JH Rayner (Mincing Lane) Ltd v Chief Collector of Taxes

• Jurisdiction: Papua New Guinea
• Judge: Sheehan J
• Judgment Date: 18 July 1991
• Citation: [1993] PNGLR 416
• Court: National Court
• Year: 1993
• Judgement Number: N1175

National Court: Sheehan J

Judgment Delivered: 18 July 1991

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

J.H. RAYNER (MINCING LANE) LIMITED

V

THE CHIEF COLLECTOR OF TAXES

Waigani

Sheehan J

18 July 1991

APPEAL — Income Tax Review Tribunal.

INTERPRETATION — Literal approach — Words clear and unambiguous.

WORDS AND PHRASES — "Associated persons", Income Tax and Dividend (Withholding) Tax Rates Act 1984 — "Associate", Income Tax Act 1959.

Facts

The appellant taxpayer sought to overturn a decision of the Income Tax Review Tribunal, which upheld a determination of the Chief Collector of Taxes, who had assessed tax at the rate of 30% for the four years ended 31 December 1983 to 1986. The appellant argued that the correct rate was 10%. The appellant was a non-resident wholly-owned subsidiary of another non-resident, company, Berisford PLC. Through another subsidiary, Pauline Mari BV, Bereford PLC held a 25% shareholding in Kopi International, a PNG company. The appellant performed management and other services for Kopi International. The fees charged for those services were the subject of the assessment under dispute. If Kopi International could be shown to be an "associated person" of the appellant, then, pursuant to s 7 of the Income Tax and Dividend (Withholding) Tax Rates Act Ch 111, the higher tax rate of 30% was applicable. The case turned on the statutory interpretation of "associated person" in s 7 and "associate" in s 4 of the Income Tax Act 199. There was no definition of "associated person" in the former act. The definition of "associate" in the latter act was the only definition approximating the phrase. The Tribunal had sought to correct an error of omission of the legislature by reading sections 4 (1) (b) (iv), (v) and (vi) together, so that "person" in (vi) included "company".

Held

1. The definition of "associated person" in s 7 of the Income Tax and Dividend (Withholding) Tax Rates Act could be ascertained from the definition of "associate" in s 4 (1) (b) of the Income Tax Act 1959.

2. Departure from the clear and unambiguous wording may only be resorted to in plain and obvious cases where without correction the objective of the act itself would be totally defeated. This is especially so in taxing statutes.

3. Because of the express reference to "person" in s 4 (1) (b) (iv) and "company" in s 4 (1) (b) (v), the reference to "person" in s 4 (1) (b) (vi) does not mean "company". Therefore, a company that is an associate of another company which is an associate of a taxpayer, is not itself an associate of the taxpayer. Put another way, a company that is an associate of an associate of the taxpayer is not itself an associate of the taxpayer.

4. The PNG company, Kopi International, was not an associated person of the appellant taxpayer; therefore, the lower rate of tax was the applicable rate.

Cases Cited

Papua New Guinea cases cited

Mairi v Tololo [1976] PNGLR 125.

SCR No 6 of 1984 [1985] PNGLR 31.

Wemay v Tumdual [1978] PNGLR 173.

Other cases cited

Attorney-General v Earl of Selbourne [1902] 1 KB 388.

Cape Brandy Syndicate v IRC [1921] 1 KB 64.

Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297.

R v Bloxham [1982] 1 All ER 582.

R v West Yorkshire Coroner [1982] 3 All ER 1098.

Stock v Frank Jones (Tipton) Ltd [1978] 1 All ER 948.

Counsel

P R Payne, for the appellant.

J Weigall, for the respondent.

18 July 1991

SHEEHAN J: J.H. Rayner (Mincing Lane) Ltd, the appellant, seeks to overturn the decision of the Income Tax Review Tribunal, made against the company on 20 October 1990. That decision upheld a determination of the Chief Collector of Taxes (hereafter Commissioner) disallowing an objection by the appellant company to an assessment.

