N7188

PAPUA NEW GUINEA 
[IN THE NATIONAL COURT OF JUSTICE]

OS (JR) No. 1010 of 2017

BETWEEN:
DIGICEL (PNG) LIMITED
Plaintiff 

AND:
COMMISSIONER GENERAL OF INTERNAL REVENUE 
First Defendant

AND: 
INDEPENDENT STATE OF PAPUA NEW GUINEA 
Second Defendant

Waigani: Nablu, J 
2018: 8, 28, March 

JUDICIAL REVIEW – Application for leave – Whether the purported “notice of assessment” pursuant to Section 226 of the Income Tax Act is reviewable – no arguable case – no serious issues to be determined – plaintiff failed to exhaust objection process under s.245 of the Income Tax Act – leave refused.

Cases cited: 
Papua New Guinea Cases

Avia Aihi v. The State (No.1) [1981] PNGLR 81
Ila Geno & Others v. The Independent State of Papua New Guinea [1993] PNGLR 22
Independent State of Papua New Guinea v. Kapal [1987] PNGLR 417
Internal Revenue of Taxes v. Bougainville Copper Limited (2008) SC920
IRC v. Pirouz Hamidan Rad (2002) SC692
Norah Mairi v. Alkan Tololo (No.3) [1976] PNGLR 125
NTN Pty Ltd v. Board of Post and Telecommunication Corporation and Post and Telecommunication Corporation and Media Niugini Pty Ltd [1987] PNGLR 70 
Paul Asakusa v. Andrew Kumbakor (2008) N3303
Peter Makeng v. Timbers (PNG) Limited (2008) N3317

Overseas Cases

Inland Revenue Commissioners v. National Federation of Self Employed and Small Business Ltd [1982] AC 671
Cape Brandy Syndicate v. Inland Revenue Commissioner [1921] 1KB 64

Counsel: 

D. Katter and J. Brooks, for the Plaintiff
E. Geita, for the State
S. Paisi, for the First Defendant 

28th March, 2018 

1.	NABLU, J:	The plaintiff seeks leave to review the decision of the Commissioner General of Internal Revenue dated on or about 11 December 2017 to issue a purported Default Assessment Notice under Section 229 of the Income Tax Act 1959 (as amended). The purported Default Assessment Notice was issued in respect of the years of income ending 31st December 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015 and 2016.   

2.	The application for leave is made pursuant to Order 16 Rule 3 of the National Court Rules and supported by the Statement in Support filed pursuant to Order 16 Rule 3(2)(a) and verified by the plaintiff, through the affidavit of Ketan Mehta which was filed 27th December 2017. 

3.	If leave is granted, the plaintiff seeks to quash the decision of the first defendant and a declaration that the purported Default Assessment Notice is null and void and of no effect. 

4.	Leave was sought and granted to Mr. Paisi of counsel for the first defendant to make submissions at the leave stage. There was no objection from the plaintiff. Both counsel for the defendants, opposed the application for leave on two grounds. The first ground was that the plaintiff did not have an arguable case and that the plaintiff had failed to properly plead sufficient facts to establish its case. The second ground, is that the plaintiff has failed to exhaust administrative remedies available to it. In particular the plaintiff as failed to lodge an objection to the assessment pursuant to Section 245 of the Income Tax Act. 

5.	The legal issues for determination before this Court is whether the purported decision of the Commissioner General to issue a Default Assessment Notice pursuant to Section 229 of the Income Tax Act is subject to judicial review. I will consider this issue later in my ruling. 

6.	The background facts of the matter is provided in the Statement of Support pursuant to Order 16 Rule 3(2)(a) of the National Court Rules. The first defendant commenced an audit into the Foreign Contractor Withholding Tax implications of the Plaintiff on or about 12 December 2016. In the course of the tax audit, the Internal Revenue Commission sought further and better particulars from the plaintiff for the years of income ended 31st December 2007 to 2016 (relevant years of income). The findings of the audit were then concluded. Then on the plaintiff received a letter dated 11th December 2017 which they say is a purported Default Assessment Notice which stated that the plaintiff was required to pay the sum of K55, 825,851.68 as unpaid taxes. That sum was made up K20,353,766.53 as the alleged unpaid Salary and Wages Taxes for the relevant years of income pursuant to Section 299G(7) of the Income Tax Act. The balance of the sum of K35,472,085.15 was the purported penalty which was calculated at 20%  per annum and imposed pursuant to Section 299G(8) of the Income Tax Act. 

