N6622
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

CIA NO. 85 OF 2016 

BETWEEN
HLB BUSINESS SERVICES LTD t/as HLB NIUGINI REGISTERED PUBLIC ACCOUNTANTS & AUDITORS
Appellant

AND

BETTY PALASO, COMMISSIONER GENERAL – INTERNAL REVENUE COMMISSION
Respondent

Waigani: Makail, J
2017: 17th& 22ndFebruary

APPEAL – Appeal against cancellation of registration of Tax Agent – Decision by Registrar of Tax Agent and Tax Agent Board – Grounds to cancel registration of Tax Agent discussed – Application for registration as Tax Agent – Cancellation distinct from registration of Tax Agent – Income Tax Act – Sections 346 & 348

TAXATION LAW – Hearing before Registrar of Tax Agent – Duty to act fairly – Right of Tax Agent to be heard before decision to cancel registration – Breach of – Denial of natural justice – Constitution – Section 59 – Income Tax Regulations – Section 90 

Cases cited:
Bougainville Copper Foundation v. Minister for Trade and Industry and NIDA [1988-89] PNGLR 110 
Madang Cocoa Growers Export Co Ltd v. LauatuTea’rikiTautea(2012) N4584

Counsel:

Ms. P. Tamutai, for Appellant
No appearance, for Respondent

JUDGMENT

22nd February, 2017

1.	MAKAIL J:  This is an appeal under Section 348 (6) of the Income Tax Act.  It arises from a decision by the Respondent through the Registrar of Tax Agent (“Registrar”) and Tax Agent Board (“Board”) dated 20th June 2016 to cancel the Appellant’s registration TTA 378 as a Tax Agent under Section 346 of the Income Tax Act.
Decision of Respondent

2.	According to the decision conveyed to the Appellant by letter, the reasons were:
(a)	The Appellant’ nominee, Mr. Prashant Shastri was not a member of the “Partnership” as required by Section 346 (3) (b) of the Income Tax Act.
(b)	The Appellant’s Tax Agent Number TTA 378 was transferred from Mr. De Kewanu, an Individual Tax Agent to HLB Niugini, a Partnership Tax Agent, without seeking approval from the Board and following proper procedures.  Hence, the Appellant was not a registered Tax Agent and was illegally charging fees for its tax agent services to its clients.  This is an offence under Section 349 of the Income Tax Act.
(c)	The Appellant was not registered with the Respondent for Income Tax purposes and did not lodge its “Partnership” Tax Returns to declare the income it earned during each respective year of income.
(d)	The Appellant owned other companies which were registered with the Respondent but were “not complying with their obligations as registered tax payers.”

3.	The decision effectively terminated the Appellant from acting as a Tax Agent, and from signing and filing Tax Returns for its clients.

Orders Sought

4.	The Appellant seeks orders to quash the decision, reinstatement and registration of its Tax Agent and Mr. Shastri be legally recognised as its nominee Tax Agent.
Grounds of Appeal

5.	It relies on principally two grounds.  First, error of law and secondly, breach of natural justice.

Registration of Tax Agent

6.	As to the first ground, it argues that the Respondent erred when it held that the appointed nominee, Mr. Shastri was not a member of the “Partnership” as required by Section 346 (3) (b) of the Income Tax Act. It was not a partnership but a company trading as HLB Niugini Registered Public Accountants and Auditors and that Mr. Shastri was employed in an “Advisory” capacity since 2007.

7.	The registration of Tax Agent is provided under Section 346.  This provision states:

“346.	Registration of tax agents.

(1)	A person or partnership desiring to be registered as a tax agent may apply to the Registrar.

(2) An application under this section shall be accompanied by a lodgement fee of—

(a)	K1,000.00; and

(b)	an additional K500.00 for each nominee where the applicant is a partnership or company.

