IN THE TAX COURT
(HIGH COURT)
AT SUVA, FIJI ISLANDS

Appeal No. HBT 10 of 2013

IN THE MATTER
 of the Tax Administration Decree 2009 and the Income Tax Act 1974.

AND

IN THE MATTER 
of an appeal pursuant to Section 18 and 107 of the Tax Administration Decree 2009 against the decision of the Tax Tribunal made on 3rd October in Miscellaneous Action (Tax) No. 04 of 2013.

BETWEEN:

AN INVESTMENT LIMITED COMPANY 
a limited liability company having its registered office at Ba, Fiji, TIN NO. 50-15037-07.
Appellant

AND:

FIJI REVENUE & CUSTOMS AUTHORITY,
 a body corporate duly established pursuant to Fiji Islands Revenue & Customs Act 1998.
Respondent

Appearance : Mr Solanki B of Solanki Lawyers for the Appellant
Mr Ravono S, Legal Officer of FRCA for the Respondent

Date of Judgment : 13 May 2015

JUDGMENT

[1]	This matter is an appeal against the decision of the Tax Tribunal dated 3 October 2013 by the Notice of Appeal dated 30th October 2013.

Appellant urged:

1.	An Order that this Appeal be allowed.

2.	An Order that the withholding tax imposed on the Appellant at the rate of fifteen percent (15%) on invoices 00000081(A) and 00000093A and penalty imposed be reversed as the Appellant has not yet paid the invoices and made arrangement that it did not have to pay for the same until it sold its lots after sub-division.

3.	An Order tax levied penalty imposed in respect of accounting services and the finding that PAYE had to be deducted be reversed on the basis that when the same is paid it is to an independent contractor who is not the Appellant's staff or employee.

4.	An Order tax levied and penalty imposed in respect of accounting services and the finding that PAYE had to be deducted be reversed as payment for the services had not been yet made and was not to be made until after the Appellant made land sales after its sub-division development was completed.

5.	An Order that the Respondent do pay costs as assessed by the Court.

6.	Any other Order this Court deems fit.

[2]	The Appellant relies on Ten Grounds of Appeal stated in the Notice and the Grounds of Appeal filed on 30 October 2013:

1.	In holding that the Appellant was liable to pay Non-resident Miscellaneous Withholding Tax of fifteen percent (and penalty thereon) pursuant to Section 82A(1) and (2) of the Income Tax Cap 201 of the Laws of Fiji when the Appellant had not actually paid the invoices 00000081(A) and 00000093A.

2.	In not following the Fiji Court of Appeal decision of case of Vergnet Sa vs. Commissioner of Inland Revenue [2013] FJCA 51 paragraphs 3 and 14 where the said Court had held as follows:

"The Non Resident Miscellaneous Withholding tax is charged under Section 8A of the Income Tax Act on the making of the payment."

3.	In holding that non-resident withholding tax was due as the Appellant had shown the same as an expense in its tax return and failed to take into account that a corporate entity has four years to claim expenses and can carry the same forward for that period.

4.	In holding that in the circumstances he was not prepared to disrupt in penalties charged and levied for withholding tax even if the services on which it had been levied had not been paid by the Appellant.

5.	In holding that the taxpayer had an obligation in paying within 30 days of recording that it owed the sums to Company B.

6.	In law in not allowing the Appeal to it and in holding that Mr K was an employee of the Appellant and not an independent contractor.

7.	In holding that the statement that PAYE was payable in respect of Mr K when the Appellant had made arrangement that payment was not to be made until it had sold its sub-divided lots after in 2014.

8.	In allowing himself to be influenced by the statement in the Appellant's objection that payment is only due when payment is actually made while holding that there is nothing determinative about the said 'concession' and then holding that the same is a concession.

9.	In wrongly taking into consideration matters which were not actually before the Tribunal, in particular, there was no evidence that Mr K was an employee of the Appellant.

10.	In failed to consider what was in the interest of justice when determining the Application for Review.

[3]	The Appellant's Grounds of Appeal

Ground of Appeal

3.1	In holding that the Appellant was liable to pay Non-resident Miscellaneous Withholding Tax (NRMWHT) of 15% and penalty pursuant to Section 8A(1) and (2) of the Income Tax Act Cap 201 when the Appellant had not actually paid the invoices 00000081(A) and 00000093A. The Respondent submitted that NRMWHT was correctly imposed on the Appellant on the following reasons:

(a)	The Respondent had applied the accrual accounting concept in the Appellants case;

(b)	The Appellant had claimed the expenses for the Consulting Marketing fees paid to the overseas company Pacific Consultancy PTY Limited in 2010 and 2011 and in the Income Tax return for the said years the Appellant claimed the relevant expenses in the Profits and Loss Statement of Accounts.

