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ΠΑΓΚΥΠΡΙΟΣ ΔΙΚΗΓΟΡΙΚΟΣ ΣΥΛΛΟΓΟΣ
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(1973) 3 CLR 273
1973 May 8
[TRIANTAFYLLIDES, P., STAVRINIDES, L. LOIZOU,
HADJIANASTASSIOU, MALACHTOS, JJ.]
VITA-ORA COMPANY LTD.,
Appellant,
and
THE REPUBLIC OF CYPRUS, THROUGH
THE MINISTER OF FINANCE AND ANOTHER,
Respondents.
(Revisional Jurisdiction Appeal No. 110).
Income Tax-Reduced taxation-Sub-paragraph (a) of the proviso to paragraph 2 of the Second Schedule to section 34 of the Income Tax Laws 1961-1969 (introduced by section 31 of the Income Tax (Amendment) Law, 1969 (Law No. 60 of 1969))-Profit of company up to £5,000 etc. (not being interest dividend or rent) transferred to the capital reserve kept in the company and used for its purposes-Taxable at the reduced rate of 250 mils on every pound (instead of the normal rate of 425 mils,)-Profits amounting to £4,492 drawn by the Directors of the appellant company by way of loan-In the light of the relevant parts of the Memorandum of Association, such loan held not to come within the purview of the aforesaid paragraph 2 and the proviso thereto (supra)-Profit held not to have been used for the company's purposes-The main object of which is to manufacture, bottle etc. every kind of juices etc., the object provided in another part of the Memorandum to lend money etc. held to be merely a subordinate object-Consequently, the aforesaid profits of £4,492 were rightly taxed at the normal rate of 425 mils on every pound-Appeal dismissed.
Companies-Memorandum of Association-Construction-Principles applicable.
Statutes-Construction-Principles applicable-Object of the statute-Purpose for which a statute was enacted-Weighty consideration for the purpose of correctly construing the statute-Taxing legislation and taxing provisions-Construction-Principles applicable-In case of reasonable doubt as to which of two meanings is the correct one, the meaning more favourable to the taxpayer should be preferred-But in the instant case no such doubt arises regarding the meaning and effect of sub-paragraph (a) of the proviso to paragraph 2 of the Second Schedule to section 34 of the income Tax Laws 1961-1969 (supra).
Taxation and taxing legislative provisions-Construction-See supra.
Reduced Taxation-income. Tax-See supra.
In this case the appellant Company disputes its liability to pay income tax, in respect of the year of assessment 1969 (year of income 1968), on income amounting. to £4,492 at the normal rate of 425 mils on every pound, claiming that the said amount should be taxed at the reduced rate of 250 mils on every pound on the strength of sub-paragraph (a) of the proviso to paragraph 2 of the Second Schedule to section 34 of our income tax legislation as amended by section 31 of the Income Tax (Amendment) Law, 1969 (Law No. 60 of 1969). The said paragraph provides that when an income not exceeding £5,000 is transferred to the reserve capital of a company, kept in the company and "used for its purposes", the rate applicable is the reduced one viz. 250 mils on every pound. Now, the aforesaid amount of £4,492 (the appellant company's profit in the year 1968) was drawn by the Company's Directors by way, of loan. The respondent Director, taking the view that the amount in question was not used for the purposes of the Company refused to apply the reduced rate of 250 mils and applied instead the normal one of 425 mils on every pound. The company challenged this assessment by a recourse under Article 146 of the Constitution and the learned trial Judge of the Supreme Court affirming the assessment complained of, dismissed the recourse. (See (1972) 3 C.L.R. 566). It is against this judgment that the then applicant Company took the present appeal.
The Supreme Court, upholding the judgment appealed from (and affirming the assessment complained of), dismissed the Company's appeal. The facts of the case are very briefly as follows:-
In 1968 the Directors of the appellant company drew, by way of loans, an amount of £6,545 which was in excess of the company's profit of £4,492 in that year. The respondent Director of the Department of Inland Revenue took the view, in the circumstances, that the said profit of £4,492 was not used for the purposes of the company and taxed it at the normal rate of 425 mils, instead of, 250 mils, on every pound. The trial Judge upheld the validity of the respondent's decision (see (1972) 3 C.L.R. 566). In order to make possible the application of the said reduced rate .of 250 mils, sub-paragraph (a) of the proviso to paragraph 2 of the Second Schedule to section 34 of our income tax legislation (as amended by Law No. 60 of 1969), requires that (with the exception of interest, dividends and rents) an amount of tip to £5,000, out of an income not exceeding £7,000, should be transferred to the reserve capital of the company and be kept in the company for its purposes. The issue therefore, in the present case is whether or not the, lending of money to a director, in the circumstances of this case, was something amounting to keeping such money in the company and using it for its purposes, in the sense of the aforementioned sub-paragraph (a) of the said proviso to paragraph 2 of the Second Schedule. The main object of the appellant Company is to be found in sub-paragraph (a) of paragraph 3 of the Memorandum of Association, which reads as follows: "To manufacture, buy, distribute, sell, improve, treat, preserve, fine, mineralise, can, bottle of all kinds of juices, concentrated juices, oils liquids of any description whatsoever and to deal with same in any way". On the other hand by sub-paragraph (s) of paragraph 3 of the Memorandum, one of the company's objects is: "To lend money to such persons or companies and on such terms as may seem expedient, and in particular to customers and others having dealings with the Company".
