State v Commissioner of Inland Revenue [2001] FJLawRp 74; [2001] 1 FLR 296 (17 August 2001)

STATE v COMMISSIONER OF INLAND REVENUE
ex parte Dilmun Navigation Co. Ltd.

High Court Civil Jurisdiction

17 August, 19 October 2000, 17 August 2001

HBJ 0030/00S

Income tax – withholding tax - error of law, an abuse of power, breach of substantive legitimate expectation, estoppel – whether Applicant failed to exhaust an express alternative remedy – whether s62 objection/appeal process applies to other taxes such as withholding taxes – Applicant's locus standi – stay of status quo - Income Tax Act s62

The Applicant challenges 2 decisions of the Respondent authority on the basis of error of law, an abuse of power, breach of substantive legitimate expectation and estoppel. It says it is an overseas registered shipping company which merely receives payment for its services, and any notices of assessment and is not the person by whom such royalty or other payment is made, therefore, had no locus to challenge under s62 of the Income Tax Act. It further submitted that because the position of the Court of Review was vacant, it was not functioning, thus an impractical alternative remedy. The Court now gives written reasons for earlier granting leave to issue an application for judicial review and a stay of proceedings. It found the vacancy in the Court of Review meant there was an impractical alternative for the taxpayer to appeal a notice of assessment. The Court, noting a lack of objection from the Respondent, accepted the taxpayer's application for a stay of the status quo prior to the Respondent's second letter, which otherwise would result in decimation of its business.

Held–(1) In the absence of an appeal to the Court of Review as a practical alternative (not functioning) or of a prescribed statutory form or format for taking an objection under s62(1) of the Act, leave for judicial review and stay are granted.

(2) Before the objection process under s62 can be invoked there must be an 'assessment' of a tax liability and a 'notice of assessment' served on the taxpayer. By the Applicant's allegations of entitlement to challenge an assessment, and the lack of an alternative remedy, it has demonstrated sufficient interest in the Respondent's decisions to support an application for judicial review.

Leave to issue an application for judicial review. Stay of proceedings granted. Respondent to file an affidavit within 14 days of receiving the Applicant's substantive summons and affidavit, thereafter the Applicant is granted leave to file an affidavit in reply within 21 days; the matter is adjourned for further directions in chambers.

[Note: subsequently, the Court confirmed a consent order on 23 January 2002.]

No cases referred to in Decision

Jon Apted for the Applicant

Amani Bale for the Respondent

17 August, 2001

REASONS FOR DECISION

Fatiaki, J

On 14th October 2000 after hearing extensive argument from counsels, I granted the Applicant leave to issue an application for judicial review and a stay of proceedings. On that occasion I said that my reasons for the orders would be provided in due course and the delay in providing these reasons is regretted.

The application concerns two (2) decisions of the Commissioner of Inland Revenue ('CIR') contained in a letter dated 11 July 2000 (the liability decision) and in a second letter dated 14 July 2000 (the RBF advice) which the Applicant seeks to challenge 'on the basis among other things error of law, an abuse of power, breach of substantive legitimate expectation, estoppel'.

The sole ground of the CIR's opposition to the grant of leave is that the Applicant has failed to exhaust an express alternative remedy provided under Section 62 of the Income Tax Act (the Act) whereby 'any taxpayer dissatisfied with an assessment may, ..., within 60 days of the date upon which the notice of assessment has been served upon him ..., lodge with the Commissioner an objection in writing to the assessment ... stating the grounds on which he relies:' and under subsection (6): ... any person objecting to the decision of the Commissioner, ... may, ..., appeal to the Court of Review and such appeal shall be heard and determined as hereinafter provided'.

Plainly before the objection process under Section 62 can be invoked there must be an 'assessment' of a tax liability and a 'notice of assessment' served on the taxpayer. In this regard counsel for the CIR submits that all that the CIR is obliged to do under the Act is to 'make an assessment of the taxable income of any taxpayer and of the tax payable thereon'. That process (whatever it may entail) is called an 'assessment' 'in that it is an act of judging based on the information provided by the taxpayer'. Thereafter all the CIR is required to do under the Act, is to send a notice of the assessment to the taxpayer. 'That notice is a record and advisement of the (CIR's) judgement.'

Counsel for the Respondent for his part submits, that 'the scheme and logic of the Income tax Act and taxation system is that 'assessments' and 'notices of assessment' apply only to income taxes and not to other taxes like withholding taxes. They are special terms of art with limited technical meanings' and, in the absence of either an 'assessment' or 'notice of assessment' and, the Section 62 objection/appeal process does not apply.

Whatsmore even if the CIR's 'liability decision' could be considered an 'assessment' and 'notice of assessment' they have been incorrectly directed to the Applicant which is an overseas registered shipping company which merely receives payment for its services and is therefore not 'the person... by whom such royalty or other payment is made....' (See: Section 10A of the Act). On that score also, counsel claims, there is an absence of 'locus' on the Applicant's part to invoke the objection/appeal process under Section 62.

Finally, counsel for Applicant submits, without dissent, that in the absence of an incumbent, the position of the Court of Review to which any appeal under Section 62 must be submitted, remains vacant and in counsel's words '...for all intents and purposes it is non-functioning'. In other words invoking the appeal procedure under Section 62 would be futile exercise and accordingly, an impractical alternative.

In reply counsel for the CIR stressed that in the absence of a definition in the Act of an 'assessment' or a prescribed form for a 'notice of assessment', the CIR's letters demanding payment of withholding tax was in compliance with the requirements of the Act sufficient to enable the Applicant to invoke the objection/appeal process under Section 62.

Plainly from the above the Applicant has a 'sufficient interest' in the CIR's decisions to support an application under Order 53 of the High Court Rules. Furthermore, in the absence of a Court of Review or of a prescribed statutory form or format for taking an objection under Section 62(1) of the Act, I was satisfied that the application should be entertained and leave was accordingly granted.

Having said that however it should be noted that this court has not determined the merits of the Applicant's argument's addressed to the Court in the leave application and the matter remains at large and may be re-agitated as the CIR sees fit.

The Applicant also sought a stay of proceedings in the event that leave was granted because, in counsel's submissions, to allow recovery of the $8 million claimed pending the determination of the substantive action, 'would decimate the Applicant's business...' without any guarantee of recovery in the event that the Applicant succeeds.

Counsel for the CIR did not seriously oppose the stay and, bearing in mind that the origins of the dispute lay in the change in the CIR's decision which had held sway between the parties for over five (5) years, I considered that the 'status quo' that ought to be maintained was that which pertained prior to the CIR's letter of 11th July 2000. Accordingly a stay of proceedings was granted.

I note from the file papers that the Applicant filed a substantive motion for judicial review on 13th October 2000 and as yet the same has not been issued. This led to an interlocutory summons by the CIR to dismiss the Applicant's application for failure to prosecute the proceedings with due despatch. This latter summons has also not been assigned a date for argument, but in any event, the Applicants have acted with despatch and accordingly the Respondent's summons is misconceived.

Noting the above and by way of further directions, the Respondent is ordered to file an affidavit within fourteen (14) days of receiving the Applicant's substantive summons and affidavit, thereafter the Applicant is granted leave to file an affidavit in reply within twenty one (21) days and the matter is adjourned for further directions [...] in chambers.

Application succeeds.

Marie Chan