154-NLR-NLR-V-55-COMMISSIONER-OF-INCOME-TAX-Appellant-and-CHETTINAD-CORPORATION-LTD.-Resp.pdf
ilV J.—Commissioner of Income Tax v. Chettinad Corporation Ltd. 553
1954Present: Gratiaen 3. and Gunasekara J.COMMISSIONER OF INCOME TAX, Appellant, and CHETTINADCORPORATION, LTD., Respondent
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S. C. 458—Case Stated for the Opinion of the Supreme Court under theprovisions of the Income Tax Ordinance {Gap. 188)
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Excess profits duly—Partnership—Inability of each partner—Procedure for assessment
—Excess Profits Duty Ordinance, No. 38 of 1941, ss. 12,(1) (2), 14 (1), 19—• Income Tax Ordinance, ss. 29, 64—67, 68 (2) (b), 76 (1).
Under section 12 (2), read with section 19, of the Excess Profits Duty Ordi-nance excess profits duty may be assessed on any partnership. And undersection 12 (1) the procedure for assessment and notice of assessment is analogousto that which is prescribed by sections 64 to 67 of the Income Tax Ordinance.
Section 76 (1) of the Income Tax Ordinance, which, by virtue of section 14 (1)of the Excess Profits Duty Ordinance, is applicable “ as far as may be ” to thepayment and recovery ^f excess profits duty, imposes a liability on each partnerto pay,*in tdrmh of the notice served upon him, the total amount of the dutydue from the partnership.
(^ASE stated under section 74 (1) of the Income Tax Ordinance.
Walter Jayawardene, Crown Counsel, with J. W. Subasinghe, CrownCounsel, for the Commissioner of Income Tax, appellant.
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S. Nadesan, with S. Ambalavanar, for the assessee respondent.
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March 22, 1954. Gbatiaen J.—
Cur. adv. vult.
This is a case stated by the Board of Review for the opinion of theSupreme Court on the application of the Commissioner of Income Tax.Broadly stated, the dispute is as to whether the Chettinad Corporation,Ltd. (hereafter referred to as “ the respondent ”) is entitled to escapeliability to pay the full amount of duty assessed under the ExcessProfits Duty Ordinance, No. 38 of 1941 (as amended by OrdinancesNos. 6 of 1942, 39 of 1942 and 39 of 1944), on the “ excess profits ” of arubber business carried on during four accounting periods between 15thApril, 1943, and 31st December, 1946.
It is common ground that, under two agreements, dated 15th April,1943, and 14th November, 1945, the Lomond Rubber Mills Ltd. ofKelaniya carried on “ the business of buying raw rubber, manufacturingrubber and selling,the manufactured product” during the relevant
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654 GRATIAJSTST J. —Commissioner of Income Tax v. Chettinad Coloration Ltd.
accounting periods; and this business was “managed and financed’1by the respondent upon certain terms which provided that th^espondentshould receive inter alia from the Lomond Rubber Mills Ltd. a shareof the profits.
The Assessor took the view that these agreements constituted apartnership or joint venture between the respondent and the LomondRubber Mills Ltd., and four notices (A8 to All ) were served on therespondent requiring it, in respect of each accounting period, to pay thefull amount of excess profits duty computed under the Ordinance.^ Therespondent appealed to the Commissioner, and the only ground on whichthe assessments were challenged in those proceedings was that 'therespondent denied that it held a partnership interest in the business ; theargument was that the contractual arrangement for a division of theprofits should be construed as stipulating only for payments to therespondent of something equivalent to “ interest ” under a money-lending transaction. The Commissioner rejected this argument andupheld the assessments. He also recorded an admission made on behalfof the respondent that ‘‘If it is held that there is a partnership, then theassessments on the figures as now agreed must stand ”.'‘*
An appeal was preferred to the Board of Review against the Commis-sioner’s determination, and once again the principal argument was thatthe agreements dated 15th April, 1943, and 14th November, 1945,did not constitute a partnership. On this issue the Board reversed theCommissioner’s decision and held that no partnership had been established,so that the assessments would have had to be annulled on this groundalone. But the Board also proceeded to consider the respondent’sfurther objection {which was inconsistent with its position taken upduring the earlier appeal before the Commissioner) in the followingterms :
“ Even if the agreements constituted a joint venture, the assess-ments could not have been made on us only as we were pot the personsolely owning or carrying on the business, and the assessments aretherefore invalid and of no force or avail in law.”