Dismissing the appeal and upholding the assessment complained of, the Supreme Court:
Held, (1). In dealing with an income tax case such as the present one, other similar cases which were cited to us can be looked at for guidance only in so far as their outcome is concerned, because the result, to be reached on each individual occasion depends entirely on the application of the relevant statutory provisions and principles of law to the particular circumstances of the case before the Court (see, inter alia, Cyprus Wines Co. Ltd. v. The Republic (1965) 3 C.L.R. 345, at p. 350).
(2)(a) The Memorandum of Association has to be construed by us a whole and general words therein "must, be taken in connection with what are shewn by the context to be the dominant or main objects (see, in this connection, Lindley L.J. in Re German Date Coffee Co. [1882] 20 Ch. D. 169, at p. 188, cited with approval in Bell Houses, Ltd. v. City Wall Properties, Ltd. [1965] 3 All E.R. 427, at p. 438, and, on appeal, in the same case [1966] 2 All E.R. 674, at p. 682).
(b) We are of the view that the main object of the appellant company is to be found in sub-paragraph (a) of paragraph 3 of the Memorandum which reads as follows: "To manufacture, buy, distribute, sell, improve, treat. can, bottle of all kinds of juices etc." (see supra); and that what is stated in sub-paragraph (s) of that paragraph 3 (supra) viz. "to lend money to such persons etc." (supra), is an object subordinate to the main object contained in sub-paragraph (a) as aforesaid.
(3) In the light of the above we have to construe a provision, such as sub-paragraph (a) of the proviso to paragraph 2 of the Second Schedule of the statute (supra), bearing in mind the purpose for which it was enacted; the object of a statutory provision being, indeed, a most weighty consideration (see, inter alia, Maxwell on Interpretation of Statutes, 12th ed. pp. 86-96, 113; cf. also, Commissioners of the Ancholme Drainage and Navigation v. T.P. Wedhen (H.M. Inspector of Taxes) [1936] 1 All E.R. 759, at p. 760).
(4)(a) We have also borne duly in mind that if we were to have any doubt about the construction of the aforesaid sub-paragraph (a) of the proviso (supra), we should have preferred, out of two reasonably possible alternative meanings, that which was more favourable to the appellant, because the statutory provision concerned is a taxing provision (see, Inland Revenue Commissioners v. Ross and Coulter [1948] 1 All E.R. 616, at p. 625).
(b) But such provision, viz. paragraph 2 of the Second Schedule to section 34 of the statute (supra), read together with the aforesaid proviso thereto, is in our view clear and is not reasonably capable of alternative meanings; it has introduced reduced taxation of a company's profits where such profits are not "interest, dividends and rents", that is they are not profits derived from sources not involving productive effort, and they are "kept in the company and used for its purposes", in order, obviously, to promote economic growth, through achievement of the main object of the company, concerned. But a loan to a director, as in the present case, definitely does not come within the purview of the provision in question and, therefore, it was rightly not treated as coming within the exemptions created by the said sub-paragraph (a) of the proviso.
Appeal dismissed.
Cases referred to:
Cyprus Wines Co. Ltd. v. The Republic (1965) 3 C.L.R. 345, at p. 350;
Re German Date Coffee Co. [1882] 20 Ch. D. 169, at p. 188;
Bell Houses, Ltd. v. City Wall Properties, Ltd. [1965] 3 All E.R. 427, at p 438; and on appeal in the same case [1966] 2 All E.R. 674, at p. 682;
Commissioners, of the Ancholme Drainage and Navigation v. T.P. Wedhen (H.M. Inspector of Taxes) [19361 1 All E.R. 759, at p. 760;
Inland Revenue Commissioners v. Ross and Coulter [1948] 1 All E.R. 616, at p. 625.
Appeal.
Appeal by Vita-Ora Co. Ltd. against the judgment of a Judge of the Supreme Court of Cyprus (A. LOIZOU, J.) given on the 10th November, 1972 Revisional Jurisdiction Case No. 9/72) whereby their recourse against the validity of the income tax assessment made on them for the year of assessment 1969, was dismissed.
C., Indianos for the appellant.
A. Evangelou, Counsel of the Republic, for the respondents.
The judgment of the Court was delivered by :-
TRIANTAFYLLIDES, P.: Before we proceed to refer to the facts of this case we feel that we should repeat, once again, that in dealing with an income tax case, such as the present one, other similar decided cases which were cited to us can be looked at for guidance only in so far as their outcome is concerned, because the result to be reached on each individual occasion depends entirely on the application of the relevant statutory provisions and principles of law to the particular circumstances of the case before the Court (see, inter alia, Cyprus Wines Co. Ltd. v. The Republic (1965) 3 C.L.R. 345, 350).
