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IN THE SUPREME COURT OF FIJI
COMMISSIONER OF INLAND REVENUE
v.
MORRIS, HEDSTROM LTD.
p>
[Appellate Jurisdiction (Young, C.J.) December 3, 1937.]
Inci>Income Tax - Income earned in or derived from the Colony of Fiji - Income Tax Ordinance, 1921&#i>ss. 3(1)i> and .
Th
The respondentndent company was registered in the Colony of Fiji and had its head office in the Colony. The company's profits resulting from oions nga, and Sand San Francisco, and brought to account iunt in Fijn Fiji were assessed as taxable income. The Company appealed to the Court of Review where its contention that the income was not taxable was upheld. From this decision the Commissioner of Inland Revenue appealed to the Supreme Court.
HELD.-Affirming the decision of the Court of Review, that profits resulting from operations overseas are not included in the term "income earned in or derived from the Colony".
[EDITORIAL NOTE.-The point of interpretation here decided involves consideration of ss. 3(1) and 11(3) ofIncome Tax Ordi Ordinance 1921. The wording of these sections so far as it is relevant to the issue was the same as ss. 3(1) and 11(4) respectively of the Incom Ordi (Cap. 152) (Revised Edition Vol. II pp. 1652 and2 and 1659 1659) as originally printed - i.e. with amendments up to but not including the amendment of 1945. The amendment of 1945 renders the decision of historical interest only as regards Fiji (see s. 3A (c) and (d) and ss. 11, 11A and 12 of the Income Tax Ordinance as amended by the Income Tax (Amendment) Ordinance, 1945). The decision does however appear to be applicable to the interpretation of the Income Tax Ordinance, 1941 of the Gilbert and Ellice Islands Colony.]
Cases referred to:-
(1) Commissioneraxation v. K v. Kirk [1900] 588.
(2) 0;San Paulo (Bian) Ran) Railway Co. v. Carter [1896] A.C. v. 3I; 65 LB. 161; 73 L.T. 538; 12 T.L.R. 107; 28 Dig. 27.
.
(5) Re Auran Mills Ltd.  [1921] I.L. B 1286Dig. Dig. ND.)
(6) Loxdale #160;<] Eng/a>;&(1758) [1758] EngR 46; 97 E.R. 394.
APPEAL from the decision of the Court of Review under the Income Tax Ordinance, 1921. The facts are fully, set out in the judgment.
H. M. Scott, K.C., for the appellant.
R. Crompton, K.C., for the respondent.
YOUNG, C.J.-This is an appeal under s. 30 of Ordinance No. 1 of 1921 (The Income Tax Ordinance 1921) from a decision of the Court of Review dated the 20th May, 1927.
The following are stated in the notice of motion to be the grounds of appeal.
(1) That the deci#160;of the Court of. Rof. Review is contrary to law inasmuch, as. the profits of the respondent company for the year ended 31st March, 1926 comprising:-
(a) Tongan profits ;ټ < n&##10;& ҈ ټ &<;< ټ<&##160;;䃨&##160;; £17,839;&##160;3 #160;   1
(b > (c) Div) Dividend from Wolfe Kirchman & & Co.; Co.  ـ &##60;&<ل҈1060;10;  > are >are incomincomincome within the meaning of the Income Tame Tax Ordinance 1921 and are earned in or derived in or from the Colony
oi.