The respondent admittedly placed no material before the Board (apartfrom .the actual notices of assessment A8 to All) to enable them todetermine this issue. The decision of the Chairman, with whom theother members of the Board agreed, was as follows :
“ The second issue is whether, if a partnership has been proved', theclaim is still bad because the assessment notice is invalid. I will notdiscuss this at length, but hold that it is invalid because it is not anassessment of a partnership of Lomond Company and the ChettinadCorporation. It is an assessment of the Chettinad Corporation.
It seems to me far from reasonable that the appellant (corporation)should be made liable to pay on the whole of the profits when he
GRATIApN JT.—Commissioner of Income Tar v. Ghettinad Corpo ation L'd. 555
receives only half the profits and when he has already depositedE. P. D. on that behalf. My colleagues agree to allow thisappeal.**
The assessments were accordingly annulled by the Board on bothgrounds. The Commissioner thereupon applied for a case stated undersection? 74 (1) of the Income Tax Ordinance (which also applies to theExcess Profits Duty Ordinance) on the following questions of law :
“ (a) whether the determination of the Board that there was nopartnership between the Chettinad Corporation, Ltd. and theLomond Rubber Mills Ltd. is correct;*
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(6) whether the determination of the Board that there has not beenan assessment of the said partnership is correct ”.
These two questions were duly submitted for the opinion of this Court)except that the second question has been amended by the Board by theinsertion of the words “ nor due notice of such assessment ” betweenthe words “ partnership ” and “ is correct”.’
With regard to the issue whether the agreements between the re-spondent and the Lomond Rubber Mills Ltd. constituted a partnershipbetween them, Mr. Nadesan informed us at the outset that he wasunable to support the decision of the Board. He agreed that thevalidity of the respondent’s claim to exemption from duty on the excessprofits of the business should be determined by us solely by referenceto the second question of law submitted for our opinion, and on theassumption that the profits of the business during the relevant periodswere in fact# and in law the profits of a partnership. It is thereforenecessary only to consider whether the Board correctly decided that“ there has not been an assessment of the partnership ”. In my opinionthis question should be answered in favour of the Commissioner.
It is important to avoid confusion between the requirements containedin the relevant revenu? enactments as to “an assessment ” on the onehand and “ a notice of assessment ” on the other.
Secti9n 12 (1) of the Excess Profits Duty Ordinance makes the provi-sions of Chapter 10 of the Income Tax Ordinance applicable “ as far asmay be ” to the assessment of excess profits duty, and section 12 (2)declares that “ the duty may be assessed on any person for the timebeing owning or carrying on a business ”. Section 19 provides that inthis context “ any person ” must be interpreted so as to include “ anypartnership ’i. For purposes of income tax, by way of contrast, partner-ships are expressly excluded from the statutory definition of the terms“ person ” and “ body of persons ” in the Income Tax Ordinance : theprinciple of the scheme of taxation under that Ordinance, in respect ofincome derived from a partnership business is that edeh individualpartner is liable tp be assessed only in respect of his own share of theprofits (section 29).
656 GRATIAEN J.—Commissioner of Income Tax v. Chettinad Gorporationn Ltd.
Section 64 of the Income Tax Ordinance empowers an Assessor toassess every “person” (as defined in that Ordinance) who is in hisopinion chargeable with income tax. The assessment so gJrepared bythe Assessor is then scrutinised and either approved or amended by anAssistant Commissioner, who in due course signs the assessment if he issatisfied that, in its final form, it charges the person to whom it relateswith the full tax with which he ought to be charged (section 66)/ Even-tually, section 67 empowers the Assistant Commissioner to issue a noticeof assessment “ to each person who has been assessed stating the amountof income assessed and the amount of tax charged”. The distinction'between an “ assessment ” and a “ notice of assessment ” is thus madeclear : the former is the departmental computation of the amount ofctaxwith which a particular assessee is considered to be chargeable, and thelatter is the formal intimation to him of the fact that such an assessmenthas been made. Section 68 (2) (6), for instance, declares that “ anassessment shall not be impeached or affected by reason of any variationbetween the assessment and the notice t hereof”.