(3)	If the applicant satisfies the Registrar that—
(a)	in the case of an individual—the applicant;

(b)	in the case of a partnership—a member of the partnership specified in the application; or

(c)	in the case of the company—a person, specified in the application, employed by the company, 

is a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers of a kind permitted to be prepared or carried out by a person registered as a tax agent and the Registrar may publish guidelines for the purposes of deciding whether a person is a fit and proper person and further.

(d)	in the case of a partnership—every member of the partnership; or

(e)	in the case of a company—every director, and every manager or other administrative officer, of the company,

is over the age of 21 years at the date on which the application is made, and is of good fame, integrity and character, the Registrar shall register the applicant as a tax agent of that class.

(3A)	. . . [Repealed]

(4)	When a partnership or company is registered as a tax agent, the member or person referred to in Subsection 3(b) or (c) shall be registered by the Registrar as a nominee of the tax agent for the purposes of this Part.

(5)	A partnership or a company may, either in an application for registration as a tax agent or, if it is already so registered, in an application made for the purpose, request the Registrar to register as additional or substituted nominees of' the partnership or company for the purposes of this Part any other members of the partnership or persons employed by the company, and shall pay, in respect of each proposed nominee, a lodgement fee of K500.00, which the Registrar shall pay to the Commissioner General.

(6)	If the Registrar is satisfied that a person in respect of whom a request is made under Subsection (5) is a fit and proper person to prepare income tax returns and transact income tax business of a kind permitted to be prepared or carried out by a person registered as a tax agent, he may register that person as an additional or substituted nominee of the tax agent for the purposes of this Part.

(7)	Every partnership that is registered as a tax agent shall forthwith notify the Registrar of any change in the constitution of the partnership, and every company that is registered as a tax agent shall forthwith notify the Registrar if any person who is a nominee of the company for the purposes of this Part ceases to be employed by the company or if a person becomes a director, or a manager or other administrative officer, of the company.

Penalty:	K100.00.

(8)	A person shall cease to be a nominee of a partnership or company—

(a)	in the case of a partnership—if he ceases to be a member of the partnership;

(b)	in the case of a company—if he ceases to be employed by the company;

(c)	upon notification by the partnership or company to the Registrar that it no longer desires that person to be its nominee; or

(d)	if the Registrar serves upon the partnership or company a notice that in his opinion that person is no longer a fit and proper person to be a nominee of the partnership or company, as the case may be.
(9)	Where—

(a)	an application under this section has not been granted or has been withdrawn; or

(b)	the registration of a person or a partnership as a tax agent, or as the nominee of a tax agent, has ceased,

in circumstances that, in the opinion of the Registrar, justify the repayment of the lodgement fee paid under Subsection (2) or (5), the Registrar shall notify the Commissioner General in writing accordingly, and the Commissioner General shall repay the lodgement fee.” (Emphasis added).

8.	I consider that this provision sets out the requisite requirements of an application for registration as a Tax Agent.  An applicant must satisfy the Registrar that it has met any of these requirements before it is registered.  Under Sub-section 3 of this section, there are three types of applicants.  One is an individual, two a partnership and three, a company.  In the case of second and third group, the applicant must be a member of the partnership who is nominated by the partnership and in the case of a company, the person must be employed by the company.

9.	In each case, the applicant or nominee must be a fit and proper person to prepare tax returns and transact business on behalf of taxpayers of a kind permitted to be prepared or carried out by a person registered as a Tax Agent. Sub-section 3 also states that the Registrar may publish guidelines for the purpose of deciding the question of fit and proper person to be registered.  I note that there is no evidence of any published guidelines placed before me. 

10.	The grounds for de-registration of a Tax Agent are set out at Sub-section 8 of this Section, one of them being the cessation of a member of the partnership and in the case of a company, the cessation of a person as an employee of the company.

11.	As noted earlier, one of the reasons given by the Respondent was that the nominee, Mr. Shastri was not a member of the “Partnership” of HLB Niugini.  I accept the Appellant’s argument.  This is clearly an error.  The Appellant is not a partnership.  The uncontested evidence from Mr. De Kewanu and Mr.Shastri in their respective affidavits is that the Appellant is a company and that Mr. Shastri employed by the Appellant in an “advisory” capacity since 2007.

