Inland Revenue Commissioners v Davson

CourtFederal Supreme Court (West Indies)
JudgeWylie, J., Rennie, J., Archer, J.
Judgment Date14 Jun 1960
JurisdictionCaribbean States

Federal Supreme Court

Rennie, J.;

Archer, J.;

Wylie, J.

Inland Revenue Commissioners
and
Davson

S. S. Ramphal, Acting Attorney-General, for the appellants.

J. H. S. Elliott for the respondent.

Revenue law - Income tax — Company Income tax — Cash distribution to shareholders from capital reserve consisting of capital profits- Whether a taxable dividend-Income Tax Ordinance, Cap. 229, ss. 5, 26, 27, 29 & 30.

Wylie, J.
1

This is an appeal from the decision of the Full Court of the Supreme Court of British Guiana given on an appeal from the decision of DATE, J., in the Supreme Court. The original proceedings were an appeal by the respondent company to the Supreme Court of British Guiana under the Income Tax Ordinance, Cap. 299, against the decision of the Commissioner of Income Tax on an objection to an assessment to tax. The respondent company, a company incorporated in the United Kingdom and registered in British Guiana (in this judgment referred to as “the shareholder”) was assessed to tax in respect of a sum of $1,200 received by way of a cash distribution at the rate of $2 a share on six hundred shares held by the shareholder in the Rupununi Development Company, Ltd., a company incorporated and registered in British Guiana (referred to in this judgment as “the company”). This cash distribution had been paid out of capital reserve from funds credited to that reserve and consisting of profits made upon the sale of capital assets.

2

The appeal from the decision of DATE, J., is by way of a case stated in the following three questions of law were submitted for the consideration of the Full Court.

  • “(a) Whether or not the said sum of $1,200 was a ‘dividend’ within the meaning of s. 5 of the said Ordinance.

  • (b) Whether or not the said sum of $1,200 was ‘income’ of the appellants, [now the respondent company] within the meaning of the said s. 5.

  • (c) Whether or not, even if the said sum of $1,200 be a dividend and be income within the meaning of the said s. 5, the same is chargeable with income tax, having regard to the provisions of the said Ordinance relating to dividends and to the fact that the said sum of $1,200 was paid out of capital profits.”

3

The answers to these questions given by the Full Court and from which the appellant has appealed were as follows:

“As to question (a): The answer is in the negative.

As to question (b): The sum of $1,200 was not taxable income.

As to question (c): The answer is in the negative.”

4

Most of the argument on the hearing of the appeal in this court was addressed to the question whether the United Kingdom income tax legislation and the British Guiana Income Tax Ordinance both provide for the same scheme for the taxation of the income of, and dividends paid by, companies. The proper answer to this question has a bearing on all three of the questions in the case stated and I propose therefore to consider first the British Guiana legislation, as did the Full Court, in order to determine whether it does provide for the same scheme as the United Kingdom legislation.

5

The relevant portions of the provisions of the Income Tax Ordinance which require consideration are as follows:

“5. Income tax, subject to the provisions of this Ordinance, shall be payable at the rate or rates herein specified for each year of assessment upon the income of any person accruing in or derived from the Colony or elsewhere, and whether received in the Colony or not, in respect of—

  • (c) dividends, interest or discounts;

  • 26. (1) The tax upon the chargeable income of every person other than a company shall be at the following rates.”

6

The rates are then set out and are on a sliding scale commencing at 6 cents in the dollar on the first $1,200 of chargeable income and rising to 60 Cents on the chargeable income in excess of $10,800.

  • “27. (1) The tax upon the chargeable income of a company other than a Life Insurance Company shall be charged at the rate of forty-five per centum of the amount of the chargeable income.

  • 29. (1) Every company registered in the Colony shall be entitled to deduct from the amount of any dividend paid to a shareholder tax at the rate paid or payable by the company (double taxation relief being left out of account) on the income out of which the dividend is paid:

    Provided that where tax is not paid or payable by the company on the whole income out of which the dividend is paid the deduction shall be restricted to that portion of the dividend, which is paid out of income, on which tax is paid or payable by the company.