The respondent company is a company registered in the Colony of Fiji, having its head office in the Colony, and being entirely manand
clled from Fiji. The learned counsel for thor the appe appellant submitted at the conclusion of his argument on the three following propositions: (1) The respondent company's profits resulting from operations in Tonga Samoa and San Francisco are income within the meaning of the
words "earned in the Colony" occurring in s. 11(3) of Ordinance No. 1 of 1921, in as much as those profits are the result of the
company carrying on its trade in Fiji. (2) To construe the section otherwise means freeing of companies from a tax which individuals must pay and this is not the intention
of the legislature and the Court would not so hold unless the language of the section is clear and express. (3) In any case the word income in s. 11(3) carries the extended meaning given by s. 3(1) which is not subject to the context but
absolute in form. I will deal with his last submission first, namely that the word "income" occurring in s. 11(3) of Ordinance No. 1 of 1921 should
be interpreted in accordwith the definition given in s. 3(1) of the Ordinance. This This definition is of very comprehensive and
sweeping nature; inter alia, it includes the annual net profits from trade or commercial or financial or other business or calling
or otherwise howsoever directly or indirectly received by a person from any trade or business or otherwise howsoever whether derived
from sources within the Colony or elsewhere and also includes the interest, dividends or profits directly or indirectly received
from money at interest upon any security or other investment. S. 11(3) is the section of the Ordinance under which corporations and joint stock companies are annually assessed at the rate of five
per centum on all income "earned in or derived in or from the Colony". This section therefore is a special section dealing with a particular subject namely the assessment of corporations and joint stock
companies. The definition of income is for the purposes of the Ordinance general and although there are no such words as "unless the context
otherwise requires" qualifying this definition, to enable the definition to be read into s. 11(3) so as to render the section intelligible
the words "earned in or derived in or from the Colony" would require to be jettisoned, since they are inconsistent with and repugnant
to the terms of the definition and cannot be read and construed therewith. By inserting these words after the word "income" the legislature
clearly intended that they should be effective otherwise the sentence might well have stopped with the word "income". Again the definition
of "income" refers to profits from trade etc. received by a "person" and although person includes a body corporate, yet it would
appear to me that if the legislature had intended the definition of the word income to be read into the section, it would have used
the word "person" as in s. 16(1) of the Ordinance and not the words "corporations and joint stock companies". To construe the section
as submitted would, in my opinion, be a violation of one of the cardinal principles of the interpretation of statutes, regarding
as I do the provisions of s. 11(3) to be special provisions, and that being so, cases falling within the terms of this section are
to be read as excepted out of the general. For these reasons I am not prepared to construe the section as it is submitted it should be, and reject this proposition. I now come to the first and second submissions. I do not regard the second submission, namely that to construe the section otherwise
than to tax the profits resulting from operations carried on in Tonga, Samoa and San Francisco would mean freeing companies from
a tax which individual's have to pay, as being a reason per se whpanies should pay tax on x on such profits, but rather as a reason in support of the first submission namely that, inasmuch the
profits are the result of a tradried Fiji, these profits are earned in Fiji. I shall hall theretherefore deal with these two submissions
together, treating the second as being subsidiary or ancillary to the, first submission. I now proceed to examine this argument.
I do not think that there is any doubt as to the ordinary or primary meaning of the words "earned in", that is to say, the country
in which the income or profits are actually and physically earned and derived. S. 27(3) of the Land and Income Tax Assessment Act
of New South Wales provides that "no tax shall be payable in respect of income earned outside the Colony of New South Wales", see
Commissioners oftion v. n v. Kirk, L.R. A.C. 1900 at p. 591. In this case the income so far as it related to the extraction of oil from the and the conversion of crude
oil into a merchantable product was held to be income earned ined in the Colony, and also in the case of the San Paulo (Brazilianlwayilway Co. v. Carter L.R. 1896 p. 31. The expresxpression "earned" in is used in its every day meaning, see Lord Davey in Kirk's case at p. 594 wh says "it "it would have been difficult to say in thae (i.e. the San Paun Paulo Railway case). that the profits or income were not to some extent, at, any rate, earned izil". I only refer tfer to theo the expressions "earned outside" or "earned in" used in the New South Wales Act and the cases mentioned
to shat they were used in their heir ordinary grammatical sense, viz., to distinguish between the profits earned in one country from
in another, and that no technical or larger meaning was given to them. It therefore follows that before an enlarged meaning may be
properly attached to such words the intention to do so must be clearly gathered from the terms of the Ordinance itself. Counsel has cited the judgment of Lord Blackburn in the case of Coltness Iron Company v. Black, 6 A.C. at, p. 330 to the effect that the object of those framing a Taxing Act is to grant to His Majesty revenue, and when any enactments
for the purpon bear two interpretations, it is reasonable to put that coat construction on them which will produce these effects.
