part III of the Law. Thus theamendment made lossesfrom thelattertype of business, notdeductible,and 35 differentiated the profits from shipping operation,which would be taxable under section
2. He submitted that,at any rate,the change of the Law in 1969 did not affect the deductibility of shipping losses, as otherwise it would have operated retrospectively. Furthermore, he invoked the provisions of 40 section 10

(2)of the Interpretation Law, Cap. 1and submitted that anyright,etc.,acquiredby theapplicantsbefore thecoming 716 3 C.I..R. Lavar Ship.Co. Ltd v.Republic &Another Stylianidcs. J. into operation of theamendment, couldnot be affected. Counsel for theRespondents, on the other hand, argued that profits ofashipwouldbetaxableundersection 5(l)(a).haditnot 5 been for the provisions of section 3 of the Merchant Shipping (Taxing Provisions) Law. He submitted that allowances are deductible in the process of ascertaining achargeable income.If a person has no income chargeable to tax. there will be no computation ofprofits orlossesandthusnoroom for relief tobe 10 claimed. Hesubmittedthat,iftherearenolossesfor incometax purposes, there is no question of applying the provisions of section 15,either before or after its amendment in 1969. After 1969.in order to qualify lor the benefit of section 15

(1)and to allow alosstobe carried forward and set off against the income 15 ofsubsequent years,suchlosswouldhavetobechargeable under section 5,if from theoperation again or profit resulted. It is useful to refer at this stage to certain principles of construction of statutes. 20 Itisacardinal ruleofconstruction thatnothingistobeadded to or taken from astatute unless there are adequate grounds to justify the inference that the legislature intended something which it omitted to express. Lord Loreburn, L.C..in Vickers, 25 Sons &Maxim, Limited v. Evans [1910] A.C.444, at p.445 said:- 30 "... we are not entitled to read words into an Act of Parliament unless clearreason for it istobefound within the four corners of the Act itself." LordMersey in Thompson v.Goold &Co.[1910]A.C.409, at p.420said:- 35 "It isa strong thing to read into an Act of Parliament words which are not there, and inthe absence of clear necessity it isa wrong thing to do." (See.also.Stock v.Frank Jones (Tipton) Ltd. [1978] 1 All 40 E.R. 948.) The purposive interpretation is a permissible manner of 717 Stylianides, J. Lavar Ship.Co.Ltd v.Republic & Another

(1989)constructing a statute but it hasto be limited to the text of the law. In Shah v. Barnet London B.C. [1983] 1 All E.R.226, Lord Scarman said at p.23S> "Thewayinwhichtheyusedpolicywas.inmyjudgement. 5 an impermissible approach to theinterpretation of statutory language. Judges may not interpret statutes in the light of their own views as to policy. They may, of course,adopt a purposive interpretation iftheycan find inthestatutereadas awhole or in material towhichtheyare permitted by lawto 10 refer as aids to interpretation an expression of Parliament's purpose or policy." Themischief that thelegislatureintendedtocureandthetrue reason of the remedy istaken into consideration. The Judge is 15 always to make such construction asshall advance the remedy, and to suppress subtle inventions and evasions for continuance ofthemischief,andproprivatecommodo,andtoaddforce and life to the cure and remedy, according to the true intent of the makers of the Act, pro bonopublico. 20 In Re Mayfair Property Company, Bartlett v. Mayfair Property Company \ 1S9S]2Ch.D.28,at p.35 Lindley, M.R.. said:25 "In order properly to interpret any statute it is as necessary now as it waswhen Lord Coke reported Heydon's Case to consider how the law stood when the statute to be construed waspassed,whatthemischiefwasfor whichtheold law did not provide, and the remedy provided by the statute 30 to cure that mischief." In construing a statute there should be avoided, as far as possible, an unreasonable or unjust result. 35 In The Countess of Rothes v. Kirkcaldy Waterworks Commissioners [1881-82] 7 A.C.694, Lord Blackburn stated (at p.702):"I quite agree that no Court isentitled to depart from the 40 intention of the legislature as appearing from the words of the Act, because it is thought unreasonable. But when two 718 3C.L.R. Lavar Ship.Co. Ltd v.Republic &Another Stylianides. J. constructions are open, the Court may adopt the more reasonable of the two." In Artemiou v.Procopiou [ 1966) 1 Q.B. S7S.Danckwerts. L.J..stated (at p.88S):"An intention to produce an unreasonable result isnot to be imputed to a statute if there is some other construction available." In Re Maryon-Wilson's Will Trusts 119681 Ch.268.itwas said(at p.2S2)by Ungoed-Thomas.J.:"The court will not ascribe to Parliament an unjust intention, but the court cannot override Parliament and its statutes. If the court isto avoid astatutory result thatflouts common sense and justice it must do so not by disregarding the statute or overriding it, but by interpreting it in accordance with the judicially presumed parliamentary concern for common sense andjustice." In Maxwell on Interpretation of Statutes. 12th ed.. p. 236. there isareference to what iscalled•'equitable construction"of a statute, as follows:"By 'equitable construction', the judges have sometimes meant nothingmorethanconstruction inaccordancewiththe intention of the legislature. 'Within the equity", said BylesJ.. 'means thesamethingas 'within themischief of thestatute". In thissense,equitable construction isunobjectionable and is still common. In the application of the mischief rule, for instance; in a 'beneficial* or broadly liberal approach to problems of interpretation; and in thepractice of construing a statute insuch awayasto prevent evasion of itsterms.*' Theamount ofthelossesincurredintheoperation oftheship under Cyprus flag by the applicant from 1965-1968 is not in dispute. / It iscommon ground,andrightlyso,that profit derived from the operation oftheship,asset out insection 3ofthe Merchant Shipping (Taxing Provisions) Law, is "earned income" and is 719 Stylianides.J. Lavar Ship.Co.Ltd v.Republic &Another