7.	There is no issue with the requirements of locus standi and the application for leave was promptly filed. Therefore, I find that the plaintiff has satisfied those two requirements of leave.  	

8.	In considering whether the plaintiff has an arguable case, due consideration should be had, to the grounds of review pleaded in the Statement of Support filed under Order 16 Rule 3(2)(a) of the National Court Rules; Paul Asakusa v. Andrew Kumbakor (2008) N3303.

9.	In this jurisdiction the Courts have cited with approval the test by Lord Diplock in the case of Inland Revenue Commissioners v. National Federation of Self – Employed and Small Business Limited [1982] AC 671 when determining whether to exercise its discretion to grant leave for judicial review. His Lordship stated at page 644 that: 

“If, on a quick perusal of the material then available, the court (that is the judge who first considers the application for leave) thinks that it discloses what might on further consideration turn out to be an arguable case in favour of granting the relief claimed, it ought, in the exercise of judicial discretion, to give him leave to apply for judicial relief. The discretion that the Court is exercising at this stage is not the same as that which it is called upon to exercise when all the evidence is in and the matter has been fully argued at the hearing of the application”. 
10.	This test was first accepted and applied by Wilson J in NTN Pty Ltd v. Board of Post and Telecommunication Corporation and Post and Telecommunication Corporation and Media Niugini Pty Ltd [1987] PNGLR 70. This principle has often been referred to and applied in numerous cases following approval by the Supreme Court in the case of Ila Geno & Others v. The Independent State of Papua New Guinea [1993] PNGLR 22. 

11.	In the present case, the plaintiff challenges the decision to issue a purported Default Notice of Assessment on eleven grounds of review as provided in it’s Statement of Support.  For ease of reference, I have summarized them under three (3) main headings. Firstly, grounds one (1) to four (4) and six (6) challenge the validity of the Default Notice of Assessment. Secondly, ground five (5) challenges the failure of the first defendant to allow the plaintiff to utilise the appeal and review provisions under the Income Tax regime by failing to issue a valid default Notice of Assessment. Thirdly, grounds seven (7), eight (8) and ten (10) are legally recognised grounds of review such as ultra vires, unreasonableness and denial of natural justice. And finally the fourth category are miscellaneous grounds such as an apprehension of bias and the breach of Section 41 of the Constitution. They are set out below:

1.	Challenge of the purported Default Notice of Assessment: 

i.	The letter dated the 11th of December 2017 is not a valid Default Assessment Notice pursuant to Section 229 because it does not state the “taxable income” of the plaintiff. 
ii.	The letter dated 11th of December 2017 is not a valid notice of Default Assessment because Section 229 of the Act does not enable the assessment of salary and wages. 
iii.	The letter dated 11th December 2017 generally states that the plaintiff failed to make correct salary and wages tax deduction without particularising the alleged rate or the amount deducted for an individual employee and for which year of income. 
iv.	The letter dated 11th December 2017 is not a valid determination under Section 299G(7) of the Income Tax Act.
v.	Most people in the Schedule are not “employees” of the plaintiff. 

2.	Failure to allow opportunity to object: 

vi.	The plaintiff is denied or cannot utilise the objection process under section 245 of the Income Tax Act. 

3.	Recognised grounds of judicial review: 

vii.	The first defendant acted ultra vires in that the assessment must be issued to an employer in relation to each employee.
viii.	The first defendant denied the plaintiff natural justice and failed to provide good, proper and meaningful reasons for its decision. 
ix.	The decision was unreasonable within the Wednesbury sense. 

4.	Miscellaneous grounds:

x.	The decision was infected with apprehended bias. 
xi.	   The decision was harsh and oppressive and made contrary to Section 41 of the Constitution. 

12.	After a quick perusal of the plaintiff’s statement pursuant to Order 16 Rule 3(2)(a) of the National Court Rules and the evidence before me, I am not  satisfied that the plaintiff has an arguable case. The plaintiff does not raise serious issues to be tried. 

