Chesebrough Ponds International Ltd v Board of Inland Revenue
| Jurisdiction | Trinidad & Tobago |
| Judge | Barnes, J.,Burke, J.,Seemungal, J. |
| Judgment Date | 26 March 1987 |
| Date | 26 March 1987 |
| Court | Tax Appeal Board (Trinidad and Tobago) |
| Docket Number | Nos. I 48 & I 49 of 1982; Nos. I 70 & I 71 of 1982 |
Tax Appeal Board
Barnes, J.; Burke, J.; Seemungal, J.
Nos. I 48 & I 49 of 1982; Nos. I 70 & I 71 of 1982
Mr. M. Morgan for appellant
Miss S. Collvmore for respondent
Revenue law - Income tax — Assessment — Appeal against corporation tax and unemployment levy — Appeal referred back to respondent for reassessment.
These are appeals against corporation tax and unemployment levy for the years of income 1974 and 1975. Notices of appeal in respect of appeals I 48 & I 49 of 2912 for the year of income 1974 were filed on 25th January, 1982 and those in, regard to appeals I 70 & I 72 of 192 for 1975 were filed on 23 rd March, 2982. The appeals were consolidated by order of the court dated 11th July, 1985.
The appellant is a company incorporated under the laws of Canada and on business in Trinidad during the relevant years in the manufacture and sale of cosmetics and was registered under part X of the Companies Ordinance Ch. 31 No. 1.
In returns submitted for 1974 and 1975, the appellant had declared of $35,241 for the year of income 1974 and a profit of $131,631 for the year 1975; and had originally been assessed on those figures. However following a tax audit by the respondent in 1980, additional assessments were made on adjusted chargeable profits of $196,365 and $234,021 for 1974 and 1975 respectively. The respondent had also disallowed claims of $19,403 and $27,785.60 claimed as export allowances for 1974 and 1975 respectively, the 1974 claim having been carried forward and merged with that for 1975.
The adjustments disputed by the appellant are as under:–
| 1974 | 1975 | |
| 1. Reduction of discount on finished goods sold by appellant to its Branch in Jamaica | 220,374 | 103,290 |
| 2. Adjustment on Sales of raw materials and packaging materials sold to Branch in Jamaica | 11,252 | |
| 3. Disallowances of Export Allowances | ––––––– | 37,394 |
| 231,626 | 140,684 |
By an agreement an agreement dated 5th Januarys 1986 which has been approved by this court, it has been agreed that items at (1) above previously disputed in of $220,374 and $103,290 for 1974 and 1975 respectively be now allowed.
In its Notice of Appeal against corporation tax for the years of income 1974 and 1975, the appellant disputes the right on the part of the respondent to adjust the price at which it had sold goods to its Jamaica Branch. It also alleges that the respondent erred in holding that it was not entitled to an export allowance for those years.
In paragraph 12 of its statement of case (folios 58 and 59 of I 48 of 1982 the respondent's contentions are stated as under:–
“12. The respondent will contend —
(i) that the returns of income submitted by the appellant for the years of income 1974 and 1975 did not reflect the true income of the appellant for the said years.
(ii) that as a result of the audit, the respondent is of opinion that the appellant had been assessed at a lesser amount than that which ought to have been charged for the years of income 1974 and 1975. Accordingly, the respondent has, on the facts and in the circumstances of the case, raised an additional amount of tax as according to its judgment ought to have been charged in respect of the said years of income.
(iii) that the appellant has failed to satisfy the respondent that the additional assessments are arbitrary and unreasonable and to what extent they are unjustifiable and not in accordance with the provisions of the Income Tax Ordinance.
(iv) that under the provision of the Corporation Tax Acts the respondent can substitute the market prime for the contract price.
(v) that the appellant was not entitled to an export allowance for the years of income 1974 and 1975.”
Buddie Miller, General Manager of the appellant testified. He had joined the firm in August, 1975 as Manufacturing Manager. He testified from what he had gathered from records and correspondence as well as information he had obtained from others. He told the court that his predecessor who could have given first hand evidence was beyond the jurisdiction of the court.
As Manufacturing Manager he had been responsible for the administration of the Production department. This included control of inventories of raw and packaging materials which went into the finished product for sale on the local market and for export to Caricom and other markets.