The analogous procedure which ought to be followed by the taxingauthorities in a case where excess profits duty is chargeable on the profitsof a .business carried on by two or more persons in partnership‘must nowbe examined. The Assessor should prepare an assessment of duty on thepartnership under section 12 (2) of the Excess Profits Duty Ordinance;this assessment must then be scrutinised and signed (after amendment,if necessary) by an Assistant Commissioner under section 66 of theIncome Tax Ordinance ; and thereafter, the Assistant Commissionermust issue to each partner a notice of assessment under section 67. Oncethis has been done, section 14 (1) of the Excess Profits Duty Ordinancemakes the provisions of section 76 (1) of the Income Tax Ordinanceapplicable “ as far as may be ” to the payment and recovery of excessprofits duty. In consequence, each partner is liable to pay the totalamount of duty claimed in terms of the notice served upon him, and, inthe event of non-payment, he becomes a defaulter to the full extent(and not merely of a proportionate share). It will be observed that,whereas section 76 (1) operates only in exceptional easels in the contextof liability to income tax, it enjoys a very much wider scope when excessprofits duty is levied on partnership profits. (In the latter case, anindividual partner may lawfully be called upon to discharge the wholeof the partnership liability, and, if he has done so, he would generallyhave an independent claim for contribution from the other partners.)
In this case, the respondent had not raised any objection to the formof the notices of assessment served on it in respect of the relevantaccounting periods. The Board of Review had therefore no jurisdictionto quash the assessments merely because, in their opinio^, the noticesthereof were lacking in validity. That matter was not in issue before theBoard at all. Indeed, Mr. Nadesan cpneedes that the objection whichwas intended to be taken was confined to an attack on the assessmentsthemselves ; the notices, he explained, were relied on only as evidence toestablish that the assessments were bad in law. Incmy opinion, there-fore, the decision of the Board is vitiated by misdirection, and mnst be
GRATIi-EN' J.—Commissioner aj Income Tan v. Chettinad Corporation Ltd. 557
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set aside unless we are satisfied that, if the respondent’s real objectionhad been properly appreciated, the same conclusion should necessarilyhave been Reached by a different process of reasoning.
Mr. Nadesan’s argument is that the language of the notices of assess-ment A8 to All which were served on the respondent contains primafacie evidence that the assessments themselves had been made on therespondent alone, and not (as they should have been) on the partnership,i.e., on the respondent as well as Lomond Rubber Mills Ltd., who jointlyowned the business. I cannot agree. Each notice specifically statesthat she business on whose excess profits the department was claimingduty was the respondent’s joint venture with Lomond Rubber MillsLtd.”, and the form of each notice sufficiently complies (as far as therespondent was concerned) with the requirements of section 67 (1) of theIncome Tax Ordinance. Similarly, the fact that in each case paymentwas demanded from the appellant to the total amount of duty chargeableon the excess profits of the “ joint venture ” is justified and explainedby the circumstance that section 76 (1) imposed an obligation on eachpartner to pay the full amount.j • *s•
A claim that an individual partner should (as required by law) dis-charge the entirety of a partnership liability in respect of excess profitsduty does not carry the implication that the departmental assessmentshad been made on him alone. Indeed, the admission made on behalf ofthe respondent at the proceedings before the Commissioner “that theassessments must stand ” if a partnership was established militatesagainst the inference which Mr. Nadesan now invites us to draw from thelanguage of the notices of assessment..■
In my opinion, the respondent has not discharged the onus of provingthat the assessments were invalid or of no force or avail in law, andthere was no evidence on which the Roard could reasonably havedecided that the assessments made under section 12 (2) of the ExcessProfits Duty £fgdinance were made only on the respondent and not on thepartnership. I would therefore decide, as a matter of law, that. theSecond question submitted for the Opinion of this Court should beanswered in favour of the Commissioner. The determination of theCommissioner dated 28th February, 1951, confirming the assessments (onthe basis of the figures agreed to) must accordingly be restored. Therespondent must pay the Commissioner’s costs of appeal, and also a Sumof Rs. 50 representing the fee delivered to the Clerk of the Board ofReview under section 74 (1) of the Ordinance.
Gurrasekaba J.—I agree.
Appeal allowed.
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