002-NLR-NLR-V-58-THE-COMMISSIONER-OF-INCOME-TAX-Appellant-and-J.-L.-D.-PEIRIS-Respondent.pdf
OnATT.VEX. *T. — Oonnnis-*iourr t*f Income 'Tax ?*, Petri-*
1956Present :Gratiaen, J., and Gunasekara, J.THE COMMISSIONER. OF INCOME TAX, Appellant, ami J. T,. D.PETRIS, Respondent
Ft. C. 27—Case slated under Section 74 of the- Income Tax Ordinance.
(Cap. 1SS)
Jtieonir tax—Death of person carrying on a business—Computation of statutory income
—Ceases to carry on a business ”—Jnroinc ’J'ax Or-linuacr (Cap. JS.<).
•I (/). 11 (/)- 11 («)- It (■>), 11 (10).
Win'll a person who esirries on :i business dies, if cannot he saiil ilinl. uponliis iloilli, he ceases to carry on or exercise a l-rade, Imsiness. jirofession orvuealion in C'evlon within the meaning ot section 11 (C) of the Income TaxOrdiiianeo. Therefore, paragraph (b) oT section It ((>) does not apply For thepurposes of computing the statutory income of the deceased for the year ofassessment preceding that in which he died.
V^ASE stated under section 7+ of the Tne-ome 'Pax Ordinance.
J1T. TirnclicTcatn, Deputy Solicitor-General, with A. Alahr- ndrarajah -Crown Counsel, and 7?. S. Wana.-niudem-, Crown Counsel, for the appellant •
II. T Perera, Q.C.. with S. J. Kadi rga mar and -John de Sara in. Tor therespondent.
Cur. adv. mil.
March 2, 1950. Gratia ex. J.—
This is a ease stated under the pro visions of section 14 of the IncomeTax Ordinance (Cap. 1SS). Mrs. Nancy Charlotte Peiris (hereaftercalled “ the deceased ”) died on October 23rd 1951. One of her sourcesof taxable income had been her agricultural business. It was commonground between the taxing authority and her Executor that her statu-tory income for the year of assessment in which she died should, in respectof alt her sources of income, be computed under section 11 (9) of theOrdinance. There was disagreement, however. as to how Iter statutoryincome for the preceding year should be ascertained. The AssistantC'ommissionci decided that the income derived from agricultural businessduring that year must be computed under paragraph (b) of se-tion II (G)because she had “ ceased ”, by reason of her death, to carry on thisbusiness. Upon appeal, the Commissioner confirmed the assessmenton this basis, but the Board of Review ruled in favour of the executorthat section 11 (6) (b) applied only to “ a cessation ot business by a livingperson It is common ground that the deceased’s income from othersources must be computed under section 11 (1).
The questions of law submitted for the opinion of this Court at (heinstance of the Commissioner arc in the following terms :
” On the facts as submitted between the parties, did 3Its. X. C. Peiris,upon her death oil 23.10.51, cease to carry on or exercise a trade orbusiness, profession or vocation in Ceylon within the meaning of section
11 (6) of the Income Tax Ordinance (Cap. 18S) ? " If so, does paragraph
of section 11 ^6) of the said Ordinance apply for the purposes ofcomputing the statutory income of Mrs. Peiris for the year ofassessment preceding that in -which slie died 1 ”
Tlio admitted facts -which are relevant to ouv decision are that the deceasedhad continued to carry on an agricultural “ business ” within the meaningof the Ordinance until the date of her death. She had also derived incomefrom this and other taxable sources during tho year of assessment in -whichshe died, viz. 1951/1952 and also during the preceding year 1950/1951.The amount of tax in dispute is Rs. 175,956-66.
The scheme of taxation laid down by the Ordinance appears in sections5 (1), 11 (1), 11 (6) and 11 (9j. Their provisions are to the followingeffect:•
Section 5 (I) .- “ Income tax shall, subject to the provisions' of thisOrdinance .-.. .be charged …. for each subsequent
j-ear of assessment {i.e. after the year commencing on 1st April1932) in respect of the profits and income of every person for theyear preceding the year of assessment …. but xoithout'prejudice to any of the provisions of this Ordinance which enactthat tax is to be charged in particular cases in respect of the profitsand income of a period other than the year preceding the year ofassessment.”
Section 11 (1) : “ Save as provided in this section, the statutory incomeof every person for each yeai- of assessment from each source ofhis profits and income (the sources of income are enumerated insection 6) …. shall be the full amount of the profits and
income which was derived by him or arose or. accrued to hisbenefit from such source during the year preceding the year ofassessment, notwithstanding that he may have ceased to possesssuch source or that such source may have ceased to produceincome. ”. .
Section 11 (5); “Where a person resident or non-resident ceases to carryon or exercise a trade, business, profession, vocation or employment(these are included in the sources of income enumerated insection 6) in Ceylon or, being resident elsewhere, his statutoryincome therefrom shall be :■■ •…
as regards the year of assessment in which the cessation
occurs, the amounts of the profits of the period beginning.on the 1st day of April in that year and ending on the* date of cessation ; and'-
as regards the year of assessment preceding that in which
the cessation occurs, the amount of the statutory incomeas computed in accordance with the foregoing sub-sectionsor the amount of the profits of such' ye a r, whichever is. the-greater,'f..
and he shall not be deemed to derive statutory income from suchtrade, business', vocation or employment for the year followingthat in which the cessation occurs.” (There follows a proviso• which has no bearing in the present context.) "'
Section 11 (0) : “ Where any person dies on a day within a year ofassessment, his statutory income for such year shall be theamount of profits and Income of the period beginning on the 1stday of April in the year, and ending on that day.”
