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

• Jurisdiction: Papua New Guinea
• Citation: [1993] PNGLR 416
• Date: 18 July 1991
• Court: National Court
• Year: 1993

National Court: Sheehan J

Judgment Delivered: 18 July 1991

1 Taxation—appeal from Income Tax Review Tribunal

2 Interpretation—when words of a statute are clear and unambiguous there is no room for departure from them unless they lead to totally anomalous or irrational results, defeating the whole purpose of the Act

3 Words and phrases—"associated person"—"associate"

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Sheehan J: JH Rayner (Mincing Lane) Limited, the appellant, seeks to overturn the decision of the Income Tax Review Tribunal made against the company on the 20th of October 1990. That decision upheld a determination of the Chief Collector of Taxes 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.

It is the tax payable on the fees for those services (acknowledged to be royalties under the PNG Income Tax Act) which 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 Chief Collector of Taxes of the relevant Income Tax Act provisions, stands or falls on whether the taxpayer is what s7 of the Act calls an "associated person" in relation to Kopi International, the company paying the royalties.

S7 of the Income Tax and Dividend (Withholding) Tax Rates Act states:

"S7 Rate of Tax payable in respect of royalties.

The rate of tax imposed by this Act upon income to which s4(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 which ever is the lesser".

The Tribunal found no definition of "associated person" in the Rates Act. The only definition approximating the phrase lies in s4(1) of the Income Tax Act itself. This is the interpretation section of the Act and commences as follows:

"4. Interpretation

[Definition]

In this Act, unless the contrary intention appears—

"Associate in relation to a person (in this definition referred to as the taxpayer) means—

(a) .................

(b)(i) ............

(ii) ............

(iii) ............

(iv) another person where either

(a) the taxpayer 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 taxpayer 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 taxpayer company and/or its associates (as defined); or

(b) the taxpayer 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 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, International would not have been an associate of an...