Bull v Commissioner of Inland Revenue (Majority Judgment) [1999] FJSC 5; CBV0005U.1998S (10 March 1999)

Fiji Islands - Bull v Commissioner of Inland Revenue (Majority Judgment) - Pacific Law Materials

IN THE SUPREME COURT OF FIJI

AT SUVA

ON APPEAL FROM THE COURT OF APPEAL, FIJI

CIVIL APPEAL NO. CBV0005 & CBV0006 OF 1998S
(Court of Appeal, Fiji, Civil Action No. ABU0017 & ABU0018 of 1997S)

BETWEEN:

:

DONALD HENRY BULL
-and-
WILLIAM JOHN BULL
Appellants

AND:

COMMISSIONER OF INLAND REVENUE
Respondent

The Hon. Sir Anthony Mason
The Hon. Gerard Brennan

Hearing: Wednes3 March 1999
Date of Judgment: Wednesday, 10 March 1999

Counsel: Mr. F.G. Keil foil for the Appellants
Mr. A. Bale and Ms B. Malimali for the Respondent

MAJORITY JUDGMENT OF LORD COOKE OF THORNDON
AND SIR ANTHONY MASON

The question of law far determination in these appeals concerns the construction of s.102(b) of the Income Tax Act (Cap. 201) ("the Act"). It is a question which has given rise to a division of opinion in the courts below.

The Court of Review upheld an appeal by the taxpayers against assessments to income tax requiring each taxpayer to pay income tax in respect of income by way of interest for the years 1987 to 1990 (inclusive) derived by each taxpayer, then resident in Fiji, from funds invested in Australia. Australian withholding tax of 10% had been paid on the income and deducted at source. The Court of Review decided that the whole of each taxpayer’s to relevant income in question in the appeals, being chargeable and taxed in Australia, was exempt from tax in Fiji.

Subsequently in the High Court, Fatiaki J. allowed appeals by the Commissioner with costs. His Lordship’s view was that s.102(b) exempts foreign income from Fijian income tax only to the extent of the amount of foreign tax that is chargeable on that income, so that the foreign tax is allowed as a credit against the Fijian tax that is payable.

On appeal from Fatiaki J., the Court of Appeal by majority (Tikaram P. and Thompson JA with Kapi JA dissenting) dismissed the appeals with costs, costs to be assessed on the basis of there having effectively been only one appeal. The majority confirmed the interpretation given to s.102(b) by Fatiaki J., while Kapi JA accepted the interpretation which had been adopted by the Court of Review.

What we have already said sufficiently states the agreed facts which give rise to the question of law, subject only to the further statement there was no double taxation agreement between Fiji and Australia in the relevant years.

Section 102 of the Act which was introduced in 1974 states:

"102. The tax chargeable in respect of income derived outside Fiji by a resident shall be abated or exempted as follows:-

(a) in respect of income derived from a territory with whom arrangements have been made regarding relief from double taxation, relief shall be given in accordance with that arrangement;

(b) in respect of income derived from a territory with whom arrangements have not been made regarding relief from double taxation, such income shall be exempt from tax to the extent that it is chargeable with income tax in that other territory:

Provided that -

(i) The taxpayer shall furnish evidence satisfactory to the Commissioner showing the amount of tax paid and the particulars of income;

(ii) such income shall not be exempt if, under the law of 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 taxpayers."

The question is whether s.102(b) operates to wholly exempt from Fijian income tax foreign income which is chargeable to income tax in the foreign territory (the taxpayers’ interpretation) or whether s.102(b) operates to exempt that income from Fijian income tax only to the extent of the income tax chargeable in the foreign territory so that the foreign tax is allowed as a credit against Fijian tax (the Commissioner’s interpretation).

Section 102 has its place in the general framework of the Act. Section 7(1) provided at all relevant times that income tax was to be assessed "on every dollar of chargeable income" of a taxpayer. Section 24(1) defined the "chargeable income of taxpayer as the taxpayer’s "total income" for the year, whether accrued in a derived from Fiji or elsewhere, "subject to the deductions" specified in certain sections of the Act. The "total income" of a resident was defined by s.11 as "the aggregate of all sources of income"," including interest. It follows therefore that subject to the operation of s.102, the interest derived by each taxpayer in Australia was part of his "total income" and, subject to allowable deductions, was chargeable to income tax.