13.	It is clear from the plaintiff’s submission that they challenge the decision of the first defendant to issue a default assessment of unpaid salary and wages tax which the plaintiff failed to deduct from its employees during the relevant years of income.

14.	The grounds of review raised by the plaintiff also relies on the interpretation of tax legislation. The Supreme Court in Norah Mairi v. Alken Tololo (No.3) [1976] PNGLR 125 adopted the quote from Rowaltt, J in Cape Brandy Syndicate v. Inland Revenue Commissioner [1921] 1K.B. 64 at 71, the well known passage quoted is that:

“In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about tax. There is no presumption as to tax. Nothing is to be read in, nothing to be implied. One can only look fairly at the language used.”

15.	His Honour Justice Kandakasi as a member of the Supreme Court bench in IRC v. Pirouz Hamidan Rad (2002) SC692 also followed the principle of interpretation of tax legislation and stated that:

“The authorities also state that only in a clear case of an irrational result being suggested by the words used by Parliament, that the Courts may depart from the literal and natural meaning. Care must of course, be exercised in such a case to ensure that the Court does not devolve into the sphere of law making in the guise of statutory interpretation...”

16.	With respect, the submissions by the plaintiff intend to seek the Court’s jurisdiction to interpret the provisions of the tax law. Therefore, when considering the plaintiff’s grounds of review, in regard to the breaches of the Income Tax Act, the literal and natural meaning of the provisions must be considered.

17.	One of the grounds is that, the plaintiff contends that the purported Notice of Default Assessment does not state the taxable income. This ground is misconceived. There is no requirement for the taxable income to be stated in a Notice of Assessment. There is no prescribed form in which a Notice of Assessment must conform to.

18.	Section 239, of the Act, a document under the hand of the Commissioner General is sufficient and is conclusive evidence of an assessment been made. Furthermore, according to Section 236 of the Income Tax Act, the Commissioner General shall as soon as convenient, after an assessment is made, serve a notice of assessment in writing by post or otherwise on the person liable to pay tax. I am of the view that this ground is not arguable.

19.	The plaintiff also contends that Section 229 of the Act is not applicable for the assessment of salary and wages tax. When reading Section 229 of the Income Tax Act, it is clear that Commissioner General has the discretion to determine the income tax which ought to be levied and that amount shall be the taxable income of that person for the purpose of Section 228.

20.	Section 228 of the Income Tax Act refers to assessments. Section 228(2) in particular states that:

“ For the purpose of this Act, and subject to Sections 46B, 46C and 65F, deduction of tax in accordance with the provisions of the Income Tax (Salary or Wages Tax) (Rates) Act 1979 from salary or wages shall be deemed to be an assessment of salary or wages tax.”

21.	I am of the view that this ground of review is not arguable and it is also misconceived. The Commissioner General has the power to ascertain the unpaid salary and wages tax by a group employer. Salary and wages tax assessments are self assessed tax pursuant to the provisions of the Income Tax (Salary or Wages Tax) (Rates) Act 1979 (as amended). The group employer, like the plaintiff has a statutory duty to deduct and remit the salary and wages tax payable by its employees every month. That assessment of tax is made by the employer in conjunction with the Income Tax (Salary or Wages Tax) (Rates) Act. I am of the view that this ground of review has no merit and is not arguable.

22.	I am mindful that this is an application for leave for judicial review and I am to consider the application based on the evidence and material provided by the plaintiff and the Statement in Support filed pursuant to Order 16 Rule 3(2)(a) of the National Court Rules. I have considered all counsels arguments and weighed the different arguments and considerations and conclude with the firm view, that the plaintiff does not have an arguable case. 

23.	It is settled principle of law that judicial review is not available where the applicant has not exhausted all the administrative remedies (see Independent State of Papua New Guinea v. Kapal [1987] PNGLR 417). 

24.	In the present case, the State argued that the plaintiff has not exhausted the administrative remedies under the Income Tax Act. Section 245 of the Income Tax Act provides an administrative avenue for a dissatisfied taxpayer to invoke if they are aggrieved with an assessment. The process entails a written request for review to be lodged with the Commissioner General. The State and the first defendant argued that the plaintiff did not lodge an objection. The plaintiff should pursue and exhaust that administrative remedy first, and that they are prematurely before this Court. 