  • (2) Every company aforesaid shall upon payment of a dividend, whether tax is deducted therefrom or not, furnish to each shareholder a certificate setting forth the amount of the dividend paid to that shareholder and the amount of tax which the company has deducted or is entitled to deduct in respect of that dividend.

  • 30. Any tax which a company has deducted or is entitled to deduct under the last preceding section from a dividend paid to a shareholder, and any tax applicable to the share to which anyone is entitled in the income of a body of persons assessed under this Ordinance, shall, when that dividend or share is included in the chargeable income of the shareholder or person, be set-off for the purposes of collection against the tax charged on that chargeable income.”

7

The present case concerns two limited liability companies. It is clear from the definitions of “person” and “body of persons” in s. 3 that the word “person”, when used in the Ordinance, includes a company. At first sight, therefore, s. 5 (c) and s. 27 (1) combined impose income tax upon any dividends received by a company, which form part of its chargeable income. Chargeable income is defined in s. 2 as meaning the aggregate amount of income from the various sources specified in s. 5 (which include dividends) remaining after allowing the appropriate deductions and exemptions under the Ordinance. These provisions taken on their own, and giving the language used its plain meaning, would leave no room for doubt that any dividend received by a company as part of its income must be included in calculating its chargeable income, and is liable to tax as part of that chargeable income at the rate set out in s. 27 (1), even if the fund from which the dividend has been paid has already been subjected to tax under s. 27 (1) as part of the chargeable income of the company which declared the dividend.

8

Moreover, s. 30 strongly reinforces this conclusion. For, after referring to the inclusion of the dividend in the chargeable income of the shareholder, it provides specifically for a set-off against the tax charged on that chargeable income of the tax, which a company paying a dividend has deducted, or is entitled to deduct, from that dividend pursuant to s. 29. The Ordinance has expressly provided for tax on the whole of the chargeable income of a company and for a dividend to be included in, and taxed as part of, the chargeable income of a shareholder. The object of s. 30 is clearly to preserve the principle found also in the income tax legislation of the United Kingdom that tax is not to be paid twice on income out of which a dividend is paid, once as part of the chargeable income of the company and once as part of the chargeable income of the shareholder. The view that the object and effect of s. 30 is to prevent from being paid twice on the same income in consequence of other provisions in the Ordinance is fortified by the inclusion in its scope of tax on income of other bodies of persons who are assessed under the Ordinance, that is to say, assessed as such before their income is distributed to their members.

9

Although this principle of avoiding double taxation on such income may be common to the legislation of both the United Kingdom and British Guiana, it does not necessarily follow that both sets of legislation apply the same scheme in order to give effect to this principle. It was submitted by counsel for the respondent that the legislation of both the United Kingdom and British Guiana incorporated the same scheme in regard to taxation dividends, notwithstanding the variation in language in the relevant provisions. He submitted further that dividends were annual profits or gains falling within Case VI of Schedule D and that it was only as a matter of inference from the other provisions of United Kingdom income tax legislation relating to tax on dividends (and more especially s. 184 of the income Tax Act, 1952) that the courts had held that a dividend paid by other than foreign companies was not subject to tax at the standard ate in the hands of the shareholder. He submitted that Case VI of Schedule D amounted to an express taxing provision corresponding to s. 5 (c) of the British Guiana Ordinance, that s. 184 (1) authorising the company to deduct tax corresponded to s. 29 (1) of the British Guiana legislation, and that s. 199 and paragraph 3 of the Sixth Schedule corresponded to ss. 29 (2) and 73 (1) of the British Guiana Ordinance. These provisions, it was submitted, showed that the scheme of the two sets of legislation in dealing with dividends was the same and that therefore the same results must follow in the United Kingdom in the present case-that is to say, that the dividend is not taxable in the hands of the shareholder and that therefore, if it has been paid out of a fund which is not taxable in the hands of the company, it must escape tax altogether in the same manner as it would escape tax in the United Kingdom.

10

In order to determine whether the scheme of each set of legislation is identical in this respect, it is necessary also to consider what differences there may be in the two sets of legislation, as well as the points of similarity. The Attorney General, in the course of his submissions, drew attention to the provision for a set-off in s. 30, a provision which, as was conceded on behalf of the respondent,...

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