|
ΠΑΓΚΥΠΡΙΟΣ ΔΙΚΗΓΟΡΙΚΟΣ ΣΥΛΛΟΓΟΣ
|
|
|
(1989) 3A CLR 709
1989 June 17
[STYLIANIDES. J.]
IN THE MATTER OF ARTICLE 146 OF THE CONSTITUTION
LAVAR SHIPPING CO. LTD.,
Applicants,
v.
THE REPUBLIC OF CYPRUS, THROUGH THE MINISTER OF
FINANCE AND ANOTHER,
Respondents.
(Case No. 146/85)
Interpretation of statutes-Nothing is to be added to or taken out from a statute unless there are adequate grounds to justify inference that legislature intended something which it omitted to express-Purposive interpretation permissible, but it has to be limited to the text of the Law-The mischief of the legislature intended to cure and the true reason of the remedy it afforded, are taken into consideration-Subtle inventions and evasions for continuance of the mischief should be suppressed-Life and force should be added to the cure and remedy, according to the true intention of the legislature, pro bono publico-In construing an unreasonable or unjust result should be, as far as possible, avoided-Equitable construction-Meaning of.
Taxation-Income Tax-Losses in one year-Right to carry them forward in following years-The Income Tax (Foreign Persons) Law, 1961 (Law 58/61), sections 15(1) and 5(1) in conjunction with the Merchant Shipping (Taxing Provisions) Law, 1963 (Law 47/63), as substituted by section 2 of Law 34/65-Effect of repeal and substitution of section 15(1) of the aforesaid Income Tax Law by section 10 of the Income Tax (Amendment) Law, 1969 (Law 60/69)-The Interpretation Law, Cap. 1. section 10(2)-Refusal to carry forward losses sustained by reason of the operation of a ship during the years 1965-1968 on ground that as the profits from the operation of the ship would not be taxable, thelosses could not be carried forward-Interpretation contrary to aforesaid legal provisions-Sub judice decision annulled.
The sole question that calls on determination in this case is whether the losses suffered by the applicants from the operation of their ship Curiun under Cyprus flag during the years 1965-68 could be carried forward and be set off against their profits from other sources in subsequent years.
The respondent Commissioner rejected such a course on the ground that since the profits from the operation of the ship could not be charged to tax by reason of section 3 of the Merchant Shipping (Taxing Provisions) Law of 1963, no losses could be allowed to be carried forward for Income Tax losses.
The Court did not accept such interpretation. Such interpretation qualifies the word "loss" in section 15(1) of Law 58/61. It amounts to adding words to the statute. The profits from the operation of the ship would be taxable under section 5(1) of Law 58/61, but For section 3(a) of the Merchant Shipping (Taxing Provisions) Law 1963 (Law 47/63) It is noteworthy that section 3 of Law 47/63 begins with the words "independently of any provision contained in the Income Tax Legislation...no tax shall be imposed...for a period of 10 years...". Loss incurred in the operation of the ship in the circumstances set out in section 3, which amount to trader business, is a loss covered by section 15. It would be unreasonable to accept that the loss from the operation of a ship, to which the legislature intended to accord beneficial treatment by exemption, would not be allowed. The amendment of 1969 does not change the position. In any event in the present case, section 10(2) of the Interpretation Law, Cap. 1 is applicable, as no contrary intention appears in the amending legislation of 1969, with effect that any right or privilege acquired or accrued before the amending enactment is not affected.
Sub judice decision annulled. No order as
to costs.
Cases referred to:
Vickers, Sons & Maxim, Limited v. Evans [1910] A.C. 444,
Thompson v. Goold& Co. [1910]A.C. 409,
Stock v. Frank Jones (Tipton) Ltd. [1978] 1 All E.R. 948,
Shah v. Barnet London BC [1983]1 All E.R. 226,
Mayfair Property Company, Bartlett v. Mayfair Property Company [1898] 2 Ch.D. 28,
Rothes v. Kirkcaldy Waterworks Commissioners [1881-82] 7 A.C. 694,
Artemiou V. Procopiou [1966] 1 Q.B. 878
Re Maryon-Wilson's Will Trusts [1968] Ch. 268.
Gordon Grant and Company (1965.) Limited v. Attorney General of Trinidad and Tobago - Judgment delivered on 23rd March, 1981.
Recourse.
Recourse against the refusal of the respondents to allow applicants to carry forward and be set off against their profits from other sources the losses suffered by them from the operation of the ships "Curium" during the year 1965-1968.
Chr. Demetriades, for the Applicants.
A. Evangelou, Senior Counsel of the Republic, for the Respondents.
Cur.adv. vult.
STYLIANIDES. J. read the following judgment. The sole question that calls for determination in this case is whether the losses suffered by the applicants from the operation of the ship "CURIUM", under Cyprus flag, during the years 1965-1968, may be carried forward and be set off against their profits from other sources in subsequent years.
