Attorney-General v Mote [1997] KIHC 1; HCCC 41.94 (10 February 1997)

The plaintiff, the Attorney General in respect of the Internal Revenue Board, brings this action against the defendant to recover income tax amounting to $19,915.05, plus interest of $8,030.23 for the period 28.10.91 to 30.6.94 and continuing interest of $8.18 per day, plus costs. The amount claimed represents tax assessed in respect of the defendant's income for the years 1988, 1989, 1990 and 1991 less an amount of $297.85 made up of PAYE deductions ($264.78) and a tax refund for the year 1992 ($33.07).

The defendant did not pay the tax assessed but did not lodge a notice of objection or notice of appeal against the said assessments.

The Notices of Assessment to Income Tax for the years 1988, 1989 and 1990 (Exhibits A, B and C) are all dated 27.9.91 and signed by B.N. Forbes for Internal Revenue Board. There was evidence that B. N. Forbes was the Inspector of Taxes when he signed those Notices. The Notice for the year 1991 is dated 28 September 1993 and signed by the present Inspector of Taxes, (Matereta B. Raiman) for Internal Revenue Board.

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Also in evidence for the plaintiff as exhibit E is a Certificate of Tax Owing signed by the Minister and purportedly issued under section 59(2) of the Income Tax Ordinance Cap.44 (hereinafter referred to as "the repealed legislation").

His defence in relation to the plaintiffs claim for tax owing for the years 1988 and 1989 is quite different from his defence to the claim for tax owing for the years 1990 and 1991.

I propose to deal first with the claim for tax owing for the years 1988 and 1989. The defendant's case in answer to that claim is that the notices of assessment for those years are invalid because the Internal Revenue Board had no legal authority to issue them.

Under the Income Tax Act 1990 (hereinafter referred to as "the Act") the Internal Revenue Board has the responsibility of assessing every person chargeable to tax under the Act (sec. 100(1)) and of serving every such person with a notice of assessment (sec. 100(6)). A copy of any such notice of assessment is receivable in any proceeding as conclusive evidence of the due making of the assessment and that the assessment is correct (sec. 100(9)).

The Act came into operation on 1 January 1990. Although it repealed the Income Tax Ordinance (Cap.44), the repealed legislation continues to apply to income of any tax year prior to 1990 (sec. 135(2)).

Under the repealed legislation it is the Minister who has the responsibility of assessing tax and serving a notice of assessment, not the Internal Revenue Board. Under section 55(1) of the repealed legislation an assessment so made is final and conclusive for the purposes of the Ordinance.

In the present case, the income for the tax years 1988 and 1989 is clearly governed by the repealed ordinance and not the Act. It follows that the notices of assessment for those years should have been signed by the Minister and not the Internal Revenue Board. In the case of Waysang Kum Kee v. Attorney-General (Civil Appeal No.2 of 1992) the Court of Appeal, dealing with a similar issue, held:

"It is apparent that under the repealed legislation a notice of assessment to have the effect given by section 55(1) must have been signed by the Minister or his delegate".

It is not contended by the plaintiff that B. N. Forbes, the person who signed the assessments for the tax years 1988 and 1989 was a delegate of the Minister. Nevertheless, counsel for the plaintiff submits that B. N. Forbes was still authorised to sign those notices of assessment for the Internal Revenue Board because of the provisions of order 3 of the Income Tax (Transitional Arrangements) (Amendment) Order 1992 which deals with returns and assessments. That order is in the following terms:

3(1) Subject to suborder (2) where a taxpayer is liable to tax, interest or penalty under the Repealed Legislation and is assessed on or after 1 January 1990 then the corresponding provisions of the Act relating to Returns and Assessment under Part XI V of the Act apply.

(2) where a taxpayer is assessed under suborder (1) the rates of the tax as provided under the Repealed Legislation apply".

The Order, made by the Beretitenti acting in accordance with the advice of the Cabinet and purportedly in exercise of the powers conferred by section 137 of the Income Tax Act, is deemed to have come into operation on 1 January 1990. It was gazetted as LN 43 on 31 December 1992.

"137. The Beretitenti, acting in accordance with the advice of the Cabinet, may, by order, prescribe transitional arrangements with respect to any matter which is not covered by any provisions of this Part". (The emphasis is mine).

Section 137 is in the same Part of the Act (i.e. Part XX) as section 135, which I have already referred to.

"(2) The Repealed Legislation shall continue to apply to income of any tax year prior to 1990 in the manner it would have applied if it had not been repealed".

The Order clearly covers transitional arrangements which have already been covered by section 135(2). In fact, the Order attempts to achieve exactly the opposite effect of what the legislature has prescribed in section 135(2). Such a result may be accomplished by Act of Parliament but certainly not by an Order under section 137.

