R. M. FERNANDO , Appellant, and COMMISSIONER OF INCOME TAX , Respondent

080-NLR-NLR-V-61-R.-M.-FERNANDO-Appellant-and-COMMISSIONER-OF-INCOME-TAX-Respondent.pdf


BASHAYAKE, C.J.—Fernando v. Commissioner of Income Tax313
1959Present: Basnayake, C.J., and de Silva, J.R.M. FERNANDO, Appellant, and COMMISSIONER OF INCOME
TAX, Respondent
S.G. 2—Income. Tax Case Stated BRA f247
Income tax—Ownership of several properties by assesses—Invotne from one of themwtwlly paid by assesses to his son—Assessee’s liability in respect of that income—Case stated—Duties of Board of Review when ’stating a case—Income TaxOrdinance, ss. 73 {3), 74.
The assesaee had the life interest in a coconut estate of which the owner,after the cessation of the life interest, was his son. Early in 1953 he instructedthose in charge that his son would manage the estate and enjoy its producefrom 1st April 1953. Although the son was paid all the income from the estatefor the accounting year ending 31st March 1954, there was no real changein the management- of the estate, which continued to be worked in the sameway as before along with other estates of the assesses. On 23rd September1955 the assesses executed a deed by which he conveyed his life interest to hisson.
Held, that the assessee, and not his son, was assessable in respect of theincome from the estate for the accounting year ending 31st March 1954.
Observations on the functions of the Board of Review when stating a case .under section 74 (2) of the Income Tax Ordinance. The function of the Boardis to set forth fully, with care and attention, the facts mid the decision of theBoard and not to formulate specific questions to be answered by the SupremeCourt. When the Board is divided in its opinion, there is no provision for theexpression of his opinion by a dissenting member.
QaSE stated under section 74 of the Income Tax Ordinance.
H. W. Jayewardem, Q.C., with C. P. Fernando, for Assessee-Appellant.
V. Termekoon, Senior Crown Counsel, with L. B. T. Premaratne, CrownCounsel, for Assessor-Respondent.
Gwr. adv. vtdt.
September 30, 1959. Basnayaxe, C.J.—
This is a case stated under section 74 of the Income Tax Ordinancefor the opinion of this Court. The assessee died after the case was statedand his son, who is the executor of his last will, made an application thathe be substituted for the deceased assessee or added as appellant. . On4th September 1959 we made order permitting the executor to appearby counsel at the hearing of the stated case.
The facts which appear from the stated case and the documentsannexed thereto and made part and parcel thereof are as follows : Theassessee had the life interest in^a coconut estate called MeegahatenneEstate of which the owner after the cessation of the life interest was his.son H. M. A. B. Fernando. Towards the end of 1952 the assessee decidedto give the income from Meegahatenne Estate to his son. The assessee14—TiXT
2J. W. B 21240—1,985 (1/00)
314
BASNAX-AEjE, C.J.—Ji'emando v. Commiasicv-a^ of Income Tax
took him to the estate, which was managed by the asses see. early in1953 and instructed, those in charge that his son would manage theestate and enjoy its produce with afreet from 1st April 1953. Theestate continued to be worked in the same~way as before along withother estates of the assessee. The produce was sold as before to thesame buyers who made their pay men 0.3 to the assesses and the accountswere kept by the assesses in his books. He paid the bids for goodspurchased on account of the estate, in the relevant year, from time totime he paid the profits to his son by cheque aa well as by bank draftwhen his son went abroad.
The Board has found that there was on the facts before them no realchange in the management of the estate although the assessee’s sonvisited the estate. There is no evidence, nor is there any finding by-theBoard, as to the nature of the activities of the assesses’s son in respect ofthe direction and control of the estate. It would appear from theproceedings before the Commissioner of Income Tax which are made apart of the ease stated that the assessee’s son was for a part of therelevant period in England.
The assessor assessed the profits from Meegahatenne at B>s. 19,516 forthe accounting year ending 31st March 1954 and included them in theassessable income of the appellant for the year of assessment 1954-55.