The passage cited reads as follows:- "No tax can be imposed on the subject without words in an Act of Parliament clearly shewing an intention to lay a burden on him. But
when that intention is sufficiently shewn it is, I think, vain to speculate on what would be the fairest and most equitable mode
of levying that tax. The object of these framing a Taxing Act is to grant to Her Majesty a revenue; no doubt they would prefer, if
it were possible, to raise that revenue equally from all, and, as that cannot be done, to raise it from those on whom the tax falls
with as little trouble and annoyance and as equally as can be contrived; and when any enactments for the purpose can bear two interpretations,
it is reasonable to put that construction on them which will produce these effects. But the object is to grant a revenue at all events
even though a possible nearer approximation to equality may be sacrificed in. order more easily and certainly to raise that revenue,
and I think the only safe rule is to look at the words of the enactments and see what is the intention expressed by those words". It is to be observed that His Lordship, in his judgment, in no way swerves from the well established rule of law that statutes creating
or imposing a charge upon the subject must do so in clear and express terms, and in unambiguous language, inasmuch as he says: "
No tax can be imposed on the subject without words in an Act of Parliament clearly shewing an intention to lay a burden on him" and
again further on when he says: "I think the only safe rule is to look at the words of the enactments and see what is the intention expressed by those words". The case of Colquh. Brooks, 14 A 14 A.C. p. 505 has also been cited as an authority for saying that when any enactments for the purpose of granting revenue
to His Majesty can bear two interpretations it is reasonable to put that construction upon them which will produce these effects.
But here again the abovementioned observations of Lord Blackburn should be applied. And further unless there is any ambiguity in
the words. used or they are sufficiently flexible to admit of some other meaning it is seldom desirable to go, further (see Beal, 2nd Ed303 and& and Maxwell's Interpion of S of Statutespp. 1, 6, 6th Ed.) The words used in s.11(3) do not appear to me to be ambiguous whether, however, they import the larger me the ed counsel seeks eeks
to attach to them is another matter. Appellant's counsel proceeds to cite the case of the Sulo (Brazilian), Railwaailway Co. v. Carter A.C. [1896] A.C.s authority for for saying that where the trade is wholly rtially carried on in a country the trader is liable to pay
income tax on the profits of hiof his trade. In that case as Lord Davey pd out in Kirk'ss : "Ae: "All that the House of Lords had to decide was whether a company with a head office in London, from which the board of
directors governed the operations of the company in Brazil, did not exercise a business in England". Here it is not a question of
exercising a business in Fiji, but of taxing an income earned in or derived in or from the Colony. That the respondent company exercise a business in Fiji is beyond dispute, as in Ki/i> case, a businbusiness is admittedly carried on in Fiji, and in the case mentioned Lord Davey said: "in such cases the place
where the profits come homehe trmay be a very good test of the place where the trhe trade is carried on". Again the the question at issue is the place where the trade is carried on, and not the place where the income is earned. The language,
therefore, used by the judges in the cases cited must be considered with reference to the subject matter before being accepted as
conclusive or applicable. The submission, I take it, based on these cases, is that where a trade is carried on, where the brains and control are exercised,
there it is that, the profits are to be taxed. Sir Maynard Hedstrom, a managing director of the respondent company stated in his
evidence that the company was registered in the Colony, it had its head office in the Colony, and that the operations of the company
were entirely controlled from Fiji, that two of the directors resided out of the Colony, but that it was quite correct to say that
the company was controlled from Fiji, that the Tongan and Samoan profits are brought to account or transferred to the head office
in Suva, Fiji, and that the dividend accruing from Kirchman and Co. is taken into account in a computation of the net profits out
of which the dividend of the respondent company is paid. Such being the undisputed facts, can the words of s. 11(3) be enlarged or extended to include profits brought to account in the Colony?
