Commissioner of Inland Revenue v Bull [1997] FJLawRp 7; [1997] 43 FLR 50 (18 February 1997)

[1997] 43 FLR 50

HIGH COURT OF FIJI ISLANDS

THE COMMISSIONER OF INLAND REVENUE

v

DONALD HENRY BULL

THE COMMISSIONER OF INLAND REVENUE

v

WILLIAM JOHN BULL

[HIGH COURT, 1997 (Fatiaki J) 18 February]

Appellate Jurisdiction

Income Tax - income earned overseas by resident of Fiji - absence of double taxation agreement- whether balance of income after payment of tax overseas subject to taxation in Fiji - Income Tax Act (C1) Section 102 (b).

The taxpayers who were resident in Fiji had paid withholding tax in Australia on income derived there. The Court of RevTaxation) held that on the true construction of the Income Tax Act the whole balance of incema remaining after the payment of tax was exempt from further taxation in Fiji. Allowing tpeal by the CIR the High Cogh Court HELD: that only that part of the income already paid in tax was exempt from further taxation in Fiji.

Cases cited:
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A.M.P. Society v. C.I.R. [1962] NZLR 449

Canadian Eagle Oil Co. Ltd. v. The King&[1945] AC 119

Colquhoun v. Brook [1889] UKLawRpAC 43; (1889) 14 AC 493

Coltness Iron Co. v. Black (1880C 315

Redbanedbank Meat Works Pty Ltd v. C. of T (Q) [1944] HCA] HCA 19; (1944) 69 CLR CLR 315

Ronpibon Tin N.L. v. F.C. of T. [1949] HCA 15; (rd">(1949) [1949] HCA 15; 78 CLR 47

Appeal toHigh Court frot from the Cof Review (Taxation)

&& for the Coioner of Inland Rand Revenue
F.G. Keil he Respondents <
Fatiaki J:
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This is an appeal e Come Commissioner of Inland Revenue (the &#8216#8217ainst a decision sion of the Court of Review delivered on the 28th of April 1995 in which tich the Court upheld an appeal by the taxpayersnst assessments of the CIR CIR requiring each of the taxpayers to pay income tax in respect of interest income for the years 1987 to 1990, derived by each of the taxpayers from funds invested in Australia and in respect of which Australian Withholding Tax of 10% had already been deducted at source.

The appealshe Court of t of Review although separately numbered were dealt with in a single decision of the Court. The nature and source of the income in each appeal was identical and the CIR’s assnts were based on the same same section of the Income Tax Act (C01). It is therefore conv convenient to adopt a similar approach to the CIR’s two appeals and render a single judgmen>&#16>In the appeal beal before the Court of Review a Statement of Agreed Facts was filed in resn respect of each appeal and save for the calculation of the interest income earned in Australia and the tax paid thereon, was identical in all other respects. For the purposes of this appeal I gratefully adopt the convenient summary of the Court of Review where he states at p.37 of the record :

“The agreets acts are that each of the Appellants earned income in Australia at a time where there was not a Double Taxation Agreement in force between Australia and Fiji.

Withholding ta char charged and deducted in Australia on the whole of each income.

The Commiss does noes not dispute that this was ‘income chargeabth income tax’ within the meaning of those words in S in S.102(b) of the Act.”

Thrt of Review then sumn summs the relative position takn taken by the CIR as follows :

<220;The Commissioner oner assessed each of the appellants ot amount of the same Australian income as remained after ther the tax imposed on it in Australia had been deducted on the grounds, the words `to the extent that that’ in S.102(b) were meant to include no more than the amount paid in tax.”

anthe appellants as fols follows :

“The appellants claim exemption in each case from Fiji tax under paragra) of S.102 on the grounds that the

whole of the incomq in question havn having been chargeable with income tax itralia, a fact not denied bied by the Commissioner, and having furnished the correct evidence required by proviso (i) and there beingvidence that proviso (ii) aii) applied, the whole of it was exempt income.”

The Cof Review then setn sets out various submissions of both counsel for the parties and after referring to several cases states, at p.38 of the record :
&#82plying the principleciples set out above, that is, loo, looking fairly at the language used, without any implications, intendmen reading in, my interpretation is that the degree, dimension or scope of the exemption in S in S.102(b) extends to the part of the income (that is the `it’ in S.102(b)) that is `chargeable with income tax in that other territory’. That part of the income that is chargeable with income tax is exempt from tax in Fiji. That part of the income that is not chargeable with income tax is not exempt from tax in Fiji.”

