Colonial Life Insurance Company (T'Dad) Ltd v Board of Inland Revenue
| Jurisdiction | Trinidad & Tobago |
| Judge | Koylass, C. |
| Judgment Date | 09 November 1984 |
| Court | Tax Appeal Board (Trinidad and Tobago) |
| Docket Number | I 41 of 1978 |
| Date | 09 November 1984 |
Tax Appeal Board
Koylass, C.; Burke, M.; Julumsingh, M.
I 41 of 1978
T. Hosein, S.C. and R. Armorer for appellant
E, John — Charles for respondent
Revenue Law - Appeal vs. Assessment to corporation tax — whether deposit administration business of appellant was approved annuity business for purposes of para. 3(4) of Sched. VI of Finance Act, 1966 — Admission that deposit administration business had resulted in a profit — Finding that no part of the profit had been transferred to the shareholders' account and therefore was all exempt from corporation tax — Appeal allowed.
By notice of appeal filed on 29th December, 1978, the appellant appealed against an assessment to corporation tax for the year of income 1971. In making the assessment, the respondent had arrived at a figure of $20659,559 as the chargeable income for the year after making certain adjustments to the appellant's assessment. Following an objection by the appellant, and the respondent's refusal to amend its assessment, the appellant appealed for the reasons that, in making the assessment the respondent had –
“(a) changed the bases which had been agreed upon between the appellant and the Respondent for apportioning and allotting the appellant's investment income and expenses to the various funds as shown in the appellant's accounts for the year 1971.
(b) reduced the allowable proportion of the appellant's over-all expenses applicable to its long-term and other than long-term businesses.
(c) treated the income from the appellant's Deposit Administration business at non-insurance business and assessed it to tax at the rate of 45%.”
At the hearing, Counsel for the appellant conceded in regard to (a) and (b) above. Accordingly, the issue to be determined is related to the treatment of income from the appellant's deposit administration business. In this regard, in its statement of reasons to be advanced in support of the appeal, the appellant had stated as follows –
“The appellant says that the Deposit Administration Fund is an integral part of the appellant's annuity business and, as such, it forms part of its long-term insurance business. Consequently, the appellant will contend that the income of that fund is not liable to corporation tax or, alternatively, if it is liable to corporation tax, the rate of tax applicable is 15% — the rate for long-term insurance business as prescribed by Schedule 111 of the Corporation Tax Acts.”
The respondent's contentions are set out in paragraph 12 of its statement of case as follows –
“(v) That on a correct interpretation of the various Deposit Administration Contracts comprised in the Deposit Administration Business of the appellant, The Deposit Administration Business of the appellant must be divided into two parts. The first part is the administration and management of the funds from the Business. The second part is the purchase as and when the need arises of annuities for individual beneficiaries under the various schemes contained in the Deposit Administration Business.
(vi) That, although the second part is approved annuity ibonatinw and the profits therefrom are not subject to tax, the first part is not long-term insurance business as defined at paragraph 5(1) of Schedule VI of the Income Tax Ordinance and the profits therefrom are subject to tax at the rate of 45%.
(vii) Alternatively, that, if the first part is long-term insurance business, the profits therefrom are subject to tax at the rate of 15%.”
The adjusted chargeable income of the appellant includes a sum of $141,201 earned from its deposit administration business which the respondent charged to corporation tax at the rate of 45 per cent.
On behalf of the appellant, Denis Borde, Financial Comptroller and a director of the appellant, testified. He had joined the appellant company in October 1972 and had been involved in finalising its accounts for the year to 31st December, 1971, about December 1972.
He stated as under –
The appellant carried on long term insurance business, ordinary life, group pension and deposit administration business, as well as other than long term insurance business — group life and group accident and health business.
The deposit administration business was essentially group pension business, which had replaced group annuity business, previously carried on for pension plans of small companies. That business had involved the issuing of life insurance policies.
The principal features of the deposit administration business were outlined by him as follows –
(a) A deposit administration fund (hereinafter referred to as “the Fund”) was operated on the basis of contributions by employers and employees being deposited by the trustees of pension plans with the appellant.
