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Trustees in the Republic of Fiji of the Church of Jesus Christ of Latter-Day Saints v Fiji Islands Revenue and Customs Authority [2007] FJHC 144; Appeal 17.2004 (14 September 2007)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

APPEAL NO. 17 OF 2004
(VAT TRIBUNAL APPEAL NO. 1 OF 2001)

In the mater of THE VALUE ADDED TAX DECREE 1991

In the matter of an appeal from a decision of the Value Added Tax Tribunal by
THE TRUSTEES IN THE REPUBLIC OF FIJI OF THE
CHURCH OF JESUS CHRIST OF LATTER-DAY SAINTS

BETWEEN:

THE TRUSTEES IN THE REPUBLIC OF FIJI OF THE
CHURCH OF JESUS CHRIST OF LATTER-DAY SAINTS,
Provident Plaza, Level 3, Module 1, 33 Ellery Street, Suva
(APPELLANT)

AND:

FIJI ISLAND AND. REVENUE AND CUSTOMS AUTHORITY
a body corporate duly constituted under the provisions of the
Fiji Islands Revenue and Customs Authority Act 1998
(RESPONDENT)

Counsel for the Appellant: Hoggard-Sorensen) Munro Leys
J Apted)
Counsel for the Respondent: B Solanki) FIRCA
Ms F Gavidi)

Date of Judgment: 14 September, 2007
Time of Judgment: 9.30a.m.

JUDGMENT

This is an appeal by reference under Section 58 of the Value Added Tax Decree 1991 ("The Decree.") against the decision of the Value Added Tax Tribunal ("the Tribunal") dismissing the Appellant's appeal against the Commissioner of Inland Revenue's ("the Commissioner") decision to disallow in part the Appellant's objections to assessment under Section 50 of the Decree.

The Appellants are Trustees described as Trustees in the Republic of Fiji of the Church of Jesus Christ of Latter-Day Saints appointed under a trust agreement ("the Trust Agreement") made on 16 September 1987. The Trust Agreement has since been amended on 1 August, 1996 and 30 June 1999. The Church of Jesus Christ of Latter-Day Saints ("the Church") is a religious body registered under the Religious Bodies Registration Act (Cap. 68). The Respondent, the Commissioner, is appointed under the Income Tax Act 1974 (Cap. 201), but whose functions under the Decree are assumed by the Fiji Islands Revenue and Customs Authority ("FIRCA") under the Fiji Islands Revenue and Customs Authority Act 1988.

The Church had registered its own name as a supplier under the Decree. This was cancelled by the Commissioner on 13 June 1995. On 3 September 1999 the Trustees applied and were registered as a supplier with FIRCA. At paragraph G of the VAT registration form, the Trustees described their "main taxable activity" as "books, audio & video tapes, artwork, stationery, clothing," and at paragraph I they declared themselves as "importer" of goods. Thereafter, the Trustees proceeded to file their VAT Returns on a monthly basis (October 1999 to April 2000).

On 19 March 2001, FIRCA notified the Trustees that they were ineligible to claim VAT paid on the purchase of materials to build the new church temple. The letter was brief and to the point. It said,

"This is to inform you that the above taxpayer is not eligible to claim VAT, which was paid on purchase of materials used to build the new LDS Temple. This is because the above taxpayer has listed their taxable activities as being the selling of books, audio and video tapes, artwork, stationery and clothing. As such under section 15 of the VAT Decree a taxpayer can only claim input tax credits if the goods' or services were acquired or imported for the principal purpose of carrying on that person's taxable activity."

The solicitors for the Trustees responded to FIRCA's notice by a letter of 17 April, 2001 objecting to the decision on the ground that "the materials used to build the Temple comprised goods or services acquired or imported, for the principal purpose of carrying on the Trustees' taxable activity." FIRCA wrote back on 27 April, confirming its earlier decision and on 7 June, it formally disallowed the Trustees' objection on the construction and operation of the Temple, while allowing only the objection on the operation of retail outlet. On 27 June 2001, FIRCA officials, informed a Church official, that the Trustees activities cannot be considered to be a taxable activity under the Decree. On 4 July following FIRCA purported to de-register the Trustees from the payment and collection of VAT. The Trustees in addition to filing this appeal, have also filed its objection with FIRCA on their de-registration.

