By S.S. Selvanayagam
On the Written Submission to the Supreme Court in respect of the Inland Revenue Bill, the Attorney General replying to the petulant bickering that the Bill omits taxpayers’ safeguards and trespassing into the judicial process contends that the Bill does not seek to impose any fetter on the Courts in the exercise of their power to interpret the laws.
The AG maintained contrary to the contention, the Bill makes it clear that the Legislature in no way seeks to remove or arrogate unto itself any judicial power and underlined that it enhances the judicial power of the people.
Additional Solicitor General Farzana Jameel with Senior Deputy Solicitor General Arjuna Obeysekere, State Counsels Suren Gnanaraj, Kaniska de Silva, Chaya Sri Namuni and Hashini Opatha appeared for the Attorney General and the Finance Minister Mangala Samaraweera has made this submission on behalf of himself and the Attorney General. The Written Submissions on the impugned clauses of the Bill argued that the Petitioners are misconceived
The Petitioner in SCSD 12/2017 challenged this clause on the basis that private rulings should bind the Commissioner General as against all taxpayers and not just the taxpayer who sought a private ruling. He therefore alleged that this clause as presently formulated is discriminatory as against taxpayers who did not seek a similar private ruling.
The AG submitted that the said submissions have been made on a misapprehension and a lack of understanding of Clauses 107 to 111 of the Bill.
At the outset it must be noted that Public Rulings and Private Rulings have been introduced for the first time in this Bill for the purposes of achieving consistency in the administration of the proposed law and to provide guidance to the general public and officers of the Department of Inland Revenue.
Clauses 107-111 provide for Private rulings. In terms of Clause 107(1) of the Bill, a taxpayer may apply to the Commissioner General for a private ruling to ascertain the Commissioner General›s position regarding the application of the Act to a transaction entered into or proposed to be entered into by the taxpayer. The Commissioner General is then required to appoint a committee of senior officers known as the Interpretation Committee to review the said request and to issue a private ruling on behalf of the Commissioner General.
Clauses 107(5) provides that where the taxpayer has made a full and true disclosure of all aspects of the transaction relevant to the private ruling, such ruling shall be binding on the Commissioner General as against only the taxpayer who sought such a ruling. A private ruling cannot bind the Commissioner General as against any other taxpayer.
The rationale for this is that the ruling is sought on a transaction which is peculiar to a single taxpayer. Therefore, the ruling will also be transaction specific. In other words, it will relate only to the facts and circumstances relevant to that specific taxpayer who sought a ruling.
It would therefore be unfair and unreasonable to bind the Commissioner General as against all taxpayers, in relation to a Private Ruling made in connection with a specific transaction of a specific taxpayer. Thus it would be unreasonable to indiscriminately apply the ruling relating to one person to another person.
It is trite law that Clause 12(1) of the Constitution postulates that equals must be treated equally and not that those who are unequal be treated equally. In those circumstances, the Petitioner’s contention that the existing provision is discriminatory and violative of Article 12(1) of the Constitution is entirely without merit.
The Petitioner in SCSD 12/2017 alleged that by the description of a Private ruling as being only an ‘opinion’ of the Commissioner General and not a ‘decision’ of the Commissioner General, this clause was effectively an ‘ouster clause’ which precluded judicial review of private rulings. It is respectfully submitted that this submission is entirely misconceived.
Clause 107(6) of the Bill makes it clear that a private ruling does not bind a taxpayer. In those circumstances, if the taxpayer is not in agreement with a private ruling, there is no requirement for him to challenge it by way of judicial review, since a private ruling is in any event not binding on him. A private ruling is only an opinion of the Commissioner General which provides guidance to the taxpayer on how the law would be applied in relation to a specific transaction he has entered in to or seeks to enter in to. Such a ruling therefore does not affect the rights of the taxpayer.
Accordingly, Clause 109(5) very correctly provides that the said opinion is not a decision and cannot be challenged.
Clauses 104-106 – Public Rulings
Clause 104-106 empowers the Commissioner General to issue a public ruling. Clause 104 provides that to achieve consistency in the administration of the Act and to provide guidance to the general public and officers of the Department, the Commissioner-General may issue public rulings setting out the Commissioner General’s interpretation of the application of this Act. Clause 104 goes on to state that a public ruling shall be binding on the Commissioner General until it is withdrawn and that a public ruling shall not be binding on taxpayers.