(b) Money in the Fund was invested together with the general funds of the appellant, The interest accruing on investments was divided amongst various funds on a pro rata basis.
(c) The pension plans in regard to which the Fund was operated were governed by trust deeds between employers and trustees and by the rules thereof.
(d) The appellant made a charge against the Fund as its fee for servicing the investment and for the necessary record keeping and management of the various pension plans.
(e) On retirement or death of an employee, the appellant provided the pension benefit in accordance with the pension plans by issuance of an immediate annuity. In some cases, there was an option to commute part of the benefit into a lump sum payment. All payments were charges against the Fund.
The sum of 5141,201, charged to corporation tax by the respondent at the rate of 45 per cent, represented earnings of the Fund and formed part of it, being an amount which had not been distributed to any of the pension plans as at 31st December, 1971. That sum was to be utilised in due course to top-up interest on deposits on account of the appellant being obligated to guarantee a minimum rate of interest under the deposit administration contract (hereinafter referred to as “the contract”). That sum had been so utilised and no part of it had been transferred to the appellant's Profit and Loss Account.
The following exhibits were put in through the witness, as representing specimens of documents which regulated and were concerned with the carrying on of the deposit administration business –
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D.B.1 — Deposit Administration Contract No. R–1029.
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D.B.2 — Trust Deed between Orange Grove National Company Limited and the Bank of Nova Scotia Trust Company Limited dated 2nd November, 1970.
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D.B.3 — The Rules of the Orange Grove National Company pension plan annexed to the Trust Deed.
In cross-examination, Borde explained that certain surpluses from the long term insurance fund had not been transferred to the Profit and Loss Account and had attracted corporation tax at the rate of 15 per cent, whereas amounts transferred had been returned as profits to be charged at the rate of 45 per cent. Prior to 1971, and continuing thereafter, profits from the Fund had been treated as being income from approved annuity business.
The appellant was obligated to provide benefits from the Fund on retirement or death of an employee when directed by the trustees so to do.
At the request of Mr. Hosein, and there being no objection by Mr. John-Charles, Borde was recalled after cross-examination and he stated as under –
The insurance business being carried on by the appellant included deposit administration business which was part of its annuity business.
He was aware of the fact that the Income Tax Ordinance recognises two types of annuity and pension business — approved and not approved — and that the pension plans to which the Fund related in 1971 had been approved by the Board of Inland Revenue.
In his address, Mr. Hosein stressed that the issue before the Court as whether the deposit administration business of the appellant was approved annuity business for purposes of paragraph 3(4) of Schedule VI f the Finance Act, 1966 and in the light of paragraph 1(2) thereof and section 54 of the Finance Act, 1966.
We here observe that in the revised laws, the Finance Act, 1966 became the Corporation Tax Act, section 54 of the Finance Act, 1966 became section 14 of the Corporation Tax Act, and Schedule VI became the fourth Schedule to the Corporation Tax Act. We shall hereinafter refer o the Corporation Tax Act as “the Act” and to the Fourth Schedule as ‘the Schedule”.
Mr. Hosein pointed out that the Act and the Schedule provided no definition of “approved annuity business”, but that definitions were provided of “approved pension fund plan” and “pension fund plan” in section 16A(1)(d) and (j) respectively of the Income Tax Ordinance (hereinafter referred to as “the Ordinance”). He also pointed out that in paragraph 1(i)(a) of the First Schedule of the Insurance Act, 1966 “ordinary life insurance business and general annuity life insurance business” are shown as one of the classes of insurance business, and that at 1(ii)(a) “life insurance business” is defined. Also, “approved annuity business” is defined in that Schedule at paragraph 1(iii). In this connection, he pointed out that this was the only definition to be found of “approved annuity business”.
Section 14 of the Act reads as under –
“The provisions of the Fourth Schedule shall have effect for the purpose of ascertaining the chargeable profits and the tax payable thereon of Insurance Companies (including Life Insurance Companies), Shipping Companies and Air Navigation Companies.”
Paragraphs 1(2) and 3(4) of the Schedule read as under –
“1. Notwithstanding anything to the contrary contained in Part I of the Act, it is hereby provided that –
(2) in the case of a resident assurance company...
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