The Appellant is a limited liability company registered in Fiji who was engaged in development of properties. It was stated 12 blocks developed by the Appellant were not sold at the time of the review application before the Tribunal. The Appellant had hired the services of Australian Company called Pacific Consultancy PTY Limited (PCPL) to assist in the marketing and sales for the project of the Appellant for sale of the lands developed by him. The two invoices issued by PCPL for services rendered by PCPL. There is no denial by the Appellant these invoices were not issued. It was an agreed fact. Furthermore, it was established that the 2 invoices were not paid although it was shown as an expense in the Income Tax Returns for the year 2010 and 2011. The Appellant admitted there was an agreement between the Appellant and PCPL that the Appellant did not have to pay for the services until it was able to sell its sub-divided Lots which were to take place in 2014. The Appellant also submitted that when this became an issue with the Respondent, the Appellant withdrew the two invoices raised as follows:

a)	Invoice No. 00000081(A)	-	AUD $22,300.00	
b)	Invoice No. 00000093A	-	AUD $25,750.00	

3.2	Although, there are 10 Grounds of Appeal urged by the Appellant, the decision of the 1st Ground of Appeal is applicable to the other grounds of Appeal.

3.3	The Section 8A (1) states as follows:

"Non-resident Miscellaneous Withholding Tax

(1) Not withstanding anything to the contrary in the other provisions of this Act, there shall be paid a tax, to be known as "non-resident miscellaneous withholding tax", in respect of the payments specified in sub-section (2) at the rate of 15 percent of the gross amount payable.

(2) Such tax shall be payable in respect of-

(a) any payment made for the hire or rent of films whether by way of purchase or long term hire; or;

(b) subject to sub-section (7), any know-how payment and any sum paid or credited for the management or, or supervision of, or the supply of any similar activity in connection with the carrying on of a business….;

(c)……………;

(d) any sum paid or credited for the supply of professional services or other independent activities of similar character".

The relevant provision for the determination of this case is Section 8A (2) (d) which states NRMWHT is imposed on "any sum paid or credited for the supply of professional services or other independent activities of similar character".

3.4	The Respondent has no contest with regard to the services provided by the Pacific Consultancy PTY Limited in Australia is within the meaning of Section 8A(2) (d). However, the Appellant contends it should not pay any NRMWHT for the reason that although the Appellant had raised the invoices and stated in the Income Tax Returns for 2011 and 2012, such amounts were not paid and as such it does not come within the purview of Section 8A(2)(d). The Appellant addressed the words "paid or credited" and stated it was "not paid or credited" to the Pacific Consultancy PTY Limited as such it is not liable to pay NRMWHT. On the other hand, the Respondent whilst admitting that the term "credited" is not defined in the Interpretation Act Cap 7, however, the Respondent relies in the Color Oxford Dictionary and Thesaurus which states" "an entry in an account recording a sum received". The Respondent further submitted according to the definition in Award English Dictionary "credit" means a "deferred payment", the intended meaning of "credited" comes in the purview of the words "paid or credited" in the Section 8A(2)(d) of the Income Tax Act in the light of invoices raised by Pacific Consultancy PTY Limited, Australia. However, the Appellant's submissions is in absence of a definition of the word "credit" in the Income Tax Act it is more appropriate to apply the definition in the Color Export Dictionary and Thesaurus. It is important now to turn to the findings of the Tax Tribunal in its decision dated 12 September 2013.

3.5	The paragraphs of the decision of the Tribunal had drawn its attention to the fact that the taxpayer had recorded invoices as expressed in the Profit and Loss Statements which were filed with the Respondent. I reproduce the said paragraphs (page 25 of the Record):

"11.	The taxpayer nonetheless recorded those expenses as being ones incurred in the Profit and Loss Statements for 2010 and 2011. That is, it claimed the expenses as deduction against its income, but now argues that it should not have to pay any Non-Resident Withholding Tax against those amounts, on the basis that the invoices have not as yet been paid.

12.	Specifically, Counsel Karan argues that the intent of Section 8A(2)(d) of the Act, is only to impose a burden on the taxpayer, when a sum has been "paid or credited" for the supply of professional services.

13.	It is quite clear that if the taxpayer has claimed the expenses as offsets against its income for the relevant financial year periods, then it has also credited the amount as debt owing to Company P. The taxpayer cannot expect to claim the benefit of the deduction and yet be indifferent to its obligation to pay tax for the expense it claims to have incurred".

3.6	At this stage of this appeal was the same submission made at the Tax Tribunal in relation to the invoices which stated in the paragraph 14 of the decision which states:

"These are expenses only and under the accrual accounting method will be taken forward as a liability until it is paid".