The facts of the case over which there is no dispute are as follows:-
The applicant is a private company of limited liability incorporated and registered in this country on 6th July, 1965. They were the owners of the steamship "CURIUM", registered as Cyprus ship.
Applicants income from the commencement of business - 6th July, 1965, to 31st December, 1968, 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 inclusive the year 1981.
The accounts for the period 6th July, 1965, - 31st December, 1966 and the years 1967 to 1974 were examined and accepted, in so far as the profit - chargeable income of each year was concerned, but the losses in respect of the operation of the ship up to the date of its sale were not accepted.
On.7th June, 1977, applicant's auditors indicated in writing their disagreement with the revised computation by the Respondent.
The Respondent raised assessments on 3rd April, 1978, for the tax payable for the aforesaid years.
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 paid the tax imposed for those years with the reservation of their rights to 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 chargeable profit, but not after deducting the losses incurred prior to 1969 in respect of the operation of the ship "CURIUM".
The assessment for 1981 was raised on 15th October, 1983.
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 did not indicate any profit, but, on the contrary, indicated substantial losses, carried forward from previous years, incurred prior to 1969, from the ownership and operation of the Cyprus flag ship, which could be carried forward for purposes of assessment for tax and theywere deductible and properly carried forward until exhausted, as all other losses which were deductible at the time they were incurred.
The objection was considered and the assessment was determined under section 20(5) of the Assessment and Collection of Taxes Laws 1978-1979 by the Respondent No. 2. His decision was communicated to the applicants by letter dated 24th November, 1984. The material part thereof reads:-
"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 profitsfrom the operation of such a ship could not be charged to tax due to the provisions of Section 3 of the Merchant Shipping (Taxing Provisions) Law of 1963. Since the profits could not be taxed, no losses could be allowed for income tax purposes. Therefore the amount of the loss from the operation being £60,475 cannot be carried forward. The amount of the loss has been computed as follows:
Amountof loss from the operation
of the ship as per auditor's
letter dated 7/6/1977 £
£82, 177
(Years 1966-1968)
Less Balancing charge
on the sale of the
ship (1969) £3, 942
Profit as per Sch. 1 to
the 1969 accounts
(8620-2482) £6, 138
Previous years adjustments
made in 1974 as per
auditor's letter of
7/6/77 11, 622 21, 702
Total amount of the loss from
the operation of the ship £60, 475
In the circumstances I have decided to reject your objection and maintain the original assessment."
Hence this recourse.
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 Income Tax Laws and section 3(a) of the Merchant Shipping, (Taxing Provisions) Law., 1963 (Law No. 47/63), as substituted by section 2 of Law 34/65.
Section 15(1) of the Income Tax (Foreign Persons) Law, 1961 (Law No. 58/61.) reads as follows:-
"15. - (1). Οσάκις το ποσόν ζημίας επισυμβάσης εντός του έτους του προηγουμένου του φορολογικού έτους εν εμπορική ή βιομηχανική, επιχειρήσει, επιτηδεύματι ή βιοτεχνία, ελευθερίω ή άλλω τινί επαγγέλματι ασκούμενω υφ' οιουδήποτε προσώπου είτε ατομικούς είτε εταιρικούς, είναι τοσούτον ώστε να μη δύναται να συμψηφισθή καθ' ολοκληρίαν μετά του εξ ετέρων πηγών εισοδήματος αυτού διά το ίδιον φορολογικόν έτος, το ποσόν της τοιαύτης ζημίας, κατά την έκτασιν καθ' ην αύτη δεν συμψηφίζεται, θα μεταφέρηται και, τηρουμένων των κατωτέρω διατάξεων, θα συμψηφίζηται μετά του εισοδήματος των επομένων ετών μέχρις ου η τοιαύτη ζημία αποσβεσθή."
This section was repealed and substituted by section 10 of the Income Tax (Amendment) Law, 1969 (Law No. 60/69).
Section 5(1) of the same Laws reads:-
"5. - (1) Τηρουμένων των διατάξεων του παρόντος Νόμου, δι' έκαστον φορολογικόν έτος επιβάλλεται, βάσει φορολογικών συντελεστών ειδικώτερον εν τοις εφεξής καθοριζομένων, φόρος επί του εισοδήματος εκ των κατωτέρω αναφερομένων πηγών παντός προσώπου, του κτώμενου ή προκύπτοντος εν τη Δημοκρατία ή αποστελλομένου και λαμβανομένου εις την Δημοκρατίαν εκ των κατωτέρω αναφερομένων πηγών, ήτοι:-
(α) κέρδη ή άλλα οφέλη εξ οιασδήποτε εμπορικής ή βιομηχανικής επιχειρήσεως, εκ της ασκήσεως επιτηδεύματος ή βιοτεχνίας τινός, εξ ελευθερίου ή άλλου τινός επαγγέλματος, δι' οιανδήποτε χρονικήν περίοδον η τοιαύτη εμπορική ή βιομηχανική επιχείρησις, επιτήδευμα, βιοτεχνία ή επάγγελμα και αν 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 substantially no shipping. In 1963 a number of laws were enacted for regulation, control and encouragement of shipping.
