Singh v The Board of Inland Revenue
| Jurisdiction | Trinidad & Tobago |
| Judge | Barnes, S.C. |
| Judgment Date | 01 January 1985 |
| Court | Tax Appeal Board (Trinidad and Tobago) |
| Docket Number | I 92 of 1985 |
| Date | 01 January 1985 |
Tax Appeal Board
Barnes, S.C.; Burke, Mem.; Dean-Maharaj, Mem.
I 92 of 1985
Mr. S. S. Jairam for appellant.
Mrs. E. Bridgeman-Volney for respondent.
Revenue law - Income tax — Unemployment levy — By resolution of the company RET Ltd. was put into voluntary liquidation — Respondent contended that the appellant received the sum of $457,230.00 by way of distribution from the liquidator and as such the sum was taxable by virtue of sections 49 and 5(1)(k) of the Income Tax Act, Chap. 75:01 — Appellant appealed — Whether that sum alleged to have been paid to the appellant in the year of income by a liquidator of a company RET Limited (in voluntary liquidation) was taxable in the hands of the appellant, in whole or in part, as a distribution” — Finding that the sum of $457,230.00 received by the appellant was a distribution as defined by section 49(1)(b) of the Income Tax Act and was subject to income tax in accordance with section 5(1)(k) of the Act — Appeal dismissed.
This is an appeal against assessments to income tax-and unemployment levy for the year of income 1978 pursuant to the Income Tax Act, Chap. 75:01 (hereinafter referred to as the Act)and the Unemployment Levy Act, Chap. 75: (formerly the Income Tax Ordinance Ch. 33 No.1 and the Unemployment Levy Act No. 16 of 19 respectively).
In the Statement of Case filed by the respondent it is stated that during the year of income 1978, the appellant was a shareholder and Director/Chairman of a company called Trinidad Engineering and Research Company Limited. On 22nd August, 1979, he submitted an income tax return in which he declared a chargeable income of $9,794.42 on which income tax of $1,448.62 was computed. This liability stemmed from an amount of $36,450 which was declared by the taxpayer as “Wages or salary from Other Office or Employment.” Also included in this return as arrear of salary, taxed at a marginal rate, was an amount of $457,230, which forms the subject of this appeal.
By resolution of the company of the 26th February 1976 the name “Trinidad Engineering & Research Company Ltd “was changed to “RET Ltd;” and by
resolution on the following day RET Ltd was put into voluntary liquidation.
The appellant's return was accepted initially, but subsequently, the respondent conducted a tax audit. As a consequence of which an audit report dated 13th April, 1984 informed the appellant of various adjustments involving an adjusted chargeable income of $476,396.00. By Notice of Assessment of 5th June, 1984, the appellant was assessed to income tax and unemployment levy in amounts of $238,198.00 and $23,341.40 respectively.
Following a formal objection to the additional assessment dated 3rd July 1984, there was a further tax audit and based on a tax audit report of 18th
July, 1985, the adjusted chargeable income was reduced by $7,000 to $469,396.00 by letter of confirmation of 18th July, 1985.
The appellant's notice of appeal was, first submitted on 28th July, 1985, but was amended by order of the court dated 20th June, 1989.
The appellant's grounds of appeal and the contentions of the respondent appear, at paragraphs 13 and 14 respectively of the respondent's Statement of Case of 26/10/89 as follows:–
“13.(a) Statement of Allegations of fact
The amount of $457,230 was treated as salary on advice received from the Board of Inland Revenue and by a common mistake was treated as such by the appellant's Accountant. However the amount of $457,230 was paid to the appellant by the Liquidator of RET Limited (In Voluntary's of Liquidation), the appellant being a shareholder or contributory of the said company. The amount that was actually distributed amongst the shareholders represented approximately 85% of the surplus remaining at the end of the liquidation. The appellant was never employed by the said company which reported its income on a “cash basis.”
(b) Statement of the reasons to be advanced in support of appeal
(i) The assessment is erroneous, arbitrary and excessive and the amount of $457,230 should not be treated as income, it not having arisen from any source that was taxable in the appellant's hands under the Income Tax Act Chapter 75:01 or its predecessor Ordinance or Acts.
(ii) The said amount of $457,230 represented a return of “capital” to the appellant as a shareholder or “contributory” of RET Limited.
(iii) The said amount was erroneously reported in the appellant's income tax return for the year of income 1978 as arrears s of salary when in truth and in fact the said amount was paid as a “distribution” on the winding up of the said company (RET Limited) and ought not to be taxed in the hands of the appellant.”