12.	I also refer to a copy of the computerised extract of the company records held at Investment Promotion Authority dated 8th July 2016 to verify the Appellant’s claim that it is a company trading as HLB Niugini Registered Public Accountants and Auditors.  

13.	Further, it is quite an extraordinary change of position by the Respondent or rather, as the Appellant puts it in its submission, a “misunderstanding” on the part of the Respondent to assert that the Appellant is a partnership when evidence overwhelmingly show that in the preceding years, the Appellant had been accounting to the Respondent its Tax Agent fees under the name of the operating company, HLB Business Services Limited (Tax File # 500132493). I refer to annexure “K” to the affidavit of Mr.Shastri as evidence of the Company Returns of the Appellant between 2010 and 2013.

14.	Finally, Mr.Shastri has been the appointed nominee of the Appellant since 2007.  His application as an additional nominee was approved by the Respondent through the Board with no queries raised. 

15.	I am satisfied that the Respondent erred in law when it cancelled the Appellant’s registration on the ground that the Appellant was a partnership and that Mr. Shastri was not a partner of the Appellant.  I am further satisfied that the Appellant has satisfied the requirements under Section 346 (3) (c) of the Income Tax Act.  I uphold this ground of appeal.

16.	As noted earlier, Section 346 deals with registration of Tax Agents and sets out the requirements.  In my view, where an applicant fails to meet any of these requirements, the Registrar may refuse its application for registration as a Tax Agent.    That is all the Registrar is and was required to do.

Cancellation of Registration of Tax Agent

17.	But it is quite clear that he went beyond that because as noted earlier, one of the reasons for cancelling the Appellant’s registration as a Tax Agent was that its nominee, Mr.Shastri was not a member of the partnership  (This ground was found to be an error).  The discretion to cancel the registration of a Tax Agent is provided for under Section 348 of the Income Tax Act.  In my view, it is a distinct and separate process from registration.  

18.	And the grounds for cancellation of registration of a Tax Agent are set out in Section 348.  It states:
	“348.	Cancellation of registration of tax agents.
(1)	Registration as a tax agent remains in force until cancelled in accordance with this Act.
(2)	The Registrar may cancel the registration of a tax agent upon being satisfied that—
(a)	a return that has been prepared by or on behalf of the tax agent is false in any material particular, unless the tax agent establishes to the satisfaction of the Registrar that he had no knowledge of the falsity or that the falsity was due to his inadvertence;
(b)	the tax agent—
(i)	has neglected the business of a principal;
(ii)	has been guilty of misconduct as a tax agent;
(iia)	. . . [Repealed]
(iii)	is not a fit and proper person to remain registered; or
(iv)	has not within the previous three years lodged sufficient numbers of income tax returns or transacted sufficient income tax business as a tax agent to warrant remaining registered; or
(c)	in the case of a partnership or company—a nominee of the tax agent is not a fit and proper person to be such a nominee, or that a person who has become a member of the partnership, or a director, or manager or other administrative officer, of the company is under the age of 21 years or is not of good fame, integrity and character.
(3)	The Registrar shall cancel the registration of a tax agent if the tax agent fails to give notice, and furnish particulars, to the Registrar in accordance with Subsection (2).
(4)	The Registrar shall cancel the registration of an individual as a tax agent upon his death, insolvency or his permanently ceasing to carry on business as a tax agent.
(5)	The Registrar shall cancel the registration of a tax agent that is a partnership or a company—
(a)	if there is no nominee registered in respect of the tax agent;
(b)	in the case of a company, if the company goes into liquidation or, in the case of a partnership, if any partner is adjudicated insolvent; or
(c)	if it permanently ceases to carry on business as a tax agent.
(6)	Where the registration of a tax agent is cancelled, an appeal lies to the National Court and the decision of the National Court on the appeal is final and conclusive.
(7)	The regulations may prescribe the practice and procedure in connection with appeals under Subsection (6) and may make provision for the suspension of the cancellation during any period before the appeal is finally disposed of.
(8)	If an individual who is registered as a tax agent is adjudicated insolvent or permanently ceases to carry on business as a tax agent, he shall forthwith notify the Registrar of that fact.
Penalty:	A fine of not less than K500.00 and not exceeding K5,000.00.
(9)	A registered tax agent that is a partnership or a company shall forthwith notify the Registrar of any event or matter specified in Subsection (5) that occurs in relation to the partnership or company.
Penalty:	A fine of not less than K500.00 and not exceeding K5,000.00.”

