IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

ACTION NO. 563 OF 2007

BETWEEN:

EAGLE RIDGE INVESTMENT (FIJI) LIMITED
a limited liability company having its registered office at
Lot 2 & 3 Rokobili Sub-division Walu Bay, Suva in Fiji.
Plaintiff

AND:

COMMISSIONER OF INLAND REVENUE
a body corporate duly constituted under the provisions of
the Fiji Islands Revenue & Customs Authority Act 1998,
having its registered office at 5th floor Dominion House, Scott Street, Suva.
Defendant

Mr. D. Prasad for Plaintiff
Ms T. Rayawa for Defendant

Date of Hearing: 30th September 2008 & 2nd October 2008
Date of Judgment: 7th October 2008

JUDGMENT
(Stay of garnishee under Income Tax Act) extent of powers of receivers

[1] The Commissioner of Inland Revenue has wide powers including powers to garnish accounts when it comes to collecting tax. The power to garnish accounts is contained in two pieces of tax legislations. This power to garnish is provided under Section 75 of the Income Tax Act for outstanding income tax or PAYE tax and under Section 63 of the Value Added Tax (VAT) Decree for outstanding VAT.

[2] Section 75(1) of the Income Tax Act provides:

"Where any sum payable under this Act remains unpaid by the taxpayer for a period of at least 30 days from the date when such sum becomes due and payable, and where notice has been served upon such taxpayer in the manner provided by subsection (9) warning him that such sum has become due and payable, the Commissioner may, by notice in writing in a form to be approved by him, a copy of which shall be sent to the taxpayer to his address last known to the Commissioner, require any person to deduct such sum as may be specified in such notice, not exceeding the sum due and payable, from any amount of moneys which may, at any time within 12 months from the date of such notice, be payable or become payable to such taxpayer and requiring such person to pay such sum to the Commissioner to the credit of the taxpayer within the time specified in such notice,"

For the provisions of this section to apply there must be -

(a) sum payable

(b) notice that sum payable must have been served on the taxpayer

(c) 30 days must expire before the Commissioner can garnish.

In case of outstanding VAT by a taxpayer the Commissioner has similar powers under Section 63(2) of the VAT Decree enabling the Commissioner to issue garnishee notices to any one who owes money to the taxpayer.

[3] Section 63(2) provides:

"Where any registered person has made default in the payment to the Commissioner of any tax or any part thereof payable by the registered person, the Commissioner may from time to time by notice in writing require any person:

(a) deduct or extract from any amount payable or any amount to become payable by that person to the registered person such sum as is specified in the notice; and

(b) pay to the Commissioner, within such time as is specified in the notice, every sum to be deducted or extracted, to the credit of an account maintained by the Commissioner in relation to that tax."

These two sections and certain incidental sections are the prime concern of this action. The Commissioner had issued garnishee notices to the plaintiff’s debtors under the above provisions. The plaintiff filed the summons for stay of the garnishee proceedings and other legal proceedings until the Commissioner declared final figures after assessment of tax.

Tax Returns:

[4] The plaintiff company filed its tax returns for the years 2000 and 2001 sometime in the year 2004. The company accountant has signed the tax returns for the two years on 21st April 2004 and 30th April 2004 respectively so they must have been filed after these dates. It is impossible to make out when 2002 returns were filed. The 2003 returns were filed some time after 28th December 2005 as the returns were signed by the financial controller of the company on 28th December 2005.

[5] On 26th June 2007 the defendant sent a tax assessment notice together with annual tax breakdown to the plaintiff. He assessed total tax inclusive of penalties or $1,258,608.79. This was amount for income tax. Additionally the Commissioner assessed VAT in the sum of $255,152.44 for the same years.

[6] Following this there was exchange of correspondence between the parties and also some meetings were held. This resulted in the Commissioner revising the figures for Income tax for the years 1999 to 2003 from $1,258,608.79 to $555,510.76. The plaintiff has not yet filed returns for the years 2004 to 2007.

[7] The plaintiff is disputing that tax is owed by it. It has objected to assessments made and I was told that the company has appealed against the Commissioner's decision to the Court of Review. I was told that the proceedings before the Court of Review are for call in two weeks time and submissions are to be filed with the Court of Review before then. For sake of clarity my concern is not to decide how much tax is owing but whether this court should grant stay pending the outcome of the decision of the Court of Review.

[8] The defendant submitted that the court has powers to grant stay but it is opposing the stay on the grounds that the Commissioner has a duty to recover tax and it can continue to recover tax despite pending objections.

Statutory provisions/Income Tax Act - Their Effect:

[9] The Commissioner of Inland Revenue has the statutory duty to collect tax: Section 3 of the Act. All tax, and penalties assessed are treated as a debt due to the State and are recoverable by action in a court of law: Section 76(1) and (2) of the Act.

