Togoland v Attorney General [2003] TOSC 41; C 0013 2000 (26 September 2003)

IN THE HIGH COURT OF TUVALU
CIVIL JURISDICTION
CASE NO. 13/2000

BETWEEN:

TOGOLAND
Applicant

AND:

ATTORNEY GENERAL
Respondent

BEFORE THE HON. CHIEF JUSTICE WARD

Counsel: James Duckworth for the applicant
Attorney General as respondent

Date of Hearing: 26 September 2003
Date of Decision delivered on:

DECISION

The applicant is a private business owned and operated by Hon Otinielu Tausi, MP. Although it is described on its letterhead, in some of the correspondence produced, as Togolands Pty Ltd, it appears from the evidence that it only became a company in 1994. During the period with which this case is concerned, the business was Otinielu Tausi trading as Togolands and it is clear from the documents before the court that all the dealings with the tax authorities were carried out by him. Mr Tausi’s evidence is that the business carried out a number of operations at the relevant time. In the early 1990s, those operations included a poultry and pig farm, the sale of reconditioned motor cycles and, in 1993, a small shop also.

Mr Tausi was served with a notice of assessment of his tax liability in relation to these operations. Objection was made but was not accepted by the tax authorities and the business, by an application filed in May 2000 under section 72(11) of the Income Tax Act 1992, seeks a decision on the assessments for the years 1992 and 1993 on the following grounds:

"1. that the assessment of abnormal expenses for 1992 and 1993 is incorrect in law and it will be contended that a gift to community cannot be treated as business expenditure and therefore should be excluded;

2. that the assessment for 1993 is similarly defective. That defines a figure of $10,560 for stock and cash removed for personal and private use to both the Nanumaga community on Funafuti and on Nanumaga island before and after a National Election. The assessment is defective in that no breakdown has been given and figures should have been provided for that purpose;
   
3. the assessment for 1993 includes a figure for election expenses. It will be contended that there is no basis to show that this came from business expenditure and that that presumption is incorrect;
   
4. that the interest charged must be reduced to reflect the considerable delay in finalising the assessment. It is submitted that the delay is excessive and that interest must therefore be reduced;
   
5. that the repayment schedule that has been put forward is excessive. It is a principal of law that a business should repay what it is able to afford. The position here is abundantly clear."
   

The procedures for the collection of income tax are dealt with in Part 7 of the Income Tax Act.

By section 41, every person or company to which the section applies, which includes the applicant, is obliged to prepare and furnish a full and proper return of income for each year and should do so using the forms prescribed under the Act. However the taxation officer has discretion to allow returns in other form. It is also provided that a full and proper return of income is one furnished within the time allowed, which is complete and includes the information and items requested in the return form or accompanying instructions in acceptable form and sufficient detail to meet the obligations and expectation of that person. There is provision in sections 43 and 44 to seek, in writing, an extension of the time.

On receipt of the annual return, the taxation officer shall issue a notice of assessment within one month of the final return date. Where the person has not furnished a return of income by the final date, the taxation officer will issue a notice of default assessment [section 46(4) and (6)].

By section 72, any person may object to any matter in a notice of assessment issued to him and the Act provides the manner in which and by whom such objections shall be decided. If such objection is not accepted, there is a right under 72 (11), to apply in writing to the Senior Magistrate for a decision in respect of those matters to which objection was taken. That is the basis of this hearing although, because of the absence of a Senior Magistrate at the time the application was made, it has been listed in the High Court.

My powers in this matter are limited to those given to the Senior Magistrate under the Act. Having heard the application, the court may either refer the matter back for a further decision by the Secretary or refer it for consideration by any other person [section 72 (13) (c)] or may confirm, reduce, increase, or annul the notice of assessment, or confirm, alter or rescind any decision made or substitute its own opinion.

It should be noted that the liability to pay tax at the proper time is not affected by any objection to the notice of assessment or appeal from any determination or decision affecting the person’s liability. It is, as counsel stated, a case of pay up and complain later. If the application is successful, any money wrongly paid will be refunded but in all cases, except where the Minister has, by his powers under section 63, deferred the obligation to pay, the money must be paid by the proper time.

The consequences of failure to pay tax by the proper time are that the taxpayer will have to pay interest on the amount unpaid for each month or part month that it remains unpaid after the due date [section 58]. If the failure to pay continues beyond three months following the due date, an additional late payment penalty of 5% of the unpaid amount, not including the interest, becomes payable.

Whilst section 72 (13) gives the court power to decide the manner in which it will hear the application, it does not alter the rule of evidence that the burden of proving the case rests on the person making the assertion and so it is on the applicant to establish the basis of his objection on a balance of probabilities.

In the present case, although Mr Tausi gave evidence of the events surrounding the notice of assessment and the negotiations which followed, he has produced virtually no evidence in support beyond his own re-assertion of the same objection.