The Tribunal had considered the submission and the finding was that this option cannot be opened to the Appellant for the reason that when such an expense is credited have an impact on the amount of income tax ultimately imposed on the taxpayer. I agree with the Tribunal's finding.

3.7	Referring to the paragraph 13 of the decision, the Appellant stated the words "credited the amount as debt owed to the company", is incorrect and to use the Color Oxford Dictionary and Thesaurus definition of "Credit" then that no entry has been made in account to record sum received. However, the Respondent says the definition should be applied as defined in the Award English Dictionary which says "deferred payment" considering all circumstances of this case. I conclude and agree with the definition that the context using the word credited is a deferred payment. Specifically, considering the said payment on invoices had been stated in the Income Returns filed for 2010 and 2011. Later withdrawing the entry cannot be considered by the Tribunal. The Tribunal too found that monies owed to the Pacific Consultancy PTY Ltd are incorporated with the provisioning of liabilities as Trade Creditors which was stated in the Profit and Loss Accounts filed with the Annual Returns for the years 2010 and 2011 (pages 157-170 of the Copy Record).

3.8	The Learned Tribunal had dealt with the Tax Invoices (page 98 and 99) issued by the PCPL and it was the finding that the Plaintiff's submissions was that the two invoices were not to be paid it denotes terms as "Net 30th after EOM". Invoice was issued to be paid within 30 days and it was within the Tax Year. Further more if the invoice was to be paid on accrual basis, the amount should have been recorded as Trade Creditors Account as a debt owing to PCPL. Moreover, the Appellant had already claimed for expenses pertaining to the fees/consulting fees and consulting/marketing fees. The net loss of the Appellant as stated in the Profit and Loss Statement. The Appellant had claimed the said expenses in its Profit and Loss Statement of Accounts and it was allowed by the Respondent. Accordingly, the Appellant cannot claim for accrual accounting treatment, (pages 162 and 170 of the Copy Record). Accordingly, I conclude the Tribunal had not erred on law or fact.

3.9	The Appellant had cited the case of Vergent SA vs. Commissioner of Inland Revenue Civil Appeal No. ABU035 of 2010 (unreported – decided on 30 May 2013) and stated that the reasoning of the said judgment was not applied by the Tribunal. In the paragraph (3) of the said judgment it was stated:

"(3) In the instant case the payment is made by FEA to Vergent Sa. The Non-Resident Miscellaneous Withholding Tax (NRMWHT) is charged under Section 8A of the Income Tax Act on the making of the payment. If the payment is made in respect of know-how or for management or supervision then FEA is responsible for deducting the tax in respect of such".

The above case is not relevant to the issue before this court. It had dealt with the Section 8A(2b) of the Income Tax Act. It is also further observed the said case had not dealt with the issue of issuing invoices before the payment being made and recording in the Annual Statement of Accounts filed with the returns. The Court of Appeal had not dealt with the present issue at all with regard to Section 8A 2(d) to define the word credited and the Appellant fails. The Tribunal's decision to disregard the said judgment is correct.

[4]	Grounds of Appeal 2, 3, 5 and 33(e) of the Written Submissions

4.1	I have already dealt with the Grounds of Appeal 2, 3, 5 and 33(e) of the written submissions in the above paragraphs and conclude that Vergnet case is not applicable to the present appeal and the position taken up by the Appellant that the Tribunal erred by disregarding that a corporate entity has four years to claim expenses and carry the same forward for that period is not relevant to this case for the reasons set out in the previous paragraphs. As such the Appellant's submissions on Grounds 2, 3, 5 and 33(e) fail and has no merits.

[5]	Ground of Appeal 4

5.1	In holding that in the circumstances he was not prepared to disrupt in penalties charged and levied for withholding tax even if the services on which it had been levied has not been paid by the Appellant.

5.2	On the above Ground of Appeal, the relevant provision in the Tax Administration Decree is the Section 46(2). As submitted by the Appellant, the penalty cannot be imposed ignoring the Section 46(5) of the Tax Administration Decree which states:

"46(5) No penalty is payable under sub-section (2) if –

(a) 	the person who made the statement did not know and could not reasonably be expected to know that the statement was false or misleading in a material particular; 

or

(b)	the tax shortfall arose as a result of self-assessment taxpayer taking reasonably arguable position on the application of a tax law to the taxpayer's circumstances in filing a self-assessment return".

Imposing penalty under Section 46(2) cannot be effected in isolation or arbitrally. The Respondent cannot overlook the Section 46(5) and the said provisions of the said Section should be applied to the facts of the case.

There is no suppression of the information by the Appellant and had provided all the information with 2010 and 2011 Tax Returns. The Respondent had used this information to assess the tax on a different context and definition. As such, I conclude the particulars provided by the Appellant comes within the meaning of Section 46 (5)(a) and as such the Penalty imposed by the Respondent should be withdrawn. The Learned Tribunal had failed to give reasons justifying the penalty and failed to consider the Section 46(5)(a) of the Income Tax Decree and erred in law and fact. I determine the Appellant succeed on this Ground.

