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Krishnan v Commissioner of Inland Revenue [1988] FJHC 13; HC Review 11.1987 (24 June 1988)

IN THE HIGH COURT OF FIJI
AT SUVA

Review No. 11 of 1987

BETWEEN:

NAGANNA PREM KRISHNAN
Appellant

V

COMMISSIONER OF INLAND REVENUE
Respondent

Date of Judgment: 24 June 1988
Judge: K.A Stuart

Counsel: Mr D. Jamnadas for the Appellant
Mr M.D Scott & Mrs Sharma for the Respondent

Statutory Prov: Income Tax S. 108, 19(j)

JUDGMENT

This appeal was heard over two days in November, 1987 and at the conclusion of the hearing. I intimated that the appeal would be dismissed, and that I would give reasons later. I regret that considerable delay has occurred in providing these reasons, but I was absent from Fiji, in addition to which the state of legal affairs in Fiji can only be termed 'chaotic'.

Naganna Prem Krishnan, whom I will refer to as the taxpayer is 56 years of age and presently unemployed. His appeal relates to an assessment dated 20th July 1987 in connection with taxpayer's return for 1982, and claims first that the Commissioner erred in rejecting the taxpayer's claim to a refund and employment loss with Feeders of Fiji Limited, secondly that the Commissioner did not comply with Section 92 of the Income Tax Act, thirdly that taxpayer was entitled to a refund upon the grounds that it was initially approved that the taxpayer's submissions were accepted and that all the facts lead to a refund. Fourthly the appellant claims that he was not permitted to present fresh evidence when the decision as to his refund was reversed by the Commissioner. Patently this fourth ground is untenable. The matter was traversed in correspondence during the whole of 1986 even to the extent of an appeal by taxpayer to the Ombudsman, and in any event the taxpayer was, as is usual, given 60 days to lodge his objection. The notice of assessment was dated 20th July, 1987 and he filed his appeal on 31st August of that same year.

The taxpayer himself have evidence but called no witnesses, and the Commissioner called one assessor to give evidence. The taxpayer, although not qualified by examination, has been in accountancy employment for a considerable number of years, and has at least a superficial knowledge of figures. The period for which his figures are at variance with the Commissioner's was 1981 to 1983, during which he was employed by Chute's Chicken Limited and Feeders of Fiji. He started off as an accountant in 1981 and moved fairly rapidly to acting General Manager by late June 1982. The Court was not told how or why he ceased to be employed by this company. Taxpayer's letters of appointment show that in February and May he received a salary of $12,000 and a housing allowance of $6,000. By June 1982 his salary has become $19,000 and nothing is said about his housing allowance. He occupied his own house from the outset of his employment - indeed throughout his employment, so that he was being given a housing allowance in lieu of quarters. In view of the company's letter of 22nd June 1982 notifying him that his salary was $19,000 I cannot see any excuse in the taxpayer for thinking that his house was being rented by his employer for $500 a month, still less I would have thought, his claim for the cost of repairs $3,814. If indeed any claim was to be made for this last sum, it should surely properly have been made by the taxpayer's employer seeing that the taxpayer said that his employer authorised the repairs. There is no suggestion of any such claim, nor evidence tendered to support taxpayer's allegation that the repairs were instructed by his employer, to enure for the benefit of the next manager - who would occupy the taxpayer's house. The Commissioner's evidence was to the effect that taxpayer's chief executive denied that there was any arrangements about quarters. There the chief executive was not telling the whole truth. His two earlier letters, of 2nd February 1982 and 1st May 1982 clearly show that taxpayer was receiving a housing allowance. The taxpayer's claim to deduct cost of repairs, and indeed any other expenditure is dealt with in Section 19(j) of the Act which reads, so far as it is material:

"19. In determining total income, no deduction shall be allowed in respect of-

(j) any expenditure on repairs alterations and improvements, other than that actually incurred on the repair of property either occupied for the purpose of any trade, business, profession, employment or vocation or in respect of which income is receivable, including any expenditure so incurred in the treatment against attack by beetles and similar pests of any timber forming part of such property ........."

I cannot see how, by any stretch of imagination, the house property owned and occupied by the taxpayer, can be said to have been occupied by Chute's Chicken Ltd., or for the purposes of that company. True, the taxpayer was an employee of that company, but the employment was personal to him, and did not extend to his house property. Moreover, he received an additional income of $6000 a year because his employer did not house him. I have come to the conclusion that this taxpayer's claim is an attempt to obtain a tax advantage to which he knew he was not entitled. If the taxpayer was in any doubt before that his claim was baseless, his employer's letter to him of 22nd June 1982 should have made the matter abundantly clear. In my view the attempt by the taxpayer to reduce his tax was fraudulent and cannot succeed.

Mr Scott, for the Commissioner, however submitted that the taxpayer had evolved a scheme to avoid tax which would be struck down by Section 108 of the Act, which provides:

"108. Every contract, agreement or arrangement made or entered into orally or in writing shall so far as it has, or purports to have the purpose or effect of in any way, directly or indirectly,

(a) altering the incidence of any tax;

(b) relieving any person from liability to pay any tax or make any return;

(c) defeating, evading or avoiding any duty or liability imposed upon any person by this Act or;

(d) preventing the operation of this Act in any respect the absolutely void, as against the commissioner, or in regard to any proceeding under this Act, but without prejudice to such validity as it may have in any other, or for any other purpose."

Mr Scott submits that the taxpayer and his employer entered into an arrangement which was calculated to relieve the taxpayer from paying the tax which could otherwise be properly assessed upon him. I can find nothing of any such arrangement in the evidence, for although Chute's position as regards the taxpayer appears to have been somewhat equivocal, nothing more can be said about his position without further reliable evidence. Hence Mr Scott's submission to that extent must be rejected. Then I look at the section itself. It starts off by talking of every contract, agreement and arrangement. I would have thought that arrangement is to be construed as something of the same or a similar nature to a contract or an agreement, to wit that it must have two parties. That, at least is the sense in which Lord Denning understood it, in delivering the judgement of the Privy Council in Newton v. Commissioner of Taxation of Commonwealth of Australia^[1]. All the decided cases appear to deal with contracts agreements or arrangements between two parties, albeit that the other party may have been brought into existence by the taxpayer. I have no doubt, however that the taxpayer had devised a scheme in the words of Turner J. in the New Zealand Court of Appeal in Mangin v. Inland Revenue Commissioner and referred to in the judgement of the Privy Council in that case: Mangin v. IRC^[2] for the sole purpose, or at least the principal purpose, of bringing it about that this taxpayer should escape liability in tax for a substantial part of his income. Section 108 has, as Mr Scott reminded me, been the subject of judicial discussion in the Fiji Court of Appeal in Deo Narayan Sahai v. C.I.R.^[3], but in that case there was an arrangement between the taxpayer and a company he had brought into being. I do not think that this taxpayer, although he had devised a scheme for ameliorating his own tax, came within the words contract agreement nor arrangement in Section 108, and accordingly reject Mr Scott's submission. Nevertheless because in my view taxpayer had devised a scheme by which he hoped to defraud the Revenue his appeal must fail and be dismissed. He must bear the costs of the appeal.

(K.A Stuart)
Court of Review

24^th June 1988

^[1] (1958) AC, 450: 3 WLR 195: 2 All E. R. 759

^[2] (1971) 2 WLR 39,47

^[3] (1975) 21 FLR 171