The argument is thoughtfully put and well advanced, but can it be sustained? I have used the expression "enlarged" or "extended" in that I feel satisfied that the words "earned in" construed in their ordinary,
plain, literal meaning do not extend to income or profits earned in Tonga, Samoa or San Francisco. During this part of the argument
I referred to the decision in a case heard in Bombay and noted in the Englis Empire Digestt Vol. 28,The note reads as f as follows: "Registered office and management in India-Business ed on wholly abroad-The profits of a co. which are made from manufacture carried
on beyond yond British India cannot be said to accrue or arise in British India on account of the head office being in Bombay and
because the directors control the business in Bombay." Re Aurangabad Mills, Ltdi> [1921], I.L.R. 45, Bombay <286. Now I do not put this case forward as being on all fours with the present appeal case, inasmuch as the Indian Act upon which the case
was decided, is not before me, nor is the dec in any event binding upon upon this Court, but I refer to it as being an instance,
presuming that a somewhat similar argument was advanced as in this case that the Bombay Court, construed the words "accrue or arise"
in their ordinary meaning, and declined to enlarge or extend that meaning. It is true that the word "earned" is not used, but I find
it difficult distinguish between the words "earned" and the words "accrue or arise" when used in this sense. Further during argument I referred to the well recognised rule that when there are different statutes in pateria, though made made at different times, or even expired and not referring to each other, they shall be taken and construed together
as one system and as explanatory of each other. he King v. Loxdale[1758[1758] per Lord Mansfield C.J. as cited in Beal's Cardinal Rules oa Legal Interpretation, 2nd Ed. p. 351. Of this rule Lord Blackburn availed himself in the case of the Coltness Irmpany v. Blac Blackvementioned and again in the case of Colquhoun v. B v. Brooke, Lord MacNaughton applies the same rule when he says:- I therefore have no hesitation, when considering the meaning of the words "earned in or derived in or from the Colony" in referto
income Tax Ordinances formerly in force in the Colony, bny, but since repealed by the Income Tax Ordinance 1921, the Ordinance now
under consideration. The Ordinance by virtue of which an Income Tax was first imposed in the Colony is Ordinance No. 20 of 1920.
In s. 8 of that Ordinance the following provision is to be found:- "There shall be paid by every company whose net profits exceed the sum of one thousand pounds income tax at the rates following, that
is to say:- "One shilling on every £1 of income exceeding £1,000 ..."" This Ordinance was passed in the Legislative Council of the Colony on the 12th May, 1920. At a subsequent session of the Legislative
Council, held on the 17th November in the same year, Ordinance No. 35 of 1920 was passed. This Ordinance amends, inter alia, sf the 1the 1920 Ordinance by expressly inserting the words- "earned in or derived in or from the Colony" between the word "profits"
and the word "exceed" in the provision contained in s. 8 abotioned. So that the provisiovision then reads:- "There shall be paid by every company whose net profits earned in or derived in or from the Colony exceed the sum of one thousand
pounds ...." It will be noted that the words so expressly inserted by the Legislature are theipsissima verba used in s. 1of the 1921 Ord1 Ordinance. It seems to me abundantly clear that by the addition of those words after the words "net profits"' in s. 8 of Ordinance No. 20 of
1920 the intention of the Lature was not to extend or d or enlarge the meaning of the words "net profits", but to restrict or limit
their application. The expression "net profits" construed by itself is wide and sweeping; the words "earned in or derived in or from
the Colony" place a limitation upon them. The word "income" as defined in s. 3(1) of Ordinance No. 1 of 1921 is both wide and sweeping;
in like manner the words "earned in or derived in or from the Colony" included by the Legislature in s. 11(3) after the word "income"
with the intention of placing a limit upon the word "income" as defined in the Ordinance and their meaning cannot therefore properly
be extended so as to include income earned by the respondent company in Tonga, Samoa and San Francisco. For these reasons the appeal is dismissed and the decision of the Court of Review affirmed with costs.
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