Solomon Islands Telecommunication Workers Union v Solomon Telekom Company Ltd [2014] SBHC 89; HCSI-CC 233 of 2013 (29 May 2014)

IN THE HIGH COURT OF SOLOMON ISLANDS
Civil Jurisdiction

BETWEEN:

SOLOMON ISLANDS TELECOMMUNICATION
WORKERS UNION
Claimant

And:

SOLOMON TELEKOM COMPANY LTD
Defendant

Mr. M. Tagini for the Claimant.
Mr. L. Puhimana for the Defendant.

Date of hearing: 28 April 2014.
Date of Judgment: 29 May 2014.

JUDGMENT
Apaniai, PJ:

Introduction.

1. By a category C claim filed on 5 September 2013, the claimant, Solomon Islands Telecommunication Union ("Union"), seeks two declarations. The first is a declaration that leave passage as provided for under section 5(2)(a) of the Income Tax (Amendment) Act 2005 is exempt from tax and the second is a consequential declaration that even if leave passage is converted into cash it shall not be treated as gains or profits so as to be taxed under the said section 5(2)(a).
   
2. The Union represents the employees of the defendant, Solomon Telekom Company Ltd ("Company").
   

Background.

3. The background to this claim can be stated briefly.
   
4. Under rule 5(1) of the Holidays, Sick Leave and Passage Rules, a worker taking a paid holiday is entitled once every year to be paid by his employer the cost of return journeys made between the place of employment and the worker's home.
   
5. Pursuant to this rule, the Company has been paying to its employees leave passage expenses which, the Company says, some of the employees have been converting for personal use and for other uses not connected to their leave.
   
6. As a result, the Company has formulated a new policy whereby it intends to treat as income in the hands of an employee any leave passage paid to an employee who converts it to his own use or who uses it for purposes other than leave passage and deduct income tax from the employee's salary in respect of the amount converted or misused.
   
7. The Union resists the new policy and now comes to the court seeking the declarations referred to above.

Issue:

8. The issue in this case is simply whether monies paid by the Company to an employee towards expenses of leave passages are taxable income in the hands of the employees in the case where the employee convert the monies for personal use or apply the monies for purposes not connected with their leave.
   

The law.

9. Section 3(1) of the Act has prescribed six kinds of income which will attract income tax. One of them is gains or profits from businesses, employment or services rendered and any right granted to a person for the use or possession of a property.
   
10. Section 3(2) has prescribed two categories of persons who are liable to pay tax on their income. The first category is residents of Solomon Islands. The members of the Union fall within this category. This category of persons must pay tax on income which has accrued to them in Solomon Islands or which they have derived from Solomon Islands or which they have received in Solomon Islands. The second category is non-residents which is not relevant in the present case.
    
11. Section 5(1)[1] sets out the kinds of income which will be regarded as "gains or profits" for the purposes of income tax. In other words, these are the taxable income. They are taxed in the hands of those receiving the income. That is to say, the person who receives this income is liable to pay tax on it. These income include, amongst others, wages, salary, leave pay, payment in lieu of leave, overtime pay, bonus, commission, fees, gratuity, work condition supplements and remuneration paid to holders of offices.
    
12. Section 5(2) has also set out certain expenditures which are tax deductible items. In other words, the person incurring these expenses is entitled to treat the expenditures as a tax deductible items. These include, amongst others, cost of passage paid by employer for an employee within or outside Solomon Islands.
    

Discussion.

13. It is clear from the above statutory provisions, that leave expenses paid by the Company to its employees are tax deductible items under section 5(2). That means the Company is entitled to treat these expenditures as tax deductible items. I think there is no dispute as regards this issue. It seems to me that the issue here is whether the leave expense monies can be treated as taxable income where the employee converts them to his own use or misuses the monies in the sense that he diverts them to be used for purposes not being leave purposes.
    
14. In my view, in order for the employee to be liable to income tax on the leave expenses, which he has converted or misused, it must be shown that the leave expenses are, or are part of, the employee's wages, salary, leave pay, payment in lieu of leave, overtime pay, bonus, commission, fees, gratuity, work condition supplements or remuneration paid to holders of offices as required in section 5(1).
    
15. It is for those who assert that the expenses are part of the taxable income to prove that that is so and this must be strictly proved. Where there is doubt, the employee must be given the benefit of that doubt[2].
    

Decision.

16. In my view, the leave expenses are not taxable income within the meaning of section 5(1). They are monies paid to the employee for a specific purpose, namely, leave passage. They are not wages or salary or leave pay or overtime pay or bonus or commission or fee or gratuity or any of the items of income as specified in section 5(1).
    
17. It was impliedly argued on behalf of the Company that by converting the monies for his own benefit or use, the character of the monies changed from being leave expense to income for the employee.
    
18. I am not persuaded by that argument. The misuse or conversion of the monies by the employee does not change the purpose for which the monies were given to the employee or the character of the monies. They remain monies given to the employee to meet the expenses of his leave passage. They are not taxable income.
    

Declaration and orders.

19. The following declaration is granted and order made:-
    

[1] A declaration that the monies paid by the Company to an employee towards expenses of leave passages are not taxable income in the hands of the employee in the case where the employee converts the monies for personal use or applies the monies for purposes other than his leave passage.

[2] The Respondent shall pay the costs of the Applicant on standard basis to be taxed if not agreed.

THE COURT

_________________________
James Apaniai
Puisne Judge.

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^[1] See section 5 of the Income Tax (Amendment) Act 2005 (No. 8 of 2005).
^[2] Commissioner of Inland Revenue v Chee [1992] SBHC 25; CC 63 of 1991 (6 July 1992).