The Petitioners in SCSD 13/2017 complained that unlike for a Private Ruling, the Commissioner General is not required to seek the assistance of Interpretation Committee comprising senior officers of the Department of Inland Revenue when issuing a Public Revenue. The Petitioner alleges that this could lead to arbitrariness on the part of the Commissioner General in issuing Public Rulings.
AG submitted that like Private Rulings, Public Rulings too are required to be issued by the Commissioner General and such rulings will be finally binding on the Commissioner General until withdrawn. The Commissioner General would therefore necessarily have to consult his department officials at various levels prior to issuing any rulings, given that once a ruling is issued, the Commissioner would be bound by it.
However, there can be no question as to arbitrariness on the part of the Commissioner General. Clause 104(3) makes it clear that a public ruling shall not be binding on a taxpayer. Clause 104(4) states that such a ruling is only the Commissioner General’s opinion and not a decision. Therefore, the question as to whether the Commissioner General had consulted his department officials or acted on his own in issuing a Public Ruling would have no bearing whatsoever on the rights of a taxpayer. Therefore, this Clause is not inconsistent with the Constitution.
Clause 126 of the Bill requires every person chargeable with income tax under the Act to furnish to the Commissioner-General in accordance with subsection (2) a tax return in the specified form. Clause 132(1) of the Bill provides for a self-assessment taxpayer to file a self- assessment return in the approved form. Clause 135 provides for the Commissioner General to amend the said assessment and serve it on the taxpayer.
The Petitioner in SCSD 9/2017 alleged that a taxpayer who submits a return and a taxpayer who has not submitted a return are being treated equally in that an amended assessment can be served on both categories within four years. The Petitioner contended that under the present law, a distinction has been drawn between a taxpayer who submits a return as opposed to a taxpayer who has not submitted a return.
AG submitted that this position of the Petitioner is not correct, as issuing of assessments on those who have not submitted a return at all is at Clause 133 and in terms of Clause 133(5), a default tax assessment may be made at any time. The AG submitted that merely because a taxpayer submits a return, that does not make such a taxpayer a compliant taxpayer, for if the contents of the tax return appear to be wrong or fraudulent, then such a taxpayer cannot be said to be ‘better off’ than a taxpayer who fails to submit a return. In those circumstances, the Petitioner’s argument that a taxpayer who submits a return should be treated differently to a taxpayer who fails to file a return is entirely baseless and misconceived in law.
Clause 139 and
Clause 139(1) provides that a taxpayer who is dissatisfied with an assessment or other decision may request the Commissioner General to review the decision. In terms of Clause 139(2), a request for review shall be made to the Commissioner-General in writing, not later than 30 days after the taxpayer was notified of the decision. Clause 139(5) provides that the Commissioner-General shall consider the taxpayer’s request and notify the taxpayer in writing of the Commissioner-General’s decision and the reasons for the decision.
The complaint of the Petitioner in SCSD 9/2017 on this clause is twofold. He argues that although in terms of Clause 139(4), the receipt of every request for administrative review ought to be acknowledged as in the existing provision. The present law provides that every appeal shall be acknowledged within 30 days of its receipt and where so acknowledged, the date of the letter of acknowledgement shall for the purpose of this section, be deemed to be the date of receipt of such request. However, the Bill is silent as to what would happen if the request for administrative review is not acknowledged.
The second complaint of the Petitioner is that no time periods have been fixed within which the Commissioner General is required to give his decision in relation to a request for administrative review.
The answer to both complaints is found in Clause 140. In terms of Clause (1), a person aggrieved by the decision of administrative review under Section 139 may appeal against the decision to the Tax Appeals Commission. Clause 140(2) provides that an appeal to the Tax Appeals Commission shall not be made unless a request for administrative review has first been made, and (a) a decision has been received from the Commissioner-General or (b) ninety days have lapsed since the request for administrative review was made.