The appellant appealed to the Commissioner of Income Tax againstthe assessment on the ground that he had. in fact paid the income to hisson and that it should be assessed on the son. The Commissioner heldthat the income of Meegahatenne Estate must be assessed on the assesseefor the year of assessment 1954-55, the payments made by the assesseeto his son being regarded as gifts or voluntary allowances made by thefather to the son and as such not allowable as a deduction from theincome of the father. On 23rd September 1955 the assessee executed adeed by which he conveyed his life interest to his son. The assessee hasnot been assessed in respect of the income received from MeegahatenneEstate after that date.
The only question that arises for decision on the facts appearing in thestated case is whether the profits from Meegahatenne Estate amountingto Its. 19,618 for the accounting year ending 31st March 1S54 have beencorrectly included in the assessable income of the assessee for the year ofassessment 1954-55. There can be only one answer to that question andthat is that the assessee was assessable in respect of that income. Weaccordingly confirm the assessment.
Before we part with this case we wish to make a few observationsabout the stated case itself. As an aid to the better appreciation of ourobservations the case stated is reproduced-below :
cc Case Stated
For the opinion of the Honourable the Supreme Court under theprovisions of Section 74 of the Income Tax OrdinanceChap. 183 upon the application of S>. M. Fernando,
Appellant.
BASiTAYA"jE
^ iV ~yme 'F- a-
315
TLe fa.^ts are as follows :—
The appellant assessee was the i&wfal owner of the usufructover e.n eatr/ce ’ailed Maegahatenna the ownei’ship of ’whichwas vested hi thcr appad^nt's sivr E. M. A. d. Fernando.The Assossee was Li possession or she estate at any rate till31st March, I £55.
Towards the end ef '.2X2 the appellant appears tc have decidedto give his son the fioorne from the estate. He took the sonto the estate early in 1953 and instructed the Superintendentand Yisiting Agent that the sen would manage and enjoy theestate as from 1st April 1953. Thereafter the sen hasmanaged the estate and enjoyed the income.
S. There was nc real change in the management of the estate.The produce was sold as before and the accounts of theestate were in the appellant’s books. The appellant madepayments from time to time tc his sen and these paymentswere debited to an account opened for the son in theappellant’s books. The net profits of the year were creditedto this account.
The Assessor assessed the profits from Meegahatenne Estate
at Ss. 19,516 for the accounting year ended 31.3.54 andincluded it in the assessable income of the appellant forthe year of assessment 1954-55.
The appellant appealed to the Commissioner against the
assessment on the ground that the appellant had in fact paidthe income to his son and that it should he assessed on the son.
The Commissioner of Income Tax heard the appeal and gave
his decision rejecting the appeal. The Determination andSeasons of the Commissioner are attached hereto [as part ofthe case marked SI.
The appellant thereupon appealed to the Board of Reviewconstituted under the Income Tax Ordinance on the followinggrounds :—
The decision of the Commissioner is erroneous in point of
law having regard to the facts placed before him.
The Commissioner was wrong in holding that the pro-
visions of section 52 (2) of the Income Tax Ordinancedid net apply in this case.
It is submitted that by reason of the instructions given
by the appellant in the presence of his son in regard tothe management and enjoyment of the estate witheffect from the 1st April 1953, the appellant divested
tc receive the income of the estate,
ms eli Oi tne
so as to confer a right on the son thereto.
310
B ASNAYAKE, C.J.—Fernando v. Commissioner of Income Tax
It is submitted that by reason, of the aforesaid instruc-
tions, the appellant, in any event, constituted himselfa trustee of the income for the benefit of his son, whichincome, he-ixu.fact paid to_his son.
The documents produced by the appellant clearly
establish that the arrangement entered into betweenthe appellant and his son was in fact given effect to.The arrangements should not therefore have beendisregarded—On the production of two of the chequecounterfoils and two of the bank statements theposition was accepted that the son received the entireincome.
The Commissioner was wrong in holding that the
payments by the appellant'to his son must be treatedas gifts or voluntary allowances.