19.	From my reading of this provision, I find that a nominee who is not a member of a partnership is not a ground for cancelling the registration of a Tax Agent.  On the contrary, it is one of the grounds for refusing a partnership’s application for registration as a Tax Agent.  This distinction is clearly borne out by Sections 346 (3) (b) and 348.

20.	In a case where there is a sole applicant or nominee and its application is refused by the Registrar under Section 346, there will be no applicant or nominee and the Registrar may cancel the applicant’s registration on the ground that there is no nominee registered in respect of the Tax Agent under Section 348 (5) (a).  This appears to be the case here although it is not clearly expressed by the Respondent in its decision.

21.	The apparent lack of clarity or “misunderstanding” by the Respondent has led the Appellant to argue at page 10 of its written submission, and in my view, quite correctly, that “Section 348 of the Act is the appropriate provision for cancellation of a tax agent and not Section 346 of the Act as applied by the Registrar of Tax Agent and the Tax Agent Board.”Even then, this ground cannot be sustained because the Appellant’s nominee, Mr.Shastri was not a nominee of a partnership but a company and employed by the company.  Hence, the decision is legally flawed.  I uphold this further ground of appeal.

22.	As to the other grounds for cancelling the Appellant’s registration set out at [2 (b)-(d)] (supra), they are not proper grounds according to the prescribed grounds in Section 348.  In addition, in the absence of a published guideline, it is difficult to say that the grounds relied upon by the Respondent are additional grounds on which the Registrar may cancel registration of a Tax Agent.  

23.	Given this, I find that it is not a ground to cancel the Appellant’s registration as a Tax Agent if it is not registered as a Tax Agent and was illegally charging fees for its services.  However, it can and is an offence to engage in such conduct and as correctly pointed out by the Respondent; the recourse available to it is to have the Appellant charged for being an unregistered Tax Agent under Section 349 of the Income Tax Act.

24.	Similarly, it is not a ground to cancel a registration of a Tax Agent if a Tax Agent fails to lodge its Tax Returns.  If this ground was intended to establish that the Appellant or its nominee, Mr.Shastri was not a fit and proper person to be registered as a Tax Agent within the meaning of Section 348 (2) (c) of the Income Tax Act, it is not sufficiently expressed in the decision. In any case, the Respondent has recourse to section 229 of the Income Tax Act where a tax pay has defaulted in lodging Tax Returns.

25.	As to the final ground, it is vague, hence difficult to work out what the Respondent meant by alleging that the Appellant’s other companies “not complying with their obligations as registered tax payers”?  Is it a default in lodging their Tax Returns or payment of tax?  It is unclear.  And it should not be for the Court to work out the grounds or the Appellant put through the trouble of ascertaining the grounds for the decision.  Apart from this, it is also not one of the prescribed grounds in Section 348 to cancel the Appellant’s registration as a Tax Agent.  The absence of the published guidelines does not help the cause either.

26.	For these reasons, I find that the Respondent erred in cancelling the Appellant’s registration as a Tax Agent.  This further ground of appeal is upheld.

Breach of Natural Justice

27.	The Appellant challenges the manner in which the Respondent, particularly the Registrar and Board dealt with its application for registration as a Tax Agent.  It argues that the grounds relied upon by the Registrar to cancel its registration should have been handled better and resolved amicably between the parties if it was given an opportunity to be heard before the ultimate decision.  