He told the court how, in 1994, he submitted the accounts to the tax authorities. He had prepared them himself from the cashbook and he produced them to the court.

The evidence was that the tax authorities wrote to him on 9 December 1994 seeking further information. The witness explained that he did not respond to that request because all he had in the records had been included in the accounts already submitted and also that he considered the letter was threatening. He felt that, whatever he did, they would proceed with the default assessment. He accepted in cross examination that it was clear the letter of 9 December 1994 was seeking clarification of specific aspects of his accounts to enable the writer to make his assessment but stated that he did not respond because "I took it the tax officer had already made up his mind".

Whether or not he was justified in that attitude, inevitably his failure to respond resulted in a default assessment being made. The notice produced to the court does not state the date upon which it was issued but there is a letter from the acting Director of Customs and Tax Control dated 2 September 1996 which may have accompanied it and a letter from the applicant dated 30 September 1996 referring to that letter and objecting to the default assessment in some detail.

Mr Tausi explained that in about January 1999, he heard from the Secretary that his objection had been rejected and that the Attorney General had been directed to proceed with legal action. He told the court that, again, he did nothing because of the legal action. However, he was advised of a meeting with members of the Attorney General’s department to look into the matter. He attended and, during the meeting, was told, he said for the first time, how the assessment was calculated. He noticed that the figures for closing stock were causing concern and also included the livestock. As a result he produced revised accounts and submitted them to the Secretary with a covering letter dated 2 February 1999 apologising for the delay.

There were further meetings in 2000 and I shall refer to those later.

As has already been stated, although the evidence given by Mr Tausi covered many aspects of the events at that time, his application in this court relates to the years 1992 and 1993 only and is based on very limited grounds. The court can only deal with those and I now do so.

The general contention in the first three grounds is the same and I shall take them together.

The first ground suggests that the assessment of abnormal expenses was incorrect in law when it included a gift to community. The second ground raises a similar objection to the figure of $10,560.00 which included gifts to the community and Mr Tausi’s election expenses.

The figures challenged are shown in the assessment for 1992 as:

"Stock and cash removed for personal use and gift to Nanumaga community here on Funafuti - $3,060."

Similarly the assessment for 1993 includes:

"Stock and cash removed for personal and private use to both Nanumaga community here on Funafuti and on the island before and after National election - $10,560."

The respondent called the tax officer who was responsible for the assessment. He also comes from Nanumaga and he explained that he used his knowledge of the community to determine that these figures were taken out of business stock. There are no records to support the figures taken out and so he included them in the closing stock of the business. It is contended in the second ground that the assessment is defective in that no breakdown has been given and figures should have been provided for that purpose and similarly the third ground also claims there is no basis for the assessment that the election expenses came from business expenditure.

No doubt a breakdown would have been helpful but the tax officer is not obliged to provide one and, as the need to make a default assessment was the result of the applicant’s failure to provide any, or any adequate, figures, he could do little more than explain the basis of his calculation and give a general figure. It was derived from the variation between figures for sales and purchases in 1993 which was regarded, in part, as an unrecorded drawing by the applicant. As such it is added back onto the value of goods in the closing stock. The tax officer is given the power under section 46 (7) to determine the taxable income by using an asset accretion basis of computation where he considers that basis will give a more reliable or more reasonable reflection of the taxable amount. He told the court that, because of the failure of the applicant to supply the information he required, it was not possible solely to use that system but he followed it in general terms. I am satisfied he had the right to do so. He gave a general account to the court of the method and it is clear that a similar explanation was given at the meetings held in 2000.

However, as has already been stated, it must be borne in mind that the burden is on the applicant to prove that is an error. It is not for the respondent to prove his assessment. As the person whose business and expenditure are under scrutiny, the applicant is in the position of being able to produce evidence that would not be available to the tax authorities if, as here, he has failed to supply it to them.

The actions of the tax authorities stemmed from the applicant’s persistent failure to provide, in accordance with section 46, the detailed information needed to assess his liability. The tax officer arranged a meeting at the business premises to deal with these matters at an early stage. Despite having advised Mr Tausi of the date and time, he did not attend. The tax officers were greeted by his wife who knew nothing of the business and simply handed over some documents her husband had given her. Even at the later meetings in 2000, his conduct reflected the unco-operative attitude he has demonstrated throughout and a similar disregard of the need to produce documentary evidence has been apparent at the trial.

During his evidence in court, he repeatedly stated the tax officer was wrong and implied that he was acting maliciously when making the assessment. When he was asked about the later meeting, he told the court how he had objected to the figures for closing stock and the abnormal expenses. He repeatedly mentioned that the abnormal expenses were from his personal money. He referred to a bank account yet he took no bank statements and told the court that he did not try to support his objection by any documentary evidence. It would appear that, like his evidence before the court, he simply relied on repetition of his original assertion.