The fact that the accounts of the estate Meegahatenne
continued to be kept in the same set of books as before(separate sets of books being kept for each of theestates of the appellant) does not show that theincome was not his son’s income.
The appellant did not receive this income and was
therefore not liable to Tax in respect of it.
The Counsel for the appellant at the hearing of the appeal
contended inter alia as follows :—
(а)That the assessee has divested himself of his right to
enjoy the usufruct.
(б)That the oral disposal of the income was a valid trans-
action in law.
It was urged on behalf of the Assessor inter alia as follows :—
(а)That there was no alienation of the interest of the
appellant and what was done was mere application ofthe appellant’s income.
(б)That the promise for establishing any interest in land is
of no force or avail unless it is evidenced by a notarialdocument.
The Board of Review by a majority decision dismissed the
appeal of the appellant. A copy of the findings of themajority of the Board and of the dissenting member areattached hereto as part of the case marked X2 and X3.
Dissatisfied with the decision of the Board of Review, the
appellant has by his letter dated 18th December 1956,marked X4, applied to the Board to have a case stated forthe opinion of the Hcn’ble the Supreme Court on the questionsof law Arising in the case and this case is stated accordingly*
BASITAYAk Hi. C.J.—Fernando v. Commissioner of Income Teas317
The questions of law which arise in this appeal as stated by
the appellant in his letter dated 13th December 1956 are asfollows:—
(а)The decision of the Board of Review is contrary to law
and the weight of the evidence led by the appellantbefore the Commissioner.
(б)Whether or not the agreement entered into between the
appellant and his son 5. M. A. B. Fernando was avalid contract under the Roman Dutch Law and assuch was enforceable in a Court of Law by the saidH. M. A. B. Fernando.
Even if the arrangement referred to in para (6) is
unenforceable by reason of its being contrary to theprovisions of Ordinance No. 7 of 1840, is the Assessorentitled to disregard the said disposition withoutshowing that the said disposition was artificial orfictitious or was not in fact given effect to.
Whether the income or profit accruing from the said
estate, which was in fact received and enjoyed by thesaid H. M. A. B. Fernando, was ‘ income * or * profit *which was derived by the appellant or arose or accruedto the benefit of the appellant within the meaning ofSection 11 (1) of the Income Tax Ordinance (Cap. 188).
Whether or not the liability to be taxed depends on the
actual receipt of income or profit and not merely onthe existence of possible sources of income.
Documents A1 to A7 and R1 produced before the Commissioner
and XI to X4 are annexed as part of this case.
The amount of tax in dispute is Rs. 16,588 * ©0.
Sgd. S. J. C. Schokman„ R. R. Selvadurai
Members^ of the Board of Review-Income Tax.
1.
2.
3.
Colombo 1, April 30. 1957
The stated case does not in our view satisfy the requirements ofsection 74 (2) of the Income Tax Ordinance. That provision requiresthat the stated case shall set forth the facts, the decision of the Board,and the amount of tax in dispute where such amount exceeds five
-2*J. X. B 21246 (1/60)
318
BAS2JAYAKB, C.J.—Fernando v. Commissioner of Income Taco
thousand rupees. In the context of section 74 (2) the expression “ setforth ” means to state fully in the document which is entitled the “ CaseStated ” and delivered to the party requiring it.
—What" the Board "has done in the instant case is to place before thisCourt all the material that was placed before the Board and theCommissioner and invite it to decide a number of questions contained inthe application of the assessee. –
No attempt has been made to set forth fully in the case stated thefacts found by the Board. All- the proceedings commencing with theproceedings before the Commissioner, with the documents that wereproduced before him, have been indiscriminately incorporated byreference and declared to be part and parcel of the stated case, and thetask of ascertaining the facts from the documents annexed is left to us.The case stated has not been drafted with that care and attention thatshould be given to a case stated for the opinion of this-Court. Paragraph 2is inconsistent with paragraph 3. In the former it is stated that “ there-afterthe son has managed the estate and enjoyed the income/’ In thelatter it is stated ‘‘'there was no real change in the management of theestate. The produce, was sold as before and the accounts of the estatewere in the appellant’s hooks. The appellant made payments from timeto time tohis son and these payments were debited to an aecount openedfor the son in the appellant’s books. The net profits of the year werecredited to this account.”