25.	I am of the view that there is an administrative remedy available to the plaintiff to exhaust. The Commissioner then makes a decision on the objection. If the taxpayer is aggrieved then they can institute an appeal to the National Court or seek further review to the Income Tax Review Tribunal. In the present case, the plaintiff did not exhaust their right to object to the assessment pursuant to Section 245.

26.	The Supreme Court in Commissioner General of Internal Revenue of Taxes v. Bougainville Copper Limited (2008) SC920 made an authoritative statement of the law on taxation appeals. I am of the view that this statement is not only persuasive but binding on the National Court (see paragraphs 8 to 17 of the Judgement). It is clear that the first step in questioning the validity of a notice of assessment is taken when the taxpayer lodges an objection pursuant to Section 245 of the Income Tax Act. Pursuant to Section 239 of the said Act, the assessment notice is conclusive evidence of an assessment been made by the Commissioner General. Therefore, I am of the view that the plaintiff has not exhausted the objection process first before coming to this Court and therefore the plaintiff is prematurely before this Court.

27.	Mr. Paisi of counsel of the first defendant in his submissions also submitted further that despite the plaintiff’s failure to lodge its objection, they (IRC) are willing to allow the plaintiff time to lodge their objection or an extended time as otherwise ordered by the Court be granted to the plaintiff to object to the assessment.

28.	A quick research of the reported tax cases indicate that the cases came to the Court from an appeal of the Review Tribunal’s decision. In those cases the taxpayer lodged an objection first which was determined by the Commissioner General. Then the aggrieved party elected to either seek review of the decision by the Review Tribunal or appeal to the National Court on questions of law.

29.	I note that Section 245(1) of the Income Tax Act does not provide the power of the Commissioner General to extend the time to lodge an objection. The dissatisfied taxpayer may lodge the objection within sixty (60) days of the notice of assessment been served. In the present case the sixty (60) days lapsed on or about 11th February 2018.

30.	After considering the concessions by the State and first defendant and the plaintiff’s submissions, and also after considering the evidence before me, I am satisfied that the primary right of the plaintiff to object has expired and there is no provision in the law to extend the time to object. I am satisfied that this Court has the inherent power to do justice in the circumstances in line with the principles in the case of Avia Aihi v. The State (No.1) [1981] PNGLR 81.

31.	I am inclined to make an order pursuant to Section 155(4) of the Constitution to extend the time for the plaintiff to lodge their objection within fourteen (14) days of this Court order inorder to protect the plaintiff’s right to object and do justice in the circumstances. I am of the view that fourteen (14) days is sufficient the plaintiff has already identified some of the objection grounds which they have already raised as grounds of review in this leave application. The plaintiff is also a large taxpayer who has the capacity to engage competent tax agents to properly frame and lodge their objections within time.

32.	For the foregoing reasons, I am not persuaded that the plaintiff has an arguable case which warrants further review nor am I satisfied that the plaintiff has exhausted the administrative remedies under Section 245 of the Income Tax Act. The plaintiff’s submissions are misconceived and without merit. I accept Mr. Geita and Mr. Paisi’s submissions that there are administrative remedies available to the plaintiff to exhaust, therefore, they are not properly before this Court for judicial review. 

33.	Having found that the plaintiff has only made out two requirements for leave to be granted, I exercise my discretion to refuse leave to the plaintiff to apply for judicial review. Costs follow the event.

Court Orders:

1.	Plaintiff’s application for leave is refused and is dismissed forthwith.

2.	Pursuant to Section 155(4) of the Constitution, the plaintiff is at liberty to lodge its notice of objection to the Default Notice of Assessment dated 11 December 2017 within fourteen (14) days of this order.

3.	Plaintiff to pay the defendants costs of the leave application to be taxed if not agreed.

4.	 Time for entry of these orders is abridged to the date of settlement by the Registrar which shall take place forthwith.
________________________________________________________________
Ashurts Lawyers: Lawyers for the Plaintiff
Internal Revenue Commission Legal Services: Lawyers for the First Defendant
Office of the Solicitor – General: Lawyers for the State