“14. The respondent will contend –
(a) that as a result of the audit, the respondent was of the opinion that the appellant had been assessed at a lesser amount than that which he ought to have been charged for the said income year. The respondent has on the facts and in the circumstances of the case and to the best of its judgment raised additional assessments on the appellant under the provisions of Section 89 of the Income Tax Act Chapter 75:01;
(b) that the appellant received the sum of $457,230 by way of distribution from the Liquidator and as such the sum is taxable by virtue of s.49 and s.5(1)(k) of the Income Tax Act Chap. 75:01
(c) alternatively that the sum is income in the hands of the appellant under s.5(1)(e) of the Income Tax Act.
(d) that the appellant failed to satisfy the respondent that the said additional assessments are wrong or to what extent they are incorrect.”
At an early stage of the hearing, the court was informed that it had been agreed that the matter of treating the sum of $457,230 as emoluments, whether arrears or otherwise, was not being pursued. This had become clear in the amended Notice of Appeal as is shown above if reference to para 13 of the Statement of Case. So that the issue to be determined by this court was whether that sum alleged to have been paid to the appellant in the year of income by a liquidator of a Company RET Limited (in voluntary liquidation) was taxable in the hands of the appellant, in whole or in part, as a “distribution.” The relevant sections of the Act are 2(1), 5(1)(k), and 49(1)(a) and (b), to which we will refer later on in this judgment.
The appellant testified and also for him David Montgomery, Chartered Accountant, who had been the liquidator responsible for the winding up of
RET Limited.
For the respondent the following testified:–
Urban Nedd — Tax Officer IV
Board of Inland Revenue
Cynthia Brownie — Field Auditor IV
Board of Inland Revenue
On 30th May, 1989, together with an application to amend the Notice of
Appeal, the appellant had filed an affidavit in the following terms:–
“No. I 92 of 1985
BEFORE THE TAX APPEAL BOARD
IN re THE TAX APPEAL BOARD ACT
BALDEO G SINGH appellant/applicant
and
THE BOARD of INLAND REVENUE respondent
AFFIDAVIT
I, BELDEO GOORIE SINGH of Saddle Road, Santa Cruz, Engineer make oath and say as follows:–
- I am the appellant/applicant herein. The facts herein deposed to are within my personal knowledge, save where otherwise slated which I verily believe to be true and correct. 2. At all material times, I was a shareholder and director/chairman of a company called Trinidad Engineering and Research Company Limited and by a special resolution passed on the 26th February, 1976, that name was charged to “RET Limited” (hereinafter called “the company”). At an extraordinary general meeting of the company held on the 27th February, 1976 a special resolution was passed that the company be placed into voluntary liquidation and that Mr David Montgomery of Date, Montgomery and Company, Chartered Accountants, be appointed liquidator (hereinafter called “Montgomery”). By an advertisement dated 17th October, 1978, appearing in the Gazette, Montgomery duly fixed “November 30th, 1978 as the date on or before which the creditors of the Company are to prove their debts or claims…….” 3. According to the “legal shareholding” in the company, I was entitled to 436 shares, Ms. F Singh was entitled to 6 shares, while Mr. Riley was entitled to 10 and Mr. Archibald to 1. This was a slight variation to the “Partnership Shareholding” but which cannot make any difference to this appeal as all the excess monies of the company have been distributed by Montgomery. 4. By letter dated 24th April, 1978 from Montgomery to the company, I was informed, inter alia, that a total of $836,793.41 (original sum) was due to the shareholders of the company but that the assets of the company available for distribution amongst the shareholders amounted to $723,380.41 or a ratio of 0.8644671 to the dollar. I was further informed by the said letter that I would be entitled to the sum of $642,247.71 and that an interim payment of 75% thereof with P.A.Y.E. deducted at 50% would be made. However, I was eventually paid a gross sum of $457,230.00 and through Montgomery, I paid tax on arrears at the marginal rate amounting to $114,301.50. 5. My Income Tax Return for the year of income 1978 was prepared and submitted by Montgomery. However, an Individual Tax Audit was carried out by the respondent and by its report dated 13th April, 1984, raised an Additional Tax in the sum of $139,133.73 which was subsequently reduced at the objection stage to $118,942.73 and the Unemployment Levy was also reduced to $140.40 This was confirmed by the respondent in a letter dated 18th July, 1985 from the Commissioner of the respondent to Montgomery, a true copy whereof is now produced and shown to me and is hereto annexed marked “B.G.S.1.” 6. The explanation given by the respondent: in its (Explanation of Adjustments” dated 13th April, 1984 was, inter alia, (at paragraph 4) “$457,230 claimed to be arrears of income was found to...
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