The witness recounted his understanding of the events leading up to the sale of certain raw and packaging materials to Jamaica in 1974. He sated that when he joined the firm in 1975 he had inherited a “shambles”. There was, he said, considerable overstocking of materials particularly in relation to Vaseline Petroleum Jelly Vaseline Shampoos and Vaseline Intensive Care Lotion. This situation had been brought to light when he had prepared a materials plan as a forecast of material needed for production. His main sources of information were the Kardex (stock cards), correspondence files and a “materials plan” then in existence. The last named had however been in a highly unsatisfactory state. He testified that the Kardex system had been replaced by a computerised system during 1952 to 1983, and none of it had been retained. He however expressed the belief that the basic documents would have been available at the time of the tax audit.
The witness stated that urgent attention was given to the matter of liquidation of inventories, some of which had deteriorated and had been dumped. Certain items had been sent to an importer in Jamaica at prices below what had been the overall cost to the appellant. He had actually participated in making shipments similar to those which he had learnt had been made in 1974.
The witness stressed three factors which motivated the appellant to dispose of materials to Jamaica at a loss:. —
- Overstocking meant having to meet interest charges on an overdraft used to finance surplus stocks as well as other operational requirements. 2. Rent on an outside warehouse to accommodate surplus stocks was being incurred. 3. Materials had had to be dumped from time to time.
In explanation of the sale at a figure below cost, he disclosed that the source of the raw materials was New Jersey in the United States of America, and freight charges New Jersey — Jamaica were less than New Jersey — Trinidad In addition additional freight charges Trinidad — Jamaica had been expended on goods first delivered to Trinidad.
Miller stated that the goods had been shipped to a Jamaican Company National Processors Ltd, which was not pare of the Chesebrough Ponds organisation, but a subsidiary of Grace Kennedy Ltd., a company with which the appellant hack traded. His evidence was that the materials had been shipped before the Jamaican importer had been notified or a price agreed upon. He informed the court that the importer had protested such “unilateral decision.”
In cross examination the witness was referred to the following correspondence —
1. Letter from Pannell Fitzpatrick & Company (hereinafter referred to as Pannell) dated 11th June 1931 to the Chairman Board of Inland Revenue.
The relevant extract (folio 27 of the record) reads —
“Sales of Raw Materials
When packaging in 1974 the Trinidad Branch suffered severe manufacturing and other problems which resulted in exceedingly high levels of inventory, particularly in the case of packaging materials and to a lesser degree, but still fairly substantial, in relation to raw materials. Its Jamaican affiliate was at that time experiencing shortages of packaging and other materials which were held in excessive quantities by the Trinidad Branch. It was therefore decided to ship the Trinidad excess requirements which were needed by Jamaica to Jamaica.
The prices at which these goods were manufactured approximates the price at which the Jamaica affiliate could have obtained these products C.I.F, from alternate sources without the necessary leave time for placing of orders etc.”
- Letter from the respondent to Pannell dated 9th July, 1980. The following extract (folio 30 of the record) is relevant). “Sales of Raw Material $11,252; The local branch sold raw material and packaging to the Jamaica branch amounting to $37,697 and these goods were sold at far below cost as the difference between sales and cost of sales amounted to $11,252. In your letter dated 11th June, 1980 you stated that because the Jamaica branch was experiencing shortages of packaging and other materials, excessive quantities which were held in Trinidad ‘e shipped to Jamaica to meet their needs. You also stated that the price at which these goods were manufactured approximate the price at which the Jamaica affiliate could have obtained these products C.I. F. from alternative sources.” No evidence was produced to support this statement. In any event if the Jamaica branch could have purchased at cheaper prices why would it want pay freight charges and as a result purchase its raw material at a higher cost. In view of the above it is proposed to adjust $12,252 to the company's chargeable income.” 3. Letter from the appellant (signed by Buddie Miller) dated 14th August 1980 to Pannell, The following extract (folio 34 of the record)is relevant. “Sales of Raw Material: With reference to the Board of Inland Revenue letter of 9th July, we should clarify that: a) “The Jamaican Branch could not have bought at cheaper prices, since we sold to them — below cost — goods for which they would have had to pay the same cost as ourselves' at source. In actual practices we had to absorb the excess charges of freight and related shipping costs for shipping U.S.A. to Warehouse Trinidad, then return to Wharf Jamaica. These charges were in any case substantially less than it would have cost us to maintain that then...
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