The meetings in 2000 were called to try and sort out what had clearly become a very difficult situation. Mr Tausi was present and was assisted by the People’s Lawyer. The minutes show that no documents were produced although, at the end of the first meeting, there was an offer to try and produce some invoices or documents from the DBT to compare with the default assessment in relation, presumably, to the figures for stock, but there is nothing in the minutes of the subsequent meeting to suggest any such evidence was produced.

Mr Tausi was asked in cross-examination if he made any attempt to assist the tax officer with the figures in the assessment and replied "No. I did not want to be seen as trying to interfere. I left everything to the People’s Lawyer. It was in his hands. I had instructed him to sort it out."

I am satisfied that, throughout, he has simply failed to provide any justification for his objection. He has been reluctant or obstructive to the attempts of the tax authorities to reach a fair and proper assessment and has persistently failed to produce evidence. That approach has been the same here in the court.

He pointed out to the court that, as a Member of Parliament, he was expected to make donations to the community when he felt they needed assistance. He insisted that they came from personal savings and were not business expenditure. If that is correct it should not be included as an abnormal expense but he produced no document to support his claim.

He told the court that he never paid anybody for his election campaign apart from what he described as the ‘normal provision of drinks and food’ for the people on polling day. He repeatedly emphasised that all these payments came from his personal taxed income and savings. Those included, in 1993, money he received from withdrawing his provident fund payments, which produced a sum in excess of $75,000. It must be possible to produce documentary evidence of the receipt and disposal of at least some of such a large sum of money. Yet no such evidence was produced to the court.

Although the burden if proof rests on the applicant, the only evidence in support of his claim the figures are wrong comes from the applicant himself. In such matters as finance, documents can support the witness but the applicant does not produce anything to support his claim. There are no accounts, no bank statements and no witnesses to the manner of payment.

The respondent has produced an explanation of the basis of the tax authority’s assessment but the applicant has done no more than repeat that the figures are wrong.

At the meetings in 2000, the tax officer agreed to remove the payments to the church from the assessed abnormal expenses. He did so because it would not be easy to support it with actual figures. Mr Duckworth has complained to the court that there is no logical reason to remove those and not to remove the sum assessed as contributions to the community. I attach no weight to that argument. I am satisfied the church contributions were removed simply to try and break the impasse in which everyone found himself. It was a concession, not an admission that the inclusion of those contributions in the abnormal expenses had been incorrect.

The application on the first three grounds fails.

The fourth ground suggests that the delay in finalising the assessment was excessive and so the interest must be reduced.

There can be no argument about the inordinate time this matter has taken. The evidence before the court suggests the blame for than lies more with the applicant than with the respondent but I do not consider that is a relevant consideration. The obligation to pay tax lies on the taxpayer. It is not affected by the filing of an objection. Had the applicant paid on the original assessment at the proper time, no interest would have accrued. I have no doubt he knew that but, even if he did not, it gives him no excuse. I see no reason to alter the amount of interest that has accrued during the time this matter has run.

It is true that, since 2000 when the application to this court was filed, the delays have, to some extent, been caused by the absence of a Senior Magistrate and then of a Chief Justice. However, even that would have caused no adverse effect if the applicant had paid on the assessment at the proper time.

The last ground relates to a repayment schedule which was put forward at the meetings in 2000. Those two meetings were to try and resolve what was, by then a long outstanding issue. It was pointed out at the first meeting that it was an opportunity to put forward any invoices or other documents which could substantiate the objections. The second meeting was held two weeks later at which the absence of original documents was again mentioned.

At those meetings, it was suggested that the matter might be resolved by allowing some reduction of the penalty payments. The total sum due for the three years at that time was $64,371.18 and the suggestion of a reduction was explored in a letter from the tax officer to the acting Secretary. He proposed that, in order to aid settlement, the late payment penalty should be reduced by 50%, which would leave a total liability of $50.739.48. It was a generous offer but that offer and the offer to allow repayment by instalments evoked no response.

The fifth ground also states that it is a principal of law that a business should only repay what it is able to afford. No authority was put forward to support such a proposition and I do not accept any such principle of law exists.

The application to alter the assessment is refused with costs to the respondent.

I would only add one comment. The delay since this case was filed has partly been the result of the lack of the necessary judicial officers to hear it. Clearly, if the applicant had paid his tax at the proper time, no further interest or penalty would have arisen and, indeed, the amount he would have paid for these three years would have been a very small fraction of the sum now owing. However, the respondent may feel it would be reasonable to consider waiving the late payment penalty that has accrued since the application was filed with this court in May 2000.

However, I make it clear that is only a suggestion and the respondent is entitled to proceed to collect the full sum on the assessment, interest and late payment penalty.

Chief Justice