The History of Section 102

The predecessor of s.102 was s.44 of the Income Tax Ordinance 1967 (Cap. 176). Section 44(1) provided:-

"S.44(1) Income derived by a person resident in Fiji but not derived from Fiji shall be exempt from tax if and so far as the Commissioner is satisfied that such income is derived from some country other than Fiji and that it is chargeable with income tax in that country:

Provided that -

(a) the taxpayer furnishes evidence satisfactory to the particulars of income;

(b) such income shall not be exempt if, under the law of that other country, 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 country shall be prima facie evidence that such a right exists and of the exercise or non-exercise thereof by the taxpayer."

The replacement of the old s.44 by s.102 followed an inquiry into the fiscal policies of the Fiji Government and a report by Professor R.L. Mathews to the Government. The report stated:

"Income earned overseas by Fiji residents is exempt from Fiji tax if it is liable to income tax in the overseas country" (para. 4.67).

This statement evidently reflected the author’s understanding of the operation of s.44.

The report went on to say:-

"The exemption granted in Fiji is difficult to justify in a country seeking development capital. A taxpayer who is subject to a high marginal rate on income derived from some forms of investment in Fiji is able to reduce his tax liability by switching his investment overseas (para. 4.68).

The report, after noting that there was some evidence that firms were taking advantage of the exemption of overseas profits from Fiji tax in such a way as to reduce their tax liability, stated:

"........ for the sake of an uncertain advantage in respect of non-residents, Fiji through its tax system is currently providing a positive inducement to residents to invest abroad, which even the very low taxation of Fiji dividends is apparently insufficient to offset. It is therefore recommended that all overseas income derived by Fiji residents is liable to Fiji income tax, subject to a credit for income tax paid in a foreign country." (emphasis supplied) (para. 4.73).

In introducing the Income Tax Bill of 1974, which contained what is now s.102, the Hon. C.A. Stinson referred to the Mathews report and noted that the Bill reflected certain changes in the structure of the Fiji economy which had taken place since the delivery of the report. A consequence was that, in a number of instances, the Bill differed from the Mathews’ recommendations. In this respect no reference was made to what is now s.102. Mr Stinson also mentioned that the opportunity had been taken to re-write and re-arrange the whole of the legislation.

We leave for later consideration whether it is legitimate to have regard to this history in interpreting s.102 and, if so, what effect this history has on the interpretation by the section.

Interpretation of Section 102

The interpretation of the language of s.102 presents some difficulty. The introductory words:

"The tax chargeable in respect of income derived outside Fiji by a resident shall be abated or exempted as follows..."

speak of abatement or exemption of the tax chargeable. On the other hand, para. (b) states, in relation to foreign income derived from a territory with which there is no double taxation arrangement, that:

"Such income shall be exempt from tax to the extent that it is chargeable with income tax in that foreign territory."

Paragraph (b) speaks of the exemption of income . The two provisions can be reconciled on the footing that para.(b), when it operates in favour of a taxpayer, will ultimately result in an abatement or exemption of the Fijian tax which would otherwise be chargeable. That interpretation gives effect to the operative introductory words and leads to a sensible operation which is fair to the taxpayer.

No doubt the expression "abated or exempted" was adopted in order to ensure that the section was capable of effective operation in relation to para.(a) and a variety of tax regimes for which double taxation conventions might provide. That consideration does not, however, lead to the conclusion that the presence of the word "exemption" in para. (b) results in the paragraph operating so as to exclude the relevant foreign income from Fijian income tax.

The paragraph must be construed in the light of the introductory words which apply to para.(b) as well as para. (a) and are clearly expressed in terms of abating or exempting the tax which would otherwise be chargeable. When para. (b) is so construed, there, is no reason regard the word "exempt" as if it means "wholly exempt."