Section 3(a) of the Merchant Shipping (Taxing Provisions) Law, 1963 (Law No. 47/63), as substituted by section 2 of the Merchant Shipping (Taxing Provisions) (Amendment) Law, 1965 (Law No. 34/65), intended to 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 ports abroad, or between ports abroad (other than a fishing operation).
The provisions of section 15(1) is a verbatim reproduction of section 14(1) of the Income Tax Law, Cap. 323 of the 1959 edition, and with slight modification of section 14(1) of Law 6/41 (Cap. 297 of the 1949 edition). Income Tax Legislation was introduced in this country in 1941 by the Income Tax Law (Law No. 6 of 1941). The structure and provision of the income Tax Legislation, including the particular provision for allowances of trade losses were introduced from the Model Ordinance annexed as Appendix I to the Report of the Inter-Departmental Committee on Income Tax in the Colonies not Possessing Responsible Government, Presented to Parliament in December, 1922, Cmd. 1788.
At p. 8 of the Report, paragraph 21, we read:
"21. Deduction in respect of trade losses. - Where the basis of assessment is that of the profits of the preceding year, the question at once arises as to some provision for setting off losses against future profits; and dissatisfaction has been caused in certain Colonies where no arrangement of this kind has been made. The quotable case for such a provision isobvious, and was recognised by the Royal Commission, who stated in their Report (para. 482):-
'We think, therefore, that the taxpayer might legitimately feel some grievance if under the new system he were not 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 with should be permitted to be carried forward...'"
Counsel for the applicants submitted that in section 15(1), before 1969 amendment, the word "loss" (ζημιά) was not qualified in any manner and the extent of the application of such 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 the owner of a ship from the operation of the ship is profit taxable under section 5(1)(a) of the Income Tax Legislation.That this profit is not exempted from taxation under any 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 a special exemption that it was intended to encourage and promote ship-ownership in this young developing country. That equitable or purposive construction should be applied. Finally he submitted that the loss in this case is allowable and transferable under section 15(1) and the Respondent misdirected himself as to the law. With regard to the amendment to section 15(1) by Law 60/69, 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 the amendment made losses from the latter type of business, not deductible, and differentiated the profits from shipping operation, which would be taxable under section 5. 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 section 10(2) of the Interpretation Law, Cap. 1 and submitted that any right, etc., acquired by the applicants before the coming into operation of the amendment, could not be affected.
Counsel for the Respondents, on the other hand, argued that profits of a ship would be taxable under section 5(1)(a), had it not 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 a chargeable income. If a person has no income chargeable to tax, there will be no computation of profits or losses and thus no room for relief to be claimed. He submitted that, if there are no losses for income tax 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 for the benefit of section 15(1) and to allow a loss to be carried forward and set off against the income of subsequent years, such loss would have to be chargeable under section 5, if from the operation a gain or profit resulted.
It is useful to refer at this stage to certain principles of construction of statutes.
It is a cardinal rule of construction that nothing is to be added to or taken from a statute 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, Sons & Maxim, Limited v. Evans [1910] A.C. 444, at p. 445 said:-
"...we are not entitled to read words into an Act of Parliament unless clear reason for it is to be found within the four corners of the Act itself."
Lord Mersey in Thompson v. Goold& Co. [1910] A.C. 409, at p. 420 said:-
"It is a strong thing to read into an Act of Parliament words which are not there, and in the absence of clear necessity it is a wrong thing to do."
(See, also, Stock v. Frank Jones (Tipton) Ltd. [1978] 1 All E.R. 948.)
The purposive interpretation is a permissible manner ofconstructing a statute but it has to 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. 238:-
"The way in which they used policy was, in my judgernent, an impermissible approach to the interpretation 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 if they can find in the statute read as a whole or in material to which they are permitted by law to refer as aids to interpretation an expression of Parliament's purpose or policy."
The mischief that the legislature intended to cure and the true reason of the remedy is taken into consideration. The Judge is always to make such construction as shall advance the remedy, and to suppress subtle inventions and evasions for continuance of the mischief, and pro privatocommodo, and to add force and life to the cure and remedy, according to the true intent of the makers of the Act, pro bono publico.
In Re Mayfair Property company, Bartlett v. Mayfair Property company [1898] 2 Ch.D. 28, at p. 35 Lindley, M.R., said:-
"In order properly to interpret any statute it is as necessary now as it was when Lord Coke reported Heydon's Case to consider how the law stood when the statute to be construed was passed, what the mischief was for which the old law did not provide, and the remedy provided by the statute to cure that mischief."