(1989)chargeable to income tax under section 5(l)(a) of the Income Tax Legislation. Loss incurred in the operation of such aship. which could not be wholly set off against income from other sourcesforthat yearofassessment,couldbecarried forward and beset off against theincome for subsequent yearsuntilsuch loss 5 isexhausted. The IncomeTax Legislation wasnot amended,in any way,inrelation to theincome orlossderived or incurredin the carrying out of the trade or business of operation of a Cvprus ship. 10 The legislature for the purpose of encouraging shipping by Cyprus ship-owners of ships under Cyprusflagand for certain operations specified, afforded them by the provisions of section 3 of law47/63 a benevolent treatment by exempting the profit from such trade or business from payment of income tax. It is 15 noteworthy that the section starts with thewords:"Independently of anyprovision contained inthe Income Tax Legislation or in anyother law amending or substituting it. no tax shall be imposed or collected for a period of ten 20 years from the date of the coming into operation of this Law." This period of ten years was extended twice by the Council of Ministers and the current period comes to an end in 1993. 25 Loss incurred in the operation of aship in the circumstances set out insection 3,whichisatradeorbusiness,isalosscovered by section 15of the income Tax Legislation and can be carried forward and be set off against any income in following years 30 until exhaustion. Havinggiven dueconsideration tothematter, Iam impelled to reject the Respondents' arguments andsubmissions. 35 "Loss" is not and cannot be qualified by addition of any words. Iftwoconstructions couldbeplaced,Iwouldprefer themore reasonable one, which would be in accord with equity and the intention of the legislature. Iamfully alen to the iniquity,ifthe 40 loss from atrade or business wereto becarriedforward andbe set off against the income of following years, whereas the loss 720 3 C.L.R. Lavar Ship.Co.Ltd v.Republic &Another Stylianides,J. from theoperation ofaship,towhichthelegislature intended to accord beneficial treatment by exemption, would not be allowed. 5 Section 15

(1),read in conjunction with sections5(l)(a) and3 of Law34/65 support the recognition of thedeductibility of the loss in question. A reference to the provisions of sections 35 and 36. in conjunction with section S of the Income Tax Legislation, is of assistance. There will be iniquity, if the large 10 taxpayer is entitled to set off tax deducted from the dividends against his tax liability, and the person whose income is too small to attract any liability totax but isreceived entirely in the form of dividendsfrom whichtax at thecompany ratehasbeen deducted, is denied any right of recoverv - (Privy Council 15 Appeal No.34of 1979-Gordon Grant and Company

(1965)Limited v.The Attorney General of Trinidad and TobagoJudgement delivered on 23rd March. 19S1). The material pan of the amendment of 1969is: "Where the 20 amount of a loss which, ifagain or profit wouldbe chargeable to taxundersection 5.issuchthat it cannot bewhollysetof...", that is. if the gain or profit would be chargeable to tax under section 5,then any lossistransferable. The allowance of lossis given to the taxpayer and the loss iscarried fonvard andset off 25 against such taxpayer's income for subsequent years. Though the opinion of the Attorney-General andcircular of theadministration on thematterbasedonsuchopinion isnotan aidtoconstruction anddoesnot bindtheCourt,itisnoteworthy 30 that in a circular, dated 25th November, 19S5. issued by the Respondent, it is said that, on the basis of the opinion of the Attorney-General,the imposition oftaxation undersections24, 25, 26 (under Pan III of the Law) is the one affected by the amendment of section 15.and only in cases,where tax may be 35 imposed under section 5, the provisions of section 15 are applicable. In any view of the Lawafter the amendment of 1969,inthe present casebysection 10

(2)of the Interpretation Law,Cap. 1, 40 as no contrary intention appears in the amending Law, it does not affect any right, privilege acquired or accrued under the previous enactment. 721 Stylianides, J. Lavar Ship.Co.Ltd v.Republic &Another

(1989)For theforegoing reasons,thesubjudicedecision iscontrary to law and was taken in excess or abuse of power, it is hereby declared null and void andof noeffect whatsoever. Let there be no order asto costs. Subjudice decisionannulled. No orderastocosts. Ill