Thus, where a request for review has been made and a decision of the Commissioner General has not been given within 90 days of such request, the taxpayer is entitled in law to appeal directly to the Tax Appeals Commission. It is submitted that this provision has been included to ensure that all reviews are concluded expeditiously and to avoid clogging the appeal process. Such a course of action would benefit both the taxpayer and the Department of Inland Revenue and accelerate revenue collection.
The Petitioners in SCSD 13/2017 also took up the position that permitting a direct appeal to the Tax Appeals Commission is prejudicial to the interest of the Inland Revenue Department. First and foremost, AG submitted that providing a direct right of appeal is not a violation of the Constitution. From the date of the assessment, the taxpayer is liable to pay interest on the unpaid tax and is therefore entitled to an early determination of his review. If there is an inordinate delay in concluding the said review by the Officers of the Inland Revenue Department, that should not accrue to the disadvantage of the taxpayer. Hence, the rationale for providing the taxpayer with a direct right of appeal, if the review is not concluded within 90 days of the request for review having been made.
The Petitioner in SCSD 15/2017 complained that the provisions of Clause 167, which empowers the Commissioner General of Inland Revenue to issue a departure prohibition order, in writing, to the Controller of Immigration and Emigration where he has reasonable grounds to believe that a person may leave Sri Lanka without paying (a) tax that is or will become payable by the person; or (b) tax that is or will become payable by a company in which the person is a controlling member, was in violation of Articles 4, 12(1) and 14(1)(h).
The corresponding provisions in the present law is contained in Section 188 of Act No. 10 of 2006. Under this provision, where the Commissioner General is of the opinion that any person who is a defaulter is about to or likely to leave Sri Lanka without paying all income tax, wealth tax or gift tax, which have become default as assessed upon him or otherwise, he may issue a certificate containing particulars of such tax and the name of such person to a Magistrate. The defaulter is notified of this Certificate at the time of issuing the same. However non-receipt of notice by the defaulter would not invalidate this process in any way. The Magistrate is imposed a mandatory duty to issue a direction to the Inspector General of Police to take such measures as may be necessary to prevent such person from leaving Sri Lanka without paying the tax or furnishing security to the satisfaction of the Commissioner General, for payment.
A comparison of the proposed provision and the existing reveal that there is no material difference caused by the failure of the Commissioner General to obtain a Court Order regarding prevention of departure as the current section does not envisage that the Magistrate would consider any objection by the defaulter at an inter parties inquiry. The current provisions require the Magistrate to forthwith direct the Inspector General of Police to prevent departure of the defaulter. The Controller of Immigration and Emigration replaces the Inspector General of Police in the Bill as the former is the Authority who could directly take steps.
However, since there are occasions where tax avoidance and evasion occurs where the Commissioner General of Inland Revenue is in the process of finalising the question as to whether a person is in default and the prospective defaulter leaves the Country in the interim, it is necessary to have provisions which permit the Commissioner General of Inland Revenue to impose a departure prohibition for anticipated tax defaulters which function could be sanctioned by a Court of Law within a reasonable time period.
The following formulation – i.e. the adoption of the wording in Section 188 of the present Law subject to an amendment that the Commissioner General shall have the power to issue a prohibition order valid for 72 hours where the Commissioner General is of opinion that there is an imminent danger of such person leaving the country with the safeguard that the Commissioner General shall make an application within that period to the Magistrate, is therefore suggested.
The proposed clause would thus be
“(1) Where the Commissioner-General is of opinion that any person who is a defaulter is about to or likely to leave Sri Lanka without paying;
(a) tax that is payable by that person; or
(b) tax that is payable by a company in which that person is a controlling member,
which have become default as assessed upon him or otherwise, he may issue a certificate containing particulars of such tax and the name of such person to a Magistrate, who shall on receipt thereof issue a direction to the Controller General of Immigration and Emigration to take such measures as may be necessary to prevent such person from leaving Sri Lanka without paying the tax or furnishing security to the satisfaction of the Commissioner-General, for payment thereof.
(2) At the time of issue of his certificate to the Magistrate, the Commissioner-General shall issue to such person a notification thereof by registered letter sent through the post, but the non-receipt of any such notification by such person shall not invalidate proceedings under this section.