The Cour17;s decision wion was that :

“The whole of each Appellant’s income, the subject of these appeals being chargeable and taxed in Australia, the whole of each is exerom t Fiji.”
;

The Cw appeals against inst that decision of the Court of R of Review on the following two grounds :

“1. ټ Tarned Cned Court ourt of Review erred in law in holding that Section 102(b) of the Income Tax Act provided a total exemption from income tax in Fiji in resof income earned by the respondents and taxed in Australia.

2.&#;2. &#160 ټ The let ourt of Revf Review erred in law in failing to have regard to thto the provisions of Section 103 of thePART XIV&of the Act entitled REBATES FROM TARGED& and reads :
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“102. The tax chargeable in resof income derived outside Fide Fiji by a resident shall be abated or exempted as follows :

(a); inect of income derivem from from a territory with whom arrangements have been made regarding relief from double taxation, relief shalliven cordaith trrangement;

;

Provihat -

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(i)&##160; the taxpsyer furnish evid evidence satisfactory to the Commissioner showing the amount of tax paid and the particulars of inc

160;

(ii)ټ such income (ome (shall) not be exempt if, under the lahe law of w of that that other territory, tax is deducted therefrom at source but such person has the right thereafter of making a return of that income and being assessed to tax thereon with relief in proper circumstances for the whole or any part of the tax already deducted at source and he does not exercise that right ; and a certificate purporting to be signed by an officer of the Taxation Department of that other territory shall be prima facie evidence that such a right exists and of the exercise or non-exercise thereof by the taxpayer.”

It is convenienthis stas stage to set out the competing interpretations of the parties as appears in their written submissions on appeal. Counse the CIR submits as to ground (1) of the grounds of appeal :

“... th.. that when construed correctly section 102(b) operates as an abatement or exemption from tax after the income in

questio been broughrought within targing provisions of the Act. It does not operate so as to s to exclude the income referred to from those (sic) charging provisions.&;

In other words :
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“...0;... when Section 102(b) is considered in its entirety rather than construing individual words its meaning is plain and unambiguous. It provides for an exemption from tax that is otherwise payable in Fiji to the extent of the tax chargeable overseas on the same income. It does not exempt that income from Fiji tax altogether.”

As for the phrase &;to 6;to the extent that it is chargeable with income tax’ counsel submits that its effect :

“... involvns consideration of whether the income, in whole or in part, is subject to overseas tax, and, how much tax has been paid.”

In regards to the second ground, Counsel for the CIR complains that the Court of Review:

“... gave nooreasons for the conclusion ... that Section 103 did not apply to unilateral relief grantedr Section 102(b).”

&#82ction 103 appeaappeared in the Fiji Act in 1974 at the same time Section 102 appeared and the old regime under Section 44 was red. That is consistent with moves in other jurisdictions such as New Zealand and the United ited Kingdom to move away from unilateral relief which provided total exemptions.”

and ubmission concludesludes by reasserting that :

&#822 Section 103 d103 does apply to 102(b) and the Commissioner was correct in the way he approached the taxpayers assessment ie allthem a credit agat against Fiji tax for the 10% tax paid in Australia. In short they were tere taxed as if they had received the income in Fiji.”

el for the taxpayer in r in seeking to uphold the decision of the Court of Review writes :

“The contention ofon of the Respondents is that S.102 deals with two separate matters and could easily be read as followr>

A. ـ҈< T60; The tax chargeab r in r in respect of income derived outside Fiji by a resident shall be abated :

(a0; in ct of income derived fred from a territory whom arrangements have been been made regards relief from double taxation, the relief shall be in accordance with that arrangement.”<160;

and separate section
&
#160;

.&#160 ;ɘʔ The tax chargchargeable in respect of income derived outside Fiji by a resident shall be exempted :

(a) ; ip resofct deri derirom aiom aitory with whom ahom arrangrrangementements have not been made regards relief from double taxation such income shall be exempt from tax to the t thais chble with income tax in that that the the (sic)(sic) territory : Provided - (etc).”

In other words :

“S.102(b) deals with what is referred to as `unilateral relief’ ...”

and :
“... merely res thes the exemption provision from Fiji tax for income derived oved out of Fiji by residents of Fiji if taxed in that country which has bert ofFiji income tax law since at least 1920.”&#1r>
As for trase ‘to 6;to the extent that’, the taxpayers submission is :

“(thase) must must be read in tntext in which (it) is used in particular with the word which follows, namely `it’. S7;. So as to read `to the extent that it&# has to be considered the word, `it’ can only mean anan and refers to the `income derived from a territory’ or `such income’ as used earlier in S.102(b).”

and cl submits in an oban obscure paragraph :

8220;... the plain mean meaning of S.102(b) is that that part only of the income is exempt from Fiji tax, on which tax has charg Aust but thut that the part of that income is not exempt which has not been taxed&#16d 0;oror&#160he conditionstions of the provisos have not been complied with when (sic) Fiji tax applies.e is no need for the detailed provisions of S.103 to be appe applied to the circumstances existing under S.102(b).