In construing a statute there should be avoided, as far as possible, an unreasonable or unjust result.
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 is entitled to depart from the intention of the legislature as appearing from the words of the Act, because it is thought unreasonable. But when twoconstructions are open, the Court may adopt the more reasonable of the two."
In Artemiou v. Procopiou [1966] 1 Q.B. 878, Danckwerts, L.J., stated (at p. 888):-
"An intention to produce an unreasonable result is not to be imputed to a statute if there is some other construction available."
In Re Maryon- Wilson's Will Trusts [1968] Ch. 268, it was said (at p. 282) 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 is to avoid a statutory result that flouts 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 and justice."
In Maxwell on Interpretation of Statutes, 12th ed., p. 236, there is a reference to what is called "equitable construction" of a statute, as follows:-
"By 'equitable construction', the judges have sometimes meant nothing more than construction in accordance with the intention of the legislature. 'Within the equity', said Byles J.,'means the same thing as 'within the mischief' of the statute'. In this sense, equitable construction is unobjectionable 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 the practice of construing a statute in such a way as to prevent evasion of its terms."
The amount of the losses incurred in the operation of the ship under Cyprus flag by the applicant from 1965-1968 is not in dispute.
It is common. ground, and rightly so, that profit derived from the operation of the ship, as set out in section 3 of the Merchant Shipping (Taxing Provision) Law, is "earned income" and ischargeable to income tax under section 5(1)(a) of the Income Tax Legislation. Loss incurred in the operation of such a ship, which could not be wholly set off against income from other sources for that year of assessment, could be carried forward and be set off against the income for subsequent years until such loss is exhausted. The Income Tax Legislation was not amended, in any way, in relation to the income or loss derived or incurred in the carrying out of the trade or business of operation of a Cyprus ship.
The legislature for the purpose of encouraging shipping by Cyprus ship-owners of ships under Cyprus flag and for certain operations specified, afforded them by the provisions of section 3 of law 47/63 a benevolent treatment by exempting the profit from such trade or business from payment of income tax. It is noteworthy that the section starts with the words:-
"Independently of any provision contained in the Income Tax Legislation or in any other law amending or substituting it, no tax shall be imposed or collected for a period of ten 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.
Loss incurred in the operation of a ship in the circumstances set out in section 3, which is a trade or business, is a loss covered by section 15 of the income Tax Legislation and can be carried forward and be set off against any income in following years until exhaustion.
Having given due consideration to the matter, I am impelled to reject the Respondents' arguments and submissions.
"Loss" is not and cannot be qualified by addition of any words.
If two constructions could be placed, I would prefer the more reasonable one, which would be in accord with equity and the intention of the legislature. I am fully alert to the iniquity, if the loss from a trade or business were to be carried forward and be set off against the income of following years, whereas the loss.from the operation of a ship, to which the legislature intended to accord beneficial treatment by exemption, would not be allowed.
Section 15(1), read in conjunction with sections 5(1)(a) and 3 of Law 34/65 support the recognition of the deductibility of the loss in question. A reference to the provisions of sections 35 and 36, in conjunction with section 8 of the Income Tax Legislation, is of assistance. There will be iniquity, if the large 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 to tax but is received entirely in the form of dividends from which tax at the company rate has been deducted, is denied any right of recovery - (Privy Council Appeal No. 34 of 1979 - Gordon Grant and Company (1965) Limited v. The Attorney General of Trinidad and Tobago - Judgement delivered on 23rd March, 1981).
The material part of the amendment of 1969 is: "Where the amount of a loss which, if a gain or profit would be chargeable to tax under section 5, is such that it cannot be wholly set of ...", that is, if the gain or profit would be chargeable to tax under section 5, then any loss is transferable. The allowance of loss is given to the taxpayer and the loss is carried forward and set off against such taxpayer's income for subsequent years.
Though the opinion of the Attorney-General and circular of the administration on the matter based on such opinion is not an aid to construction and does not bind the Court, it is noteworthy that in a circular, dated 25th November, 1985, issued by the Respondent, it is said that, on the basis of the opinion of the Attorney-General, the imposition of taxation under sections 24, 25, 26 (under Part III of the Law) is the one affected by the amendment of section 15, and only in cases, where tax may be imposed under section 5, the provisions of section 15 are applicable.
In any view ofthe Law after the amendment of 1969, in the present case by section 10(2) of the Interpretation Law, Cap. 1, as no contrary intention appears in the amending Law, it does not affect any right, privilege acquired or accrued under the previous enactment.
For the foregoing reasons, the sub judice decision is contrary to law and was taken in excess or abuse of power. It is hereby declared null and void and of no effect whatsoever.
Let there be no order as to costs.
Sub judice decision annulled. No
order as to costs.