[6]	Grounds of Appeal 6, 7, 8 and 9

6.1	These Grounds are on the issue of the Tribunal holding Ashok Kumar, employee of the Appellant and not an independent contractor.

6.2	The Learned Tribunal stated that in the paragraph 23 of the decision:

"23. In the case of the Accounting fees charged during this period, the Respondent appears to argue on several bases for assuming that the services were provided by an employee and not that of a contractor. These include –

•	the admission by Mr K (Ashok Kumar) to the Respondent that he was an employee;

•	the lack of evidence of any contractual agreement indicating otherwise; and

•	the fact that Mr K was the authorized officer of the Taxpayer for the purpose of Section 41(b) of the Tax Administration Decree 2009".

The above was stated by the witness Joji Vaka at the hearing. The Appellant's argument is that Ashok Kumar was not an independent contractor and he was an employee who is liable for PAYE Tax.

I cite paragraph 25 of the Tribunal decision:

"25. That still does not advance the case too much for the applicant. The onus of Section 21(b) of the Decree is on the person objecting to the decision to prove that the decision should not have been made or should have been made differently".

6.3	The Tribunal further find there was no evidence from Ashok Kumar in support of the proposition by the Appellant that he was not an employee. Further it was stated in the objection letter dated 28 December 2012:

"Please note payment has not been made and PAYE will be payable and become due when CCV makes the accounting services payment".

The finding of the Tribunal that Ashok Kumar had the Employer-Employee relationship is evident by the said statement made in the letter dated 28 December 2012. I have no hesitation to accept the Tribunal's finding that the Appellant and the Respondent had Employer-Employee relationship.

The Appellant has relied on the case of Dhurup Chand vs. Hanson Investment (Proprietary) Limited (2011) FJHC 587 unreported decided on 26 September 2011 and the facts of this case is not relevant to this case. In the said case employee-employer relationship was decided on different facts.

6.4	The Appellant also relied on the case of Performing Rights Society Ltd vs. Mitchell and Booker Limited [1924] 1KB 762 and referred to the "control test" to determine whether a person is an employee or an independent contractor:

"…….the test to be generally applied, lies in the nature and degree of detailed control over the person alleged to be a servant……an independent contractor is one who undertakes to produce a given result, but so that in actual execution of the work he is not under the order or control of the person for who he does it, and may use his own discretion in things not specified beforehand…."

The said case was cited in the Fiji Supreme Court case Hassan vs. Transport Workers Union [2006] FJHSC 11 (unreported decided on 19 October 2006) and in the paragraph 56 and in paragraph 59 it was referred to Mason J. in case of Stevens vs. Brodribb Sawmilling Company PTY Limited [1986] HCA 1, (1986) CLR 16 which states, ……….."the criticism of the control test that it was more suited to the conditions of earlier times than to the conditions of modern post – industrial society" and stated:

"Furthermore, control is not now regarded as the only relevant factor. Rather it is the totality of the relationship between the parties which must be considered".

6.5	Having concluded as above, I now consider the Regulation 6(2) of the Employment Regulation:

"Every employer shall be deemed to make payment of emoluments to an employee not only when an amount of emoluments is actually paid but also when emoluments are credited for the benefit of an employee to an account on which the employee can draw or over which he has control or are otherwise applied for his benefit".

6.6	The Tribunal had correctly concluded by applying the above regulation i.e.:

"37. 	The fact that the Taxpayer has entered into an arrangement to defer the payment of the wages, is immaterial to its obligations to deduct the taxation as accrued.

38. 	Again the Regulation does not appear to make any provision for the deferment of the obligation to remit the taxation, once the wages would be otherwise due and payable.

39. 	I have no doubt in my mind that if Mr K is an employee, then the wages are at statute, due and payable.

40. 	On that basis, the Taxpayer is also required to submit to the request of the Respondent and make good the tax obligations required to be made".

I agree with the above findings and conclude the Appellant had failed the Grounds of Appeal 6, 7, 8 and 9.

6.7	On conclusions made on the other Grounds, I determine that the Tribunal justified its decision and the Ground 10 fails.

Orders of the Court:

1.	The Appeal Grounds 1, 2, 3, 5, 6, 7, 8, 9 and 10 are dismissed and Appeal on these Grounds are also dismissed.

2.	The Appellant succeeds in Appeal Ground 4 and the Respondent is ordered to deduct all penalties levied on NRMWHT.

3.	No Order as to costs.

Delivered at Suva this 13th Day of May 2015.

…………………….
C. KOTIGALAGE
JUDGE