(my unning)
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Having thus st the oppo opposing submissions of counsel for the CIR and the taxpayers, I begin my considon of Section 102(b) by reminding myself of the proper approach that the Court should adoptadopt in interpreting Section 102(b) which is plainly intended to provide unilateral relief against the incidence of double taxation which Lord Russell of Killowen described inCanadian Eagle Oil Co. Ltd. v. The King [1945] A.C.at p.142:
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&#822) meaning ... ... that the same person pays tax twice on his income.”

and which, s lordships hips view :

#8220;... woin de of exof express proviprovision, no doubt be wrong.” (p.14(p.143)
0;Colquhoun v. Brooks (1889) 189) 14 A.C. 493 when he said at p.505 in adopting a passage from the judgmf Lord Blackburn in Coltness Iron . Bla. Black (1880) 6 A.C. 3 p.330 :
:

&#8220 object of tfof tframing a Taxing Act is to s to grant to Her Majesty a revenue ; no doubt they would prefer if it were possible to raise that revenue equarom and as that cannotannot be done, to raise it from those on w on whom the tax falls with a 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 upon them which will produce these effects.

It is beyond dispute, toe, too, that we are entitled and indeed bound when construing the terms of any provision found in a statute to consider any other parts of the Act which throw light uhe intention of the legislagislature and which may serve to show that the particular provisions ought not to be construed as it would be if considered alone and apart from the rest of the Act.”

In this latter r it is t is also well to bear in mind the provisions of Section 13 of the Interpretation Act;(Cap.7) which provides :

In his submissions el fsel for the CIR argues that the Court of Review not only ‘ignores the placement of Section 102 in the Act’, but also its interpretation of the sn would be more consistent with the section appearing in&#1in Part IV Division 2<160;of the Act wAct which is entitled : ‘Items of Income Not Liable to either Basi or Normal Tax or Basic Taxc Tax and Normal Tax.’

Tbmission if I may say say so, has a good deal of force to it when one considers more closely the changes which were effected to the predecessor of Section 102(b) namely, Section 44 of the Incax Ordinance (Cap. 176) whi) which originally contained two subsections.

Subsection (1) he immedimmediate predecessor to Section 102(b), and subsection (2) dealt with the exemption from tax of what might be conveniently described as shipping profit>
In respect of this latter subsection i.e. S.44(2.44(2) the legislature in 1974 enacted a new Section 18 which it then placed in Part IV Division 2&t160;thereby clearly excluding such profits from the tax net.

Needless to say subsection (1) of Section 44 could have been similarly treated by the legislature but this was not done. Instead, it was renumbered and reed under a newly created part of the Income Tax Act entitle216;REBATES FROM FROM TAX CHARGED’. In this latter regard the Shorter Oxford Dicryy defin̵ate’eis beis being ‘a reduction from a sum of money to be paid a discount ; als; also a repayment’.

Thaningurthenforced by d by the natural and primary mean meaning given by the Privy Council to theo the word ‘exempt’ inA.M.Piety v. C.I.R. [1962] N.Z.L.R. 449 where in rejecting a submission that ‘exempt fmpt from taxation’ means ‘not subject to taxation’ the Privy Council endorsed at p.454 the Stipendary Magistrates comment (that) :

&#82company cannot nnot be exempt unless, but for the exemption, it would have been liable.”

(See also㼠Redbank Meat Works Pty.Ltd. v. C. of T(Q) [1944] HCA 19; (1944) 69 C.L.R. 315)

Of greater significance however are the changes that were effected by the legislature in the wording of Section 44 which, in my view, altered the primary focus and the manner in whicble taxation relief would thenceforth be granted under the the taxing Act.

In particulaereas underunder Section 44(1) it was the ‘(foreign) income’ that was ‘exempt from tax’ ; under Section 102 it is the ‘tax chargea8217; on foreign income that is to be ‘abated or exem exempted’.

Furthermorer Section 44on 44(1) the CIR had to be satisfied of only two things namely, the foreign derivation of the income and ‘that it is chargeable with income ta17; ; whereas under Section 102(b) the CIR must be satisfieisfied not only as to the foreign derivation of the income and the absence of a double taxation agreement, but also, ‘the extent’ (not just the fact) to which such income ‘... is chargeable with income tax ...’