The function of the Board under the statute is to state as fully as canbe done in the document entitled “ Case Stated ” in serially numberedparagraphs in ordered sequence the facts on which arise the questions oflaw this Court has to decide. It is wrong to submit to this Court awhole bundle of documents, as has been done in this case, and expect itto wade through them and ascertain the facts which have found acceptancewith the Board. The present practice of indiscriminately incorporatingby reference, every document that has been placed before the Boardshould be 'discontinued… There should be incorporated in the stated caseall the relevant facts contained in each material document quotingverbatim extracts only when it is necessary to do so. In a case where thequestion arising on the case is the interpretation of a document thedocument itself should be a part of the case. The Board must takeresponsibility for the statements in the case and statements such as thosecontained in paragraph 12 are open to serious objection. It is not forthe appellant to state the questions of law arising on a case stated..Apart from that the course adopted by tbe Board in repeating thosequestions without discrimination shows that the Board did not exertitself even to consider whether they were such as may be appropriatelyreproduced in the case stated.That the decision of the Board of Review
is contrary to law and the weight of evidence led by the appellant beforethe nemmissrirmer is not a question of law arising on the case stated forthe decision of this Court and we are surprised that such a statementshould have found a place in it.
The Board should also not state abstract questions of law for the■opinion of this Court. Tor instance question (o) in paragraph 12, whetheror not the agreement entered into between the appellant and his son
BAS2TATABZB, C. J.-t—Fernando v. Commissioner of Income Tate
319
H. M. A. B. Fernando was a valid contract under the Roman Dutch Lawand as such was enforceable in a Court of Law by the said H. M. A. B.Fernando is of academic interest only.
The Board should also not state hypothetical questions for the opinionof this Court. For example question (c) in paragraph 12 which reads“ Even if the arrangement referred to in para (6) is unenforceable byreason of its being contrary to the provisions of Ordinance No. 7 of 1840,is the Assessor entitled to disregard the said disposition without showingthat the said disposition was artificial or fictitious or was not in factgiven effect to ” should not have been stated.
The statute does not require the Board to formulate in eatechistieform the questions which this Court has to decide. Sub-section (5) ofsection 74 requires the Court to hear and determine any questions of lawarising on the stated case and not any question or questions formulatedby the Board. The function of the Board is to set forth the facts and thedecision of the Board and not to formulate as it has done in this casespecific questions to be answered by this Court. The present practice islikely to result in a party being stated out of Court.
in the instant case the Board was divided and the opinion of themajority was that the assessee had been rightly assessed. The dissentingmember also expressed his opinion in writing. There is no provision forthe expression of his opinion by a dissenting member.There can be only
one opinion remitted with the case under section 73 (8) to theCommissioner and that is the opinion of the majority where there is adivision of opinion. In this instance even the dissenting -opinion isincorporated as a part of the case stated, for what purpose it is not clear.
This is not the first time that a stated case of this nature has come upbefore this Court and we have thought it necessary to point out thedefects in this case in order that care will be shown in the statement of acase- for the .opinion of this Court and a document such as has beensubmitted in this case will not be transmitted to it hereafter.
The responsibility for stating a case is vested by the statute in theBoard of Review and although the statute provides for the appointmentof a clerk and a legal adviser to the Board it cannot delegate its functionsto either of them. Though in the performance of its statutory duly itmay make use of its ministerial officers the ultimate responsibility for thedue and proper performance of its duty rests with the Board and theBoard alone. If it is the practice to leave the preparation of the caseentirely to one of its ministerial officers and for the Board merely to signthe case as stated by such officer that practice is not warranted by lawand must cease forthwith.
The assessee will pay the costs of the hearing of the case stated.
Djb Silva, J.—I agree.
Appeal dismissed.