This question was considered in Waysang Kum Kee (op. cit.) where the Court of Appeal came to what I regard as the inevitable conclusion that an Order made under such circumstances would be void.

"It follows that it is clear that the effect of section 135(2) is to preserve in force, in relation to tax years prior to 1990, the provisions of the repealed legislation regarding, amongst other things, the effect of notices of assessment and certificates It further follows that the Beretitenti would have had no power under section 137 to prescribe transitional arrangements with respect to those matters, because they are covered by other provisions of Part XX, namely those of section 136(2)".

Accordingly, I hold that order 3 of the Income Tax (Transitional Arrangements) (Amendment) Order 1992 relied upon by the plaintiff is void and of no effect.

As I have said, the notices of assessment for the tax years 1988 and 1989 should have been issued by the Minister. The Internal Revenue Board, through its delegate B.N. Forbes, had no authority to do so. I therefore find that those notices of assessment do not satisfy section 55(1) of the repealed legislation and thus have no evidentiary value.

That is not the end of the matter. The plaintiff still relies upon the "Certificate of Tax Owing" (exhibit E) signed by the Minister and said to be issued under section 59 of the repealed legislation (although the tax shown thereon as owing for the years 1990 and 1991 would not be covered by the repealed legislation and would need to be the subject of a certificate issued under section 108(2) of the Act). The certificate shows tax owing for 1988 to be $7,124.07 and tax owing for 1989 to be $9,220.28.

Section 59 of the repealed legislation falls within Part X which deals with the collection and repayment of tax.

Under section 57, the tax charged in an assessment is due and payable by a date stated in the notice of assessment. Under section 58, if the tax is not paid by the due date it becomes subject to the payment of an additional sum by way of penalty or interest.

Section 59(1) provides that whatever tax, interest or penalty is due can be recovered by a court action. Section 59(2) provides for a way of proving in such action the amount of tax due by the defendant.

"59(1) Any tax, interest or penalty assessed or imposed upon any person under this Ordnance shall be recoverable as a Crown debt and may be sued for and recovered in a court of competent jurisdiction by the Minister, or any officer authorised by him in writing, with full costs of the suit from that person.

(2) In any suit under subsection (1), the production of a certificate signed by the Minister giving the name and address of the defendant and the amount of tax due by him shall be sufficient evidence that that amount of tax is due by that person and sufficient authority for the court to give judgment for that amount".

It can be seen that a certificate signed by the Minister does not, of itself, create a liability to pay tax. That liability arises when a notice of assessment is served in accordance with section 57. What the certificate does is provide sufficient evidence of the amount of tax due by the defendant under that liability.

In the present case, I have already held that there is no evidence that valid notices of assessment were served on the defendant for the tax years 1988 and 1989. Therefore no tax has become due and payable by the defendant for those years so as to ground a suit against him under section 59(1). In the circumstances, the certificate tendered by the plaintiff as exhibit E has no probative value.

It follows that the plaintiff has failed to prove that part of his case concerning the tax years 1988 and 1989.

I come now to deal with that part of plaintiff’s case claiming tax owing for the years 1990 ($3,777.95) and 1991 ($90.60).

The assessments for those years (exhibits C and D) were issued in accordance with the Act. The assessment for the year 1990 is signed by Barry Forbes for the Internal Revenue Board. I have heard sworn evidence from the present Inspector of Taxes, Matereta B. Raiman, that Barry Forbes was the Inspector of Taxes when he signed that assessment and that he was entitled to do so on behalf of the Board. The assessment for the year 1991 was signed by the witness herself, as Inspector of Taxes, for the Internal Revenue Board.

Under the Inspector of Taxes and Staff of Taxation Division (Delegation) Instrument 1992, (L.N. 44) which is deemed to have come into operation on 1 January 1990, the Internal Revenue Board has delegated to the Inspector of Taxes full power and authority to administer the Income Tax Act.

I have also heard evidence that the documents exhibits C and D are copies of the notices of assessment for the years 1990 and 1991 kept on file in the office of the Board, and that the originals were posted to the defendant.

In relation to these copies, subsection (9) of section 100 of the Act provides as follows:

“(9) Where, for any tax year, complete copies of all notices of assessment and of notices amending assessments have been placed on file in the office of the Board, such notices shall be deemed to constitute the assessment list for the purposes of this Act; and a copy of any such notice shall be receivable in any proceeding as conclusive evidence-

(b) except in any proceeding under Part XV relating to the assessment, that the amount and all the particulars of the assessment are correct".

The effect of this provision is that once a copy of a notice of assessment is received in evidence in an action for recovery of tax it provides conclusive evidence that the assessment was duly made and, except on an appeal under Part XV, that it was correct in all respects.