As it appears from the judgment of the learned judge of this Court, against which this appeal has been made, we are concerned with the case of a company which disputes its liability to pay income tax, in respect of the year of assessment 1969, on income amounting to £4,492, at the normal rate of 425 mils on every pound, and claims that the said amount should be taxed at the reduced special rate of 250 mils on every pound, on the strength of sub-paragraph (a) of the proviso to paragraph 2 of the Second Schedule to section 34 of our income tax legislation, which has been introduced by means of section 31 of the Income Tax (Amendment) Law, 1969 (Law 60/69).
In order to make possible the application of the said reduced rate, sub-paragraph (a), above, requires that an amount up to £5,000, out of an income not exceeding £7,000, should be transferred to the reserve capital of the company and be kept in the company and used for its purposes.
In 1968-to which the year of assessment 1969 relates-directors of the appellant company drew, by way of loans, an amount of £6,545, which was in excess of the company's profit of £4,492 in that year; the respondent Director of the Department of Inland Revenue took the view, in the circumstances, that the said profit was not used for the purposes of the company and taxed it at the normal rate of 425 mils, instead of at 250 mils, on every pound. The trial judge upheld the validity of the respondent's decision.
As it appears from the material before us one particular director of the company owed to it-as a result of loans advanced to him-£24,162 on the 30th September, 1962, and £30,707 on the corresponding date in 1968; it follows that an amount exceeding the profit of the company in 1968 was lent to one of its directors.
In dealing with this appeal we have had to consider whether the lending of money to a director, in the circumstances of this case, was something amounting to keeping such money in the company and using it for its purposes, in the sense of the aforementioned sub-paragraph (a) of the proviso to paragraph 2 of the Second Schedule. We have been referred to, in this respect, to the appellant company's memorandum of association where one of its objects is described as follows by sub-paragraph (s) of paragraph 3: "To lend money to such persons or companies and on such terms as may seem expedient, and in particular to customers and others, having dealings with the Company".
The memorandum of association has to be construed by us as a whole and general words therein "must be taken in connection with what are shewn by the context to be the dominant or main objects (see, in this connection, Lindley, L.J. in Re German Date Coffee Co. [1882] 20 Ch. D. 169, 188, cited with approval in Bell Houses, Ltd. v. City Wall Properties, Ltd. [1965] 3 All E.R. 427, 438, and, on appeal, in the same case, [1966] 2 All E.R. 674, 682). We are of the view that the main object of the appellant company is to be found in subparagraph (a) of paragraph 3 of the memorandum, which reads as follows ; "To manufacture, buy, distribute, sell, improve, treat, preserve, fine, mineralise, can, bottle of all kinds of juices, concentrated juices, oils liquids of any description whatsoever and to deal with same in any way"; and that what is stated in sub-paragraph (s), above, is an object subordinate to the main object contained in sub-paragraph. (a).
In the light of the above view we have to consider, next, the application of the relevant legislation to the particular circumstances of the present case: We have to construe a provision, such as sub-paragraph. (a) of the proviso to paragraph 2 of the Second Schedule, bearing in mind the purpose for which it was enacted; the object of a statutory provision being, indeed, a most weighty consideration (see, inter alia, Maxwell on Interpretation of Statutes, 12th ed., pp. 86-96, 113).
In Commissioners of the Ancholme Drainage and Navigation v. T.P. Wedhen (H.M. Inspector of Taxes) [1936] 1 All E.R. 759, Lawrence, J. stated in his judgment (at p. 760):-
"The commissioners have held that:
'The decided cases seem to lay down that the words must be looked at in connection with the subject matter of the Act in which the exemption is contained, and also in connection with the context in which it occurs.'
Of course, I quite agree with that as being a principle of the ordinary interpretation of statutes."
We have borne duly in mind that if we were to have any doubt about the construction of the said sub-paragraph (a) of the proviso, we should have preferred, out of two reasonably possible alternative meanings, that which was more favourable to the appellant, because the provision concerned is a taxing provision (see, Inland Revenue Commissioners v. Ross and Coulter [1948] 1 All E.R. 616, 625); but, such provision, viz. paragraph 2, read together with the proviso thereto, is in our view clear and is not reasonably capable of alternative meanings; it has introduced reduced taxation of a company's profits where such profits are not "interest, dividends and rents", that is they are not profits derived from sources not involving productive effort, and they are "kept in the company and used for its purposes", in order, obviously, to promote economic growth, through achievement of the main object of the company concerned. A loan to a director, as in the present case, definitely does not come within the purview of the provision in question and, therefore, it was rightly not treated as coming within the exemption created by sub-paragraph (a) of the proviso.
For these reasons this appeal fails, and has to be dismissed; but we shall not make any order as to the costs.
Appeal dismissed.