The Appeal

The grounds of appeal are set out in the Appellant's Reference, namely,

"1. The appeal was dismissed even though the Tribunal's finding of fact contradicted the final decision to dismiss the appeal;

2. The Tribunal in making her ruling failed to realize that the "taxpayer" for purpose of VAT is the "Trustees in the Republic of Fiji of the Church of Jesus Christ of Latter-Day Saints"

3. The Tribunal erred in holding that the Temple is not used in the furtherance of taxable activities."

The real issue and the bone of contention that underlies the appeal is whether the building activity relating to the Temple is excluded from being part of the Trustees' taxable activity.

Let me first address the issue raised as ground 2 of the appeal. It is clear from the beginning that the "taxpayer" is the Trustees not the Church. The application and registration of VAT was made by and in the name of the Trustees. All correspondence between the solicitors for the Appellant and FIRCA invariably referred to the taxpayer as the Trustees. Given that the Trustees and the Church are distinct legal entities, the Tribunal's finding against the Church instead of the Trustees, is plainly wrong. The respondent's argument that falsa demonstratio principle applied is misconceived.

The more contentious issue relates to whether the supply of goods and materials for the building of the Church Temple comes under "taxable activity" and for which the Trustees as the "taxpayer" can claim VAT. The powers of the Trustees are defined in Article 6 of the 1987 Trust Agreement. In addition to all the powers and duties conferred upon them under the Act, the Trustees under Article 6 have the powers:

"(a) to acquire, purchase, lease, rent, sell, assign or transfer leasehold and/or fee simple property in Fiji, pursuant to the laws of the said country;

(b) to hold, manage and administer the leasehold and/or fee simple property of the Church;

(c) to enter into all required types of agreements and contracts for the purposes and acts set forth above."

The exercise of these powers as well as those given under the Act, in the view of the Court, constitute "the activity" of the Trustees for the purpose of the Decree. The provision of other facilities, including "books, audio & video tapes, artwork, stationery, clothing" declared by the Trustees as the "main taxable activity" at paragraph G of the VAT registration form, are additional to those prescribed by law and by the Trust Agreement.

What then is a "taxable activity"? Section 4(1) of the Decree defines the term as

"any activity which is carried on continuously or regularly by any person, whether or not for pecuniary profit, and involves or is intended to involve, in whole of in part, the supply of goods and services to another person for a consideration; and includes any such activity carried on in the form of any business, services, trade, manufacture, profession, vocation, association or club ..."

Section 4(3) defines what is not a "taxable activity "in relation to any person as,

"(a) any activity carried on essentially as a private recreational pursuit or hobby; or

(b) an employment in terms of section 79 of the Income Tax Act 1974; or

(c) any activity carried on by a non-profit body, other than an activity, which in the opinion of the Commissioner is in competition to the disadvantage of any taxable activity carried out by any person."

Are the Trustees as taxpayer, carrying on "taxable activity" or are their activity exempted under Section 4(3)(c) of the Decree? The Appellants argued that the provisions of Section 4(3)(c) do not apply to the Trustees as it is neither a "non-profit body" nor a "recognized religious organization." Their argument is based on the interpretation of the term "non-profit body," defined in section 2(1) of the Decree to mean,

"... any society, association, or organization whether incorporated or not,-

(a) being any recognized religious organization; or

(b) which is carried on other than for the purposes of profit or gain to any proprietor, member, or shareholder; and

(c) which is by the terms of its memorandum, articles of association, rules or other document constituting or governing the activities of that society, association, or organization prohibited from making any distribution whether by way of money, property, or otherwise howsoever, to any such proprietor, member or shareholder."