Indeed, an attempt to read para.(b) as if the word "wholly" appeared before "exempt" gives rise to a dissonance. That is because one is then attempting to read the words "to the extent that" as if they mean "if." That is not their natural and ordinary meaning. They are words of quantification and degree; they are not apt to signify a condition.

The Commissioner’s interpretation gains support from the second proviso to s.102(b). That proviso envisages partial relief from the foreign tax in the foreign territory yet specifically provides that the foreign income shall not be exempt in such a situation. The operation of the proviso is inconsistent with the taxpayer’s interpretation.

The final point to be made on the interpretation of the language of the provision is that the Commissioner’s interpretation respects the charging provisions of the Act, notably ss. 7(1)(3), 11(r) and 24(i) and allows them an unrestricted operation and then, in appropriate cases, allows a foreign tax credit against Fijian tax.

Accordingly, on the natural and ordinary interpretation of s.102(b), we conclude that the Commissioner’s interpretation is correct. This conclusion is enough to dispose of the appeal. Our conclusion is, however, supported by the history of the provision which we have recited.

Use of History

There was a submission made during the course of argument that the Court should not have regard to extrinsic materials. It is, of course, right to say that the courts resort to extrinsic materials in order to interpret statutes only in cases of ambiguity (Re Bolton; Ex parte Beane [1987] HCA 12; (1987) 162 CLR 514). If the text is clear, the text must prevail. If, however, the text is ambiguous or admits of more than possible interpretation - and if our interpretation be not accepted, the language of s.102(b) would necessarily give rise to ambiguity - it is now widely accepted in many common law jurisdictions that recourse by the courts to legislative history and extrinsic materials is a legitimate aid to interpretation. For present purposes it is sufficient to refer to the decision of the House of Lords in Pepper v. Hart [1992] UKHL 3; [1993] AC 593 where the rule excluding reference to Parliamentary materials as an aid to statutory construction was relaxed so as to permit such reference when-

(1) the legislation is ambiguous or obscure or leads to absurdity,

(2) the material relied upon consists of statements by a Minister or other promoter of a Bill together with such other Parliamentary material as is necessary to understand such statements, and

(3) the statements are clear.

In our view, the extrinsic materials to which reference can be made as an aid to statutory construction are not limited to Parliamentary materials. In the past, at least for the purpose of identifying the "mischief" sought to be remedied by legislation, resort has been made to the reports of committees of experts or other persons on which legislation has been based. We see no reason why reports of that kind cannot be used as an aid to statutory construction, without being confined in their use to the identification of the mischief aimed at. Indeed, we consider that it would be unwise to limit the extrinsic materials to which a court can legitimately have regard, so long as the pre-conditions of ambiguity and clarity are observed and the materials are of such a kind that they do throw significant light on the statutory intention.

With these comments in mind we turn to the extrinsic materials in this case. The statements made by Mr. Stinson on the introduction of the Bill are of assistance in one respect only, namely that the Bill was based in part at least on the Mathews report and that there was no suggestion that what is now s.102 represents a departure from the recommendations in the report. To that extent the statements provide assistance in linking the legislation to the report, in particular the passages to which we have referred, including the recommendation in para. 4.73. They provide strong arguments why, in a case of ambiguity, one should favour the Commissioner’s interpretation.

One matter remains to be mentioned and that is the suggestion made by Mr Keil for the taxpayer that the difference between the old s.44 and the present s.102(b) is no more than a matter of legislative style. For the reasons we have already given, we see a difference of substance in the use of the conditional "if" in s.44 and the use of the quantitative "to the extent that" in s.102(b). Furthermore, the opening words of s.44(1) and proviso (b) to that sub-section make it patently clear that the operation of the provision exempted the relevant foreign income from Fijian income tax. The difference between s.44 and s.102(b) is, in our view, significant.

In the result, the appeals must be dismissed.

Orders: Appeals dismissed.

Appellants to pay the respondent’s costs.

Lord Cooke of Thorndon

Sir Anthony Mason

Solicitors:

Messrs. Mitchell Keil and Associates, Suva for the Appellants
Office of the Commissioner of Inland Revenue, Suva for the Respondent

CBV0005U.98S