Under section 108(l) any unpaid tax becomes recoverable as a debt due to the Republic. Section 108(l) is in these terms:

"108(1) Any tax, interest or penalty assessed or imposed upon any person under this Act-

(a) shall, when it becomes due and payable, be recoverable as a debt owing to the Republic; and

(b) may be sued for and recovered in a court of competent jurisdiction by the Republic with full costs of the suit from that person".

The case for the defendant as regards these two assessments is that, firstly, there is no proof that the assessments were served on him, and secondly, that he was not properly informed of his right to appeal against the assessments.

The Internal Revenue Board is required under section 100(6) of the Act to serve a notice of assessment which also advises the taxpayer of his rights of appeal under section 101 and 105.

“(6) The Board shall cause a notice of assessment to be served on each person assessed which shall -

(b) inform the person assessed of the rights of appeal under sections 101 and 105”.

Service of documents is provided for in the Income Tax Regulations 1990. The relevant regulations are regulations 3(1)(c) and 3(3). They read as follows:

"3(1) Where the Act requires that an assessment or other document be served on a taxpayer or that notice in writing be given to a taxpayer, the service or giving of notice may be effected by:

(c) mailing of the assessment, document or notice to the last known address notified to the Board of the taxpayer or of any agent authorised by the taxpayer to act in relation to income tax matters.

(3) Where service or the giving of notice is effected by mail, the taxpayer shall be deemed to have been served or to have received the notice 7 days after posting where the mail is addressed to a place in Kiribati and 14 days after posting where the mail is addressed to a place outside Kiribati".

The Inspector of Taxes gave evidence that the assessments were posted in accordance with the normal procedure. No record of outgoing correspondence is kept, but the copy of the assessment on file is evidence that it was posted to the address on the copy. Had the assessments been returned, then the Board would have been put on notice that the defendant had not received them. That did not happen in the present case and the Inspector was satisfied that the` assessments had been received by the defendant. The Inspector also testified that there was other correspondence on file consistent with the defendant having received the assessments.

A letter from the defendant was tendered in the plaintiff’s case as exhibit F. It is not dated but bears a note "Recd 7/5/92". In it the defendant requests the Inspector of Taxes to consider waiving all taxes payable by him.

Another letter, this one from the Internal Revenue Board to the defendant dated 27 September 1991, was tendered in the defendant's case as exhibit 1. In it, the Board refers to revised estimated assessments for 1988 and 1989, and advises that the estimated assessment for 1990 is enclosed with the letter. I note that the 1990 notice of assessment bears the same date as the letter i.e. 27 September 1991.

On the balance of probabilities I am satisfied that each notice of assessment was posted to the address shown on the copy in accordance with the normal procedure of the Internal Revenue Board and I find as a fact that the defendant was duly served with both notices.

In relation to advising the defendant of his right of appeal, the 1990 notice informs the defendant of his right of appeal under section 101 but does not mention section 105. The 1991 notice informs the defendant of his right to an "objection" under section 101 but, again, section 105 is not mentioned.

The point that section 105 was not mentioned in the notices has not been taken by the defendant. Nevertheless, it will be remembered that the Board is required by section 100(6) to serve on the taxpayer a notice of assessment which informs him of his rights of appeal under sections 101 and section 105. I do not consider that a taxpayer who had not been informed of his rights under section 105 would be done an injustice because that section only comes into operation after an appeal has been lodged under section 101. Notwithstanding that, had it been the intention of the legislature to afford the Internal Revenue Board a choice of which appeal section it wished to inform the plaintiff about, then the disjunctive "or" would have been used instead of the conjunctive "and". The Board should therefore ensure that its notices comply with the Act in all respects. Having said that, in my opinion the omission is not of a kind which would render the notices of assessment voidable.

There is no question then that notices of assessment were served on the defendant advising him of his right to appeal or object to the assessments concerned.

The defendant's only remaining argument is that the letter from the Internal Revenue Board (defendant's exhibit 1 referred to earlier) is in effect a revised notice of assessment yet it does not advise the defendant of his right of appeal. This argument has no merit at all in view of the fact that I have found that the 1990 and 1991 notices of assessment were served on the defendant.

It follows from what I have said that the plaintiff succeeds in that part of his claim concerning the recovery of tax and interest owing by the defendant for the tax years 1990 and 1991.

Accordingly, there will be judgment for the plaintiff in the sum of $6,909.14 made up as follows:

TAX YEAR 1990
Tax owing	3,777.95
Interest from 28.10.91 to 10.2.97 (1933 days x 1.55 per day)	2,996.15
TAX YEAR 1991
Tax owing	90.60
Interest from 29.10.93 to 10.2.97
(1201 days x .037 per day)	44.44
	$6,909.14

Because each of the parties has been only partly successful there will be no order as to costs.

High Court of Kiribati

Attorney-General v Mote [1997] KIHC 1; HCCC 41.94 (10 February 1997)