28.	It argues it had a right to be heard which was denied by the Respondent.  That right is provided under Section 90 of the Income Tax Regulations (“Regulations”) where the Registrar may, amongst other things, take oral evidence on oath or affirmation from Mr.Shastri or give notice in writing to him to attend and give evidence concerning the application.  This right reinforces the principles of natural justice under Section 59 of the Constitution where the minimum requirement is for the decision-maker to act fairly.  And if accorded, it argues, would have given it the opportunity to explain or clarify these issues which have now become subject of these proceedings, and saved the parties and Court, time.

29.	I uphold this further ground based on these submissions.  I am satisfied that all these issues brought up by the Respondent in its decision to cancel the Appellant’s registration could have been better handled if it gave the Appellant the opportunity to be heard pursuant to Section 90 of the Regulations.  This process was by-passed.  As a result, the decision was not only reached in breach of natural justice but in breach of Sections 346 and 348 of the Income Tax Act.

30.	It is also clear to me that the Respondent failed to distinguish registration from cancellation of a Tax Agent and treated the Appellant’s nominee, Mr.Shastri’s application for registration as if it were a cancellation.  It was more or less a mix-up between the two processes by the Respondent which in the end denied the Appellant the right to be heard.

31.	But it is a serious omission and it cannot be emphasised enough that a right of a statutory permit or licence holder as the Appellant must be observed as part of the right to natural justice, before its authority is cancelled, suspended or changed in a material way.  If not observed, the impact on the holder can be huge and devastating.  Cannings J reinforced this view expressed earlier by Bredmeyer J in Bougainville Copper Foundation v. Minister for Trade and Industry and NIDA [1988-89] PNGLR 110 in Madang Cocoa Growers Export Co Ltd v. LauatuTea’rikiTautea(2012) N4584.

32.	In this case, the cancellation of the Appellant’s authority to act as a Tax Agent has effectively terminated it as a Tax Agent and terminated its services to its clients for a fee.  Unless the Respondent has suspended the cancellation of registration pending the outcome of this appeal pursuant to its powers under Section 348 (7) of the Act, or an order staying the decision which I am not aware of as counsel for the Appellant has not brought any to my notice, the uncontested evidence of Mr.Kewanu at para. 30 of his affidavit is that, the Appellant serves over 150 clients. That is the number of clients it has lost as a result of the decision, not to mention, the monetary loss. 

33.	The appeal will be upheld for these reasons.  

Grant of Relief 

34.	In terms of relief, Section 348 (6) is of no assistance so as Section 88 of the Regulations.  Unlike an appeal from the National Court to the Supreme Court under Section 16 of the Supreme Court Act where the Supreme Court may, amongst other things, affirm, reverse or modify the judgment or remit the case in whole or in part for further hearing, these provisions do not specify the orders/relief the Court can make. 

35.	However, the way the appeal has been prosecuted appears to be a re-hearing.  In that sense, I am of the view that it will be within the discretion and power of the Court to grant relief as it considers appropriate.  

36.	Having considered the issues and evidence in the appeal as if it were a re-hearing and having upheld the grounds of appeal, I am further satisfied that the orders sought are appropriate and grant them.

Order

37.	The orders are:

	1.	The appeal is upheld.

2.	The decision of the Respondent through the Registrar of Tax Agent and Tax Agent Board dated 20th June 2016 is quashed.

3.	The Respondent through the Registrar of Tax Agent, reinstate and register the Appellant as a Tax Agent forthwith.

4.	A declaration that Mr.Prashant Shastri is the legally appointed nominee of the Appellant.

5.	The Respondent shall pay the costs of the appeal, to be taxed, if not agreed.

6.	Time shall be abridged.
_________________________________________________
Tamutai Lawyers:	          Lawyers for Appellant
IRC In-house Lawyers:  Lawyers for Respondent