(Section 11 (10) provides for the ascertainment of the statutory incomeof the executor of a deceased pex-son as regards the year in whichthe death occurs and also as regards subsequent years ofassessment.)
Section 5 (1) provides that, as a general rule, a tax is imposed for eachyear of assessment in respect of the profits and income for the precedingyear. This general rule is without prejudice to any provisions of theOrdinance which enact that tax is to be charged in particular cases inrespect of the profits and income of a period other than the year precedingthe year of assessment. ” Section 11 (1), appearing in the chapter dealingwith the ascertainment of statutory income for any particular year, is tothe same effect. It therefore follows that unless any special exceptionsin other parts of section 11 are found to be applicable to the facts of thepresent case, the deceased’s statutory income (including that derivedfrom agriculture) for the year 1951/1952 would be the aggregate of hernett income from these sources during 1950/1951. Similarly, her statu-tory income from all sources for 1950/1951 would be the aggregate of hernett income during 1919/1950.
Section 11 (6) introduces a limited exception to the general scheme oftaxation laid down in sections 5 (1) and 11 (1). When a person has“ ceased ” to carry on or exercise a trade, profession, vocation or employ-ment, two consequences follow. His statutory income from that parti-cular source for the year of assessment in which the cessation occurred andfor the preceding year must be computed as prescribed in section 11 (6).It will be observed, however, that for each of these years the assessee’sstatutory income from every other source must continue to be computedas prescribed by section 11 (1). Moreover, it is clear that when a cessationoccurs, section 11 (6) is intended to be brought into operation simulta-neously in respect of both years of assessment : it is therefore not per-missible to apply the exception in respect of one year but not of the other.Paragraphs (a) and (5) of section 11 (6) are therefore interconnected partsof a single proviso, and not separate and distinct exceptions.
Section 11 (9) introduces yet another exception to the general scheme.It enacts that, when any person dies, the whole of his statutory income(i.e. from every taxable source) for that particular year shall not- becomputed under section 11 (1) but by reference to the actual aggregate.of income and profits accruing up to the date of death. The deceased’sstatutory income for 1951/1952 was therefore properly computed undersection 11 (9) and not under either section 11 (1) or paragraph y/) ofsection 11 (G).-"..
]Sfo special provision is made in section 11 (9) for the computation of aperson’s statutory income for the year of assessment preceding tho yearin which lie died. Unless, therefore, section I I (6) can properly be applied
partially to such a situation, the assessment must be "made in accordanceivith the general scheme for computation laid down by section 11 (1).'rii ic ms the view taken bv the Board of Review.
The argument in support of the applicability of paragraph (6) of section11 (6> to a case of cessation by reason of death must now be examined. Itis contended that, as far as the deceased’s agricidtural business was con-cerned, she “ ceased ” to carry it on by reason of her death. I do notdispute the proposition that a person “ camiot vacate an 'office betterthan by djing in it ”. per Rowlatt J in Hunter v. DewJnirst *. .Ncr do Ideny that in the context of certain taxing statutes the words “ where aperson ceases to hold an office ” may be sufficientlj’- general to covercessation by death as well as by resignation or dismissal. Allan v.Trehearne 3. But the problem cannot be solved merely by ascertaining allthe possible meanings of particular words appearing in a taxing statute.They must be construed in the context of the entire scheme of taxationprescribed in the enactment.
In my opinion, section 11 (9) provides a comprehensive exception to thegeneral scheme for ascertaining a deceased person’s statutory income,and, apart from the special provision in respect of the year of assessmentin which the death occurred, the income (from whatsoever source) of allpreceding years must be computed under the general section 11 (1). Iagree with the Board of Review that section II (6) is intended only todeal with cases where an assesses does not cease to be “ a person ” whenhe ceases to carry on his trade, business, profession or vocation. Section11 (6) appears to me to contemplate a person who, at the moment ofcessation, continues to have a place of “ residence ” (either in Ceylon orelsewhere) and continues to be a potential income-earner liable to furthertaxation under the Ordinance.
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“ cessation ” by death. Even on that assumption, section 11 (9) isclearly an exception to paragraph (a) cf section 11 (6) because it providesfor a special computation of the deceased’s entire income during that yearof assessment, and not merely of his income from one particular source.Ifj therefore, paragraph (a)'of section 11 (6) does not apply in respect ofthe year in which the death occurred, paragraph (b) of section 11 (6) mustalso be ruled out as far as the preceding year is concerned.
The present dispute relates to the assessment for 1950/1931. Undersection 5 (1), which is the general charging section, the tax is payable(as the executor contends) “ in respect of the deceased’s profits and incomefor the year preceding the year of assessment ”, and her statutory incomemust be computed under section 11 (1) in the absence of any clear provi-sion to the contrary. In my opinion, the questions' of law submittedfor the opinion of tins Court must be answered in favour of the executor,and I would award him the costs of these proceedings.
G cxasekaea, J.—I agree.*( 1930) 16 T. C. 615 at 633.
Appeal dismissed,(193-S) 2 IC. B. 464 at 473.