In other words whiectioection 44 did not require the CIR to make a quantitative analysis of the tax chargeable, Section 102(b) does by virtue of the phrase, ‘to the extent that’ and the over-riding t of the machinery provisiovisions of Section 103 which in terms subjected ‘the relief granted by Section 102’ to its provisions.

Both submis also soughtought to rely on various legislative changes and practices that occurred in New Zealand (pre and post 31 March 1963) ; in Australia (pre and post 1987) and in the U.K. (pre and post 1950) which each claimed was supportive of the particular interpretation advanced. I am content however to confine my deliberations to the structure and wordings of Section 102 of the Income Tax Act (Cap. 201) and the legive cive changes that were effected in 1974 by the Income Tax A>No. 6 of 1974 as providing the clearest and most reliable indicators of the legislaturere’s intentions.

Much wso ma the submissbmissions ions as to the effect and meaning of the change from : ‘... if (and so far as the Commissioner is saed ... that) it is chargeable with income tax in that country’. [Viz : Se;: Section)] to : ̵‘... to the extent that it is chargeable with income tax in that other territory’. [Viz : Sectio(b)]. Counsel for tfor the yers submits that the position remains unaltered, whereas Ceas Counsel for the CIR submits that the position (or ‘regime’ changed from a complete exemption from tax of the foreign eign income to one of allowing a tax credit or exemption for any foreign tax paid.

In seekingesolve this dhis difference in wording and interpretation, I observe at the outset that both provisos to Section 44(1) have been retained. I am also firmly of the view that the words ‘to the extent that’ in their natural and ordinary meaning, are words of limitation having a broader ambit than the word ‘if’ which serves to introduce in Section 44(1) at least, a single condition or qualification, namely, whether the foreign income ‘is chargeable with income tax’ ? If it is, then (subject to the Commissioner’s satisfaction) the income is ‘exempt from tax’ irrespective of the amount of foreign tax paid, and if not, then it is liable to be taxed in Fiji.

Perhaps I can bllustratstrate my view of the change effected by the legislature’s adoption of the formula : ‘... to the extent that7; by referring to the judgment of the High Court of Australia in Ronpibon Tin N.L. N.L. v. F.C. of T. [1949] HCA 15; (194>(1949) [1949] HCA 15; 78 C.L.R. 47 where the ret Ausan tax prox provision for the deduction of business losses and outgoings was changed bged by the removal of the words ‘notly and exclusively laid out’ and the substitution therefor, of the words ‘to thto the extent to which’.

“... there are vere very important differences betwhe operation which the present S.51(1) is framed to produce and the manner in which the fore former S.23(1)(a) and S.25 worked. Some ese differences it is desirdesirable to mention. In the first place the principle expressed by the former S.25(e) has been abandoned. The principle was in the words of that provision, that a deduction should not in any case be made in respect of money `not wholly or exclusively laid out or expended for the production of assessable income’. Instead of imposing a condition that the expenditure shall wholly and exclusively be for the production of assessable income the present S.51(1) adopts a principle that will allow of the dissection and even apportionment of losses and outgoings. It does this by providing for the deduction of losses and outgoings e extent to which&#1u> they ncurred in gaining or g or producing the assessable income.”

(my underlining)<16>
Needless to say, I do not accept the submission that despite the change in itscture and wordings, the meae meaning and effect of Section 102(b) remains substantially the same as that which prevailed under Section 44( the Income Tax Ordinance (nce (Cap.176).

In conclusion h to say say that the interpretation of Section 102(b) has not been an easy exercise, for had the legislature intended to maintain the former position in Section 102(b) as the taxpayers arguewould have been a simple male matter to have adopted the wording of Section 44(1), or employed words to the effect that foreign income : “... shall be wholly exempt from tax if it is chargeable to tax in that other country.” Equally, the interpretation propounded by the CIR would have been greatly assisted by the adoption of wordings similar to that in the post - 1963 Section 170(2) of the New Zealand Land and Income Tax Act 1954 (as amended), or words to the effect that foreign tax paid in respect of foreign income shall be allowed as a credit against any Fiji tax payable in respect of the same income. Unfortunately neither was done.

The appeaaccordingly ally allowed with costs to the CIR.

(Appelowed.)
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or’s note: ane: an appeal against this Judgment was dismissed by the Fiji Court of Appeal (majority decision) in 1988 Reps54) and a final appeal was dismissed by the SupreSupreme Court (majority decision) on 10 Ma10 March 1999 (FCA Reps 99/542))