[10] The plaintiff has been assessed for tax. It has objected and appealed to the Court of Review as it is entitled to under Sections 62 and 63 of the Act.

The lodging of the appeal does not act as a fetter upon the Commissioner to receive or recover tax: Section 62(7) of the Act. Nor does it suspend a taxpayer's obligation to pay tax. If the objection or appeal is successful, any excess tax paid is refunded to the person.

[11] The scheme is simple. Once a notice of assessment has been served on the taxpayer, it creates a legal liability on the taxpayer to pay tax unless it is set aside on objection or appeal. The procedure to challenge the accuracy of assessment or liability is provided for in the Act. Until the assessment is set aside this court must take the view that the tax is due and owing: Winter v. Federal Commissioner of Taxation 16 Australian Tax Reports 977.

[12] The Commissioner starts from a strong position. The Act gives the Commissioner strong powers. It gives him the discretion to suspend recovery pending objections or appeal. The applicant is seeking indulgence of this court to interfere with those statutory powers. It is asking the court to injunct albeit on an interim basis the Commissioner from exercising his statutory obligations. Such orders have huge consequences for the defendant. Therefore the applicant in such a case must come with compelling and convincing reasons if it is to succeed in obtaining a stay. The plaintiff's differences with the Commissioner about the quantum of tax payable are not enough ground. Further the fact that the Commissioner varied his assessments upon representations being made is also not a compelling ground: Punjas Limited & Another v. Commissioner of Inland Revenue – ABU 99 of 2005 where the Court of Appeal stated:

"it is well established tax law, ... that it (estoppel) is not available against the Commissioner. He cannot be encumbered by any previous position which he had taken up. He must be free to exercise his judgment and discharge his statutory functions as and when he thinks proper. In short, he is entitled to change his mind and take up a new position and disown one that he has taken up previously".

[13] Hence even if the Commissioner had at some stage reasoned that no tax was payable, he can still come back and consider the matter afresh and assess tax. In short Parliament has set up a scheme which favours the Revenue over an individual. It is a regime which may be unpalatable to many taxpayers but it is there nevertheless and places the Commissioner in a position of great advantage vis-à-vis the taxpayer.

[14] Therefore the power to stay proceedings must be exercised very cautiously: Snow v. DCT (W.A) 18 ATR 439. The applicant will need to show abuse of office by the Commissioner or extreme hardship to the taxpayer. Mere inconvenience is not enough.

[15] The Commissioner states that it had reached an arrangement with the plaintiff to pay $5,000.00 per fortnight in liquidation of its tax obligation. This arrangement was not kept so he reissued garnishee proceedings. I was also told from the bar table by counsels that on 4th January 2008 the Colonial Bank the debenture holder of company's assets had appointed a receiver. With some exaggeration but with much justification I could say that with this development, the company's financial position would be somewhat precarious. The commissioner would therefore be even more concerned now about his ability to recover tax from a company with receivers appointed.

[16] I remain unpersuaded that the plaintiff has shown compelling reason for stay. Accordingly the application is dismissed with costs summarily fixed in the sum of $500.00 to be paid in fourteen (14) days.

Interference by Receivers:

[17] There is one other aspect of this action which needs to be addressed. Upon appointment of receivers, the receivers appointed their own solicitors in place of Mr. Prasad. The receiver's took over conduct of proceedings and then simply vanished from the proceedings. The receivers I believe took a mistaken view of their powers. The law is clear. Upon appointment of a receiver by a debenture holder, the directors of the company do not become functus officio. The receiver has no power to dismiss them. They remain in office but their power to administer the affairs of the company is restricted by the terms of the debenture contract. The appointment of receivers does not permeate company's internal structure: Hawkesbury Development Company v. Landmark Finance Pty Ltd - (1969) 2 NSWLR 782, 790.

[18] The directors are still liable to file annual returns with the company's office and file tax returns. These are statutory duties of the directors. Courts only will not allow any action by the directors that would interfere with the proper discharge of the receiver's function of gathering assets of the company so as to pay off the debenture holder. However if the directors wish to enforce a right which the receiver is not interested in pursuing, then the directors can pursue that claim. Powers of directors cease under statutory provisions once a liquidator is appointed but not in case of appointment of receiver: Newhart Developments Ltd v. Co-operative Commercial Bank Ltd - (1978) 2 All ER 896, 900.

Final Order:

[19] The application is dismissed with costs summarily fixed in the sum of $500.00 to be paid in fourteen (14) days.

[Jiten Singh]
JUDGE

At Suva
7th October 2008