Aerolift International Ltd v Mahoe Heli-Lift (SI) Ltd [2007] SBHC 56; HCSI-CC 387 of 1995 (1 June 2007)

HIGH COURT OF SOLOMON ISLANDS

Civil Case Number 387 of 1995

Aerolift International Limited

v.

Mahoe Heli-Lift (SI) Limited; Mahoe Sawmills Limited;
and The Attorney-General (Representing the Director of Civil Aviation)

(Palmer CJ.)

Date of Hearing: 28th February 2007
Date of Judgment: 1st June 2007

Sol-Law for the Plaintiff
No appearance by the first and second Defendants
F. Waleanisia for the third Defendant.

Palmer CJ.: By order dated 16th January 1996, this Court directed that the sum of USD157,340.00 be restrained and paid into Court, or otherwise secured pending determination of the outstanding issues before this Court. The matter went to trial as far as the Court of Appeal and finally determined on or about 4th August 2004 in favour of the Plaintiff ("Aerolift"). The orders of the High Court stated inter alia as follows:

"a. 1. The Plaintiff is beneficially solely entitled to the moneys standing to the credit of account in the name of the First Defendant with the National Bank of Solomon Islands Limited together with any accruals, but less any taxes or other charges or costs properly payable out of them) as a consequence of the operation of those irrevocable authority nos 27, 28, 29, 30, and 32."

The amount of USD157,340.00 restrained is the subject of dispute whether withholding tax should be paid or not. Aerolift does not dispute that withholding tax is payable on the accrued interest of USD9,088.58. This works out to USD1,363.28 at the rate of 15¢ in the dollar as set out in the Sixth Schedule to the Income Tax Act [Cap. 123]. I grant orders for this amount to be paid to the Solomon Islands Government forthwith.

The issue for determination turns on the question whether withholding tax is payable on the income of USD157,340.00 under section 38(1) of the Income Tax Act in accordance with the rates of withholding tax for non-residents.

Section 38(1) provides that withholding tax shall be deducted at the appropriate withholding rate specified in the Sixth Schedule in force at the date on which such income is payable. Mr. Sullivan for Aerolift submits that the date on which such income is payable is the date on which the Irrevocable Authorities were issued and certainly not later than 16th January 1996. Mr. Waleanisia on behalf of the Attorney-General on the other hand submits that the relevant date is the date after the Courts finally determined the dispute over that money in favour of Aerolift and the money eventually released to be paid. That occurred after 4th August 2004. Withholding tax therefore is to be calculated with effect from that date and not before.

It is not in dispute Aerolift is a non-resident for purposes of calculating withholding tax. Mr. Sullivan submits that the Court should interpret the phrase "date on which such income is payable", as applying to the date of each irrevocable authority which occurred well before 16 January 1996. Learned Counsel argues that liability was incurred to the extent of the unpaid irrevocable authorities [Ex. 27, 29, 30 and 32] and that the moneys became due and payable by the first defendant ("Mahoe SI") as at the date of each irrevocable authority and certainly by 16th January 1996. Learned Counsel submits the irrevocable letters of authority should be characterized as creating Mahoe SI a surety for the third defendant ("Mahoe NZ") to the limited extent of the letters of authority. Mahoe SI as surety, had a right of indemnity against Mahoe NZ to the extent of the payments.

Mr. Waleanisia from the Attorney-General’s Office on the other hand, argues that at common law the concept of income was synonymous with receivability. Learned Counsel relied on the decision in Dewar v. Inland Revenue Commissioner[1] in which Lord Hanworth approved previous decisions which held that "receivability without receipt is nothing". His Lordship held that income tax was not payable on monies due to be paid until that money had been received by a taxpayer because it could not be regarded as "income" before this occurred. Learned Counsel argued that the ordinary meaning of paid or payment connotes a form of receipt. There can be no payment of money unless the transaction involves the transfer of money or funds from one person to the possession or control of another person.

For the following reason I find that withholding tax is payable. The words "date on which such income is payable" must be read as referring to the date on which the money was eventually cleared from all disputes by the Courts and able to be distributed. This fell on or about 4th August 2004 when the funds were determined finally by the Court of Appeal in favour of Aerolift. Before that the funds were subject to the adjudicatory process of the courts and could not be released or paid in any event. Not only was liability disputed but the question whether payments had previously been paid or not were live issues when the matter went to court. Accordingly it cannot be said that the income was payable on 16th January 1996. It may have been due and payable as far as Aerolift was concerned on the dates of the Irrevocable Authorities but for purposes of payment of withholding tax they could not be deducted and paid by virtue of the Court case which had arisen between the parties. This is consistent with the definition of the word "paid" in section 38(2) of the Income Tax Act:

" "paid", in relation to non-resident income, includes distributed, credited or dealt with in the interest of or on behalf of a person and "pay" and "payment" shall have corresponding meanings;".

The non-resident income could not be distributed, credited or dealt with until after 4th August 2004. No transfer could be effected or completed and the income could not be received by Aerolift for purposes of calculating withholding tax until after 4th August 2004. There may have been an expectation and anticipation by Aerolift that the monies will be released but that was subject to the court process being completed.

I accept submissions of learned Counsel for the third Respondent that the concept of receivability must apply to this case where Aerolift is resident outside of the country. The general rule is that a sum due to a person is not his income so as to be liable to assessment of tax unless and until it is received by him or on his behalf[2]. There could not be any transaction involving the transfer of money or funds from Mahoe SI to the possession or control of Aerolift until the final determination of the outstanding issues before the Courts, which occurred on or after the 4th August 2004. It is my respectful view that only then can it be said that the non-resident income became payable to Aerolift and can be considered for purposes of calculating the withholding tax to be deducted.

Under the Income Tax (Amendment)(No.2) Act 1996, the definition of "lease income" includes the leasing, chartering or hiring of aircraft. It is not in dispute that the non-resident income to that extent would be subject to withholding tax. Under paragraph (x) of the Sixth Schedule, withholding tax is chargeable at the rate of 15¢ in the dollar. This comes to USD23,601.00 as the amount of withholding tax[3] due to the Solomon Islands Government. I grant order for deduction of withholding tax in the sum of USD23,601.00.

Orders of the Court:

1. Grant withholding tax in the sum of USD23,601.00 payable to the Solomon Islands Government on the non-resident income of USD157,340.00.
   
2. Grant withholding tax in the sum of USD1,363.28 payable to the Solomon Islands Government on the non-resident income interest of USD9,088.58.
   
3. The total amount of withholding tax payable to Government is USD24,964.28.
   

The Court.

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^[1] (1935) 2 Q.B. 351, 366;
^[2] see Halsbury’s Laws of England Vol. 1(1) (4^th Edition) paragraph 8; Dewar v. Inland Revenue Commissioner (ibid) and applied in Inland Revenue Commissioner v. Whitworth Park Coal Co Ltd (In Liquidation)(1958) Ch 792, 827-829.
^[3] USD157,340.00 x 15% = USD23,601.00 payable as withholding tax.