As stated by the Income Tax Review Tribunal in the opening paragraph of its decision:

"the question in issue is whether, in each of the four (4) years ended 31 December 1983 to 1986 inclusive, income tax was payable at a rate of 10% as contended by the taxpayer company, or at 30% as assessed by the Chief Collector of Taxes on royalties derived from Papua New Guinea in each of those years".

Rayner, the appellant taxpayer liable under the assessment, is a non-resident and wholly owned subsidiary of Berisford PLC, another non-resident company which has invested in the PNG company, Kopi International Ltd. Through Pauline Marie BV, another of its subsidiaries, Berisford holds a 25% shareholding in Kopi International. The appellant, Rayner, provided "management services, expertise and market intelligence" for Kopi International.

The tax payable on the fees for those services (acknowledged to be royalties under the PNG Income Tax Act 1959) is the subject of this dispute. The Tribunal has upheld the Commissioners' assessment of 30%. Rayner contends the rate should only be 10%.

The interpretation of the Commissioner of the relevant Income Tax Act provisions stands or falls on whether the taxpayer is what s 7 of the Income Tax and Dividend (Withholding) Tax Rates Act (hereafter Rates Act) calls an "associated person" in relation to Kopi International, the company paying the royalties.

Section 7 Rates Act states:

"7. Rate of the rate of tax payable in respect of royalties

The rate of tax imposed by this Act upon income to which s 4 (c) (other then assessable income from mining operation or assessable income from petroleum operation) of the Income Tax Act applies is:

(a) where the recipient is an associated person — 30% of the assessable income; or

(b) where the recipient is not an associated person — 10% of the assessable income or 48% of the taxable income whichever is the lesser".

The Tribunal found no definition of "associated person" in the Rates Act. The only definition approximating the phrase lies in s 4 (1) (b) of the Income Tax Act 1959 itself. This is the interpretation section of the act. It is paraphrased as follows:

"4. Interpretation

(1) [Definitions]

In this Act, unless the contrary intention appears:

'associate', in relation to a person (in this definition referred to as the taxpayer) means:

(b) (iv) another person where either:

(A) the tax payer company is, or its directors are accustomed or under an obligation to act as directed by that person or that person and another or other persons; or

(B) that person, or he and his associates (as defined) is or are able to control more than 50% of the voting rights in the tax payer company; or

(v) another company where either:

(A) the other company or its directors is or are accustomed or under an obligation to act as directed by the tax payer company and/or its associates (as defined); or

(B) the tax payer company and/or its associates is or are able to control 50% of the voting rights in that other company; or

(vi) a person who is an associate of the other person referred to in (iv) above." (emphasis added).

After considering the above subsection of the definition in detail and reviewing the history and structure of Kopi International, the Tribunal concluded that no one of (b) (iv) or (b) (v) or (b) (vi), on its own, could be relied upon to constitute the appellant as an "associated person" of Kopi International. At paragraph 41 of the decision, the Tribunal states:

"41. Accordingly, unless the scope of sub-para (b) (v) can be extended by reference to some other provisions in the definition, Kopi International would not have been an associate of a taxpayer company during the years in dispute".

It was argued before the Tribunal and again before this Court that such an extension was not open to the Tribunal. As the decision records, counsel for the taxpayer argued that since:

"All the definitions in s 4 (1) are subject to the qualification that they apply 'unless the contrary intention appears'. Having gone to the length to which the legislature has gone in defining 'associate' and to the explicit categorisation of the parties who may answer that description, it is not difficult to conclude that the legislature has demonstrated a contrary intention...."

In any case, counsel for the appellant submitted that the exhaustive definition surely shows the legislature intended that, in determining "an associate", "company" means company and "person" means person. Any other reading of the definition, it was submitted, only leads to a nonsensical result. Counsel contended that proper interpretative construction required that, where there appears any conflict between any general and specific provisions, it must be the specific that prevails.

Counsel for the appellant also relied on the maxim of interpretation expressio unius est exclusio alterius, which translates as, use of specific words excludes the use of any other or more general words.

Wemay v Tumdual [1978] PNGLR 173 and SCR No 6 of 1984 [1985] PNGLR 31 were cited...