The Appellants agree with the Tribunal's finding that an organization or a society is not a "non-profit body" unless the conditions stipulated under Section 4(3)(c) are satisfied. Further in the case of a recognized religious organization, there must be specific prohibition by its governing rules to the distribution or money to any proprietor, member or shareholder. Given all of these, Counsel contended that the Trustees were neither a "recognized religious organization" nor a "non-profit body". In the first place, there is absence of a definition of what constitutes a "recognized religious organization" and the Trustees are not such an entity.

Secondly, the Trustees cannot be a "non-profit body" as defined, because there are no prohibitions in the Trust Agreement that would make the definition of the term in section 2 apply. Butterworths Australian Legal Dictionary defines a "non-profit organisation" as:

"an organization or a corporation that is formed for social, recreational, educational, charitable or philanthropic purposes. In a non-profit organisation, there is no transferable ownership interest and its members do not receive monetary gains. Its continuation depends upon the members' dues and public grants."

It is patently clear that the Trustees as "the taxpayer" in this case is neither a "recognised religious organisation" not a "non-profit organisation or body". The Trustees mandate is prescribed both by the Act and Article 6 of the Agreement. It is accepted by the Respondent and remained uncontested in the appeal that the Trustees "activity" included the provision and supply of temporal support to the Church. "Temporal Support," the Court interprets, as secular things, affairs or business of the Church, of which Article 6 of the Agreement is partially a manifestation of. In this regard the Court is in agreement with the findings of the Tribunal.

If the Trustees activity is not exempted under section 4(3)(c) o f the Decree, does section 4(1) apply? In particular, are the Trustees' buildings activity on the Temple a taxable activity as defined under section 4(1)? The Respondent contended that the purchase and supply of building materials by the Trustees as taxpayer for the constructing of the Church's Suva Temple are not taxable activities. The taxpayer's taxable activities are restricted to those listed in VAT Registration form as "books, audio & video tapes, artwork, stationery, clothing".

With respect to the Respondent's argument, I disagree. The list of "taxable activity" that is declared by a taxpayer under paragraph G of the form, is not exhaustive. It merely stipulates that the taxpayer describe his "main taxable activity" which ipso facto suggests other taxable activity need not be listed or included. Further, trustees are, in addition to their appointments under trust instruments, also creatures of statutes and imbued with additional powers, duties and responsibilities. It would be wrong, in the circumstances, for the Respondent to suggest that the Trustees or the taxable activities are necessary limited to those contained in paragraph G of the VAT Registration form.

In my view, the Trustees of the LDS Church, in exercising their powers and complying with their responsibilities in the provision of goods and services for the building of the Temple were carrying on "taxable activity" within the meaning of section 4(1) of the Decree. Such activity, although not listed under the "main taxable activities" paragraph of the VAT Registration form are clearly legally recognised responsibilities of the Trustees. But even if the Respondent's argument that the Trustees and/or the Church was a "non-profit body" was sustained, and therefore its activities are not "taxable activity", section 4(3)(c) applies on the facts of this case, namely, that the activity of purchase and supply of building materials by the Trustees for the construction of the Temple was "in competition to the disadvantage of any taxable activity carried on by any other person". As such, the activity is an exception to the general exemption of non-profit bodies.

Finally, I cannot find any grounds of the Tribunal's finding and conclusion that "the Temple is not used in the furtherance of taxable activities comprising of the supply of books, audio and video tapes, artwork, stationery and clothing". This issue was never raised nor argued by the Appellants. If anything their contention has always been that the Purchase and supply of goods and services for the construction of the Temple were made in the course of furtherance of the Trustees' taxable activity of providing temporal support to the Church.

In the final, the Court allows the appeal finding that:

(i) the Appellants as Trustees are, for the purpose of the VAT Decree, the taxpayer;

(ii) the building activity of the Trustees on the construction of the Church's Temple, constitutes "taxable activity".

Costs of $650 is summarily assessed against the Respondent.

F Jitoko
JUDGE