(3) Where the Commissioner-General has reasonable grounds to believe that the departure from Sri Lanka of any person who is a defaulter referred to in sub-section (1) of this Section is imminent and that sufficient time is not available to act in terms of sub-section (1) of this Section, the Commissioner-General may issue a departure prohibition order, in writing, to the Controller of Immigration and Emigration stating:—
(i) the name and address of the person;
(ii) the amount of tax that is or will become payable by the person or by the company in which the person is a controlling member;
and the Controller General of Immigration and Emigration shall take such measures as may be necessary to prevent such person from leaving Sri Lanka without paying the tax or furnishing security to the satisfaction of the Commissioner-General, for payment thereof.
Provided however that the Commissioner General shall as soon as may be practicable and in any event within 72 hours of issuing such departure prohibition order, make an application to the Magistrate to have the order confirmed. Such departure prohibition order shall stand revoked if an application is not made to the Magistrate within the aforementioned time period.
(4) The production of a certificate signed by the Commissioner General or a Deputy Commissioner, stating that the tax has been paid or that security has been furnished to for the payment of the tax, or payment of the tax to a police officer in charge of a police station, shall be sufficient authority for allowing such person to leave Sri Lanka. Any police officer to whom the amount of any tax has been paid shall forthwith pay such amount to the Commissioner-General.”
Clause 200 of the Bill
The Petitioner in SCSD 09/2017 is complaining that Clause 200 of the Bill, which provides for the interpretation of this Act and avoidance of doubts:
Is inconsistent with Article 3 read with Article 4(c) of the Constitution;
Constitutes an encroachment on the exercise of the judicial power of the people; and
Is violative of the doctrine of separation of powers and the power of the judiciary to interpret the law.
AG submitted that the said arguments are fundamentally flawed and without basis.AG stated that it must be noted that Clause 200 serves as an invaluable guide to those persons who are charged with the implementation of the provisions of the Bill. In this context, Clause 200 provides a useful tool for both the Revenue authorities and the taxpayer to interpret this law. Recourse to the Court is usually the last resort. In those circumstances, if the provisions of the Bill could only be interpreted by Courts, then the entire working of this Bill would become impossible rendering a total failure of the revenue collection mechanism.
AG stated that the Clause 200 only seeks to provide guidance on how the intention of Parliament can be ascertained in order to give effect to the provisions of this Bill. Sub clause (1) provides that a construction that would promote the purpose or object underlying the provision or the law as a whole shall be preferred. Sub clause (2) provides that consideration may be given to any material that does not form part of the law if such material is capable of assisting in ascertaining the meaning of the provision, where the provision is ambiguous or obscure or the ordinary meaning of the words leads to a result that is manifestly absurd or unreasonable. Sub clause (3) provides the material that may be considered in interpreting a provision of this Act, namely intrinsic aids to interpretation such as the Long title, Short title, Preamble of the Act and extrinsic aids to interpretation such as any treaty or other international agreement or international assistance agreement that is referred to in the Act or any explanatory memorandum relating to the Bill made available to Parliament before the provision was enacted or to any speech or proceedings relevant to the Bill made in Parliament.
The language of the said clause makes it clear that the legislature in no way seeks to remove or arrogate unto itself any Judicial Power. Similarly clause 200 does not seek to impose any fetter on the Courts in the exercise of their power to interpret the laws.
On the contrary, this Clause only provides guidance to any person seeking to interpret the law, on what matters it should or should not consider in order to give effect to the true intention of the legislature. Such a clause provides for certainty and uniformity in the application of the law, which is a vital component necessary to ensure the Rule of Law as guaranteed under the Constitution AG stated.
In that light, it must be observed that Clause 200 would enhance the judicial power of the People as enshrined in Article 4(c) by assisting the Courts to call in to aid both intrinsic and extrinsic aids of interpretation that would help Courts ascertain the true intention of Parliament, AG submitted.
Article 75 of the Constitution provides that Parliament shall have power to make laws. This power would necessarily include the right to provide for the manner in which such laws should be interpreted. Clause 200 of the Bill is therefore consistent with Article 4(a) read with Article 75 of the Constitution which deals with the legislative power of the people, AG underlined.