Ava Henry v Commissioner General Tax Administration Jamaica
| Jurisdiction | Jamaica |
| Judge | F. Williams, J. |
| Judgment Date | 20 April 2015 |
| Court | Supreme Court (Jamaica) |
| Docket Number | REVENUE APPEAL NO. 4 OF 2011 |
| Date | 20 April 2015 |
[2015] JMRC 2
IN THE REVENUE COURT
Coram: F. Williams, J.
REVENUE APPEAL NO. 4 OF 2011
Mr. Lawrence Philpotts-Brown instructed by Clough, Long & Co for the appellant.
Mrs. Cecelia Chapman-Daley and Ms. Maxine Johnson for the respondent.
Income Tax Act — Section 5 (1) (c) (ix) — Whether Agreements between Taxpayer/Appellant and Workers Contracts for Services or of Service — Whether Persons Working with Taxpayer Employees or Independent Contractors — Education Tax — Purposive Construction.
This matter reflects something in the nature of a convergence between Revenue Law and what we have come to know as the law relating to vicarious liability in the law of tort.
The issues in the case revolve primarily around the interpretation and application to the facts of section 5 (1) (c) (ix) of the Income Tax Act, the material portions of which read as follows:
‘5. – (1) Income tax shall, subject to the provisions of this Act, be payable by every person at the rate specified hereafter for each year of assessment in respect of all income, profits or gains respectively described hereunder –
(c) all emoluments arising or accruing to any person (or any member of his family or household) by reason of his office or employment of profit:
Provided that —
(ix) where under the terms of a contract or arrangement any person (hereinafter in this section called ‘the employee’) is under an obligation to render personal services to another person (hereinafter in this section called ‘the employer’) whether on his own behalf or on behalf of a company, and –
(A) the employee is subject to, or to the right of, supervision, direction or control by the employer as to the manner in which he renders those services; and
(B) the remuneration for the services would not, apart from this paragraph, be treated as emoluments,
then the relevant services shall be treated as duties of an office or employment of profit held by the employee and the income arising or accruing therefrom shall be treated as emoluments of that office or employment, and accordingly, the employer shall deduct from the remuneration the income tax payable.’
The appellant in this matter (Ms. Ava Henry), operates a beauty salon and day spa on the premises of the Tryall Golf and Beach Club Limited (Tryall) in the parish of Hanover.
Consequent on an audit conducted on the appellant's business in respect of income tax and education tax, the appellant's tax liability was adjusted by the Commissioner of the Taxpayer Audit and Assessment Department (TAAD), by way of letter dated October 31, 2008, with its attachment, indicating how the adjustments were arrived at, in respect of the following years and the following amounts:
| YEAR | PAYE (Income Tax) | Education Tax |
| 2006 | $216, 259.18 | $85, 982.26 |
| 2007 | $412, 903.39 | $132, 242.68 |
| Total | $629, 162.57 | $218, 224.94 |
The appellant raised an objection to this assessment. The TAAD met with her and her accountant; and perused such documentary proof as she provided, including copies of signed contracts. At the end of this process, the assessment was confirmed as raised by way of Notice of Decision dated May 19, 2009. Being dissatisfied with this decision, the appellant appealed to the Taxpayers' Appeals Department (TAD), which convened a hearing into the matter on October 20, 2009. During the course of the appeal, as in the discussions around the time of the audit, an eight-point checklist was used and referred to, to see whether the appellant fell within the provisions of section 5 (1) (c) (ix). The result of this hearing was that a Notice of Decision dated May 16, 2011 was issued, dismissing the appeal. This notice was sent to the appellant via facsimile on June 1, 2011. It is from that decision that the appellant has appealed to the Revenue Court.
By way of Notice of Appeal dated the 7 th July, 2011 the appellant is challenging the decision of the Taxpayers' Appeals Department (TAD) on several grounds, namely:
‘(i) That the Respondent's Decision is erroneous and contrary to Law in deciding that the Appellant operated under a contract of service when it is plain that the relevant contract contained no express provisions by which the spa could control or direct the manner by which she performs her work under it;
(ii) That the Respondent's Decision is erroneous and contrary to Law in deciding that the Appellant operated under a contract of service when Clause 2 under the heading OTHER OBLIGATIONS is conclusive in favour of the Appellant being an independent contractor and not an employee;
(iii) That the Respondent's Decision is erroneous and contrary to Law in deciding that the Appellant operated under a contract of service as the Respondent took into consideration irrelevant matters and failed to have regard to relevant matters in arriving at the said Decision;
(iv) That by Law and by virtue of the terms of the relevant Contract the Appellant was an independent contractor and not an employee;
(v) That the Respondent's Decision is erroneous and contrary to Law in that the Commissioner of TAAD failed to remit to the Appellant an Income Tax Return for the Years of Assessment 2006 and 2007 before conducting the audit and raising the aforementioned Assessments set out at paragraph 1 hereof upon the Appellant.’
The last ground of challenge (number (v)) was withdrawn following on discussions between the bench and counsel for the appellant, as it became clear from the affidavit evidence that the manner in which the assessments were raised was procedurally proper.
In answer to the appellant's notice of appeal, the respondent filed a statement of case on August 8, 2011 in which is set out the main contentions in respect of the points raised in the appellant's said notice of appeal. The relief sought by the respondent is for the appeal to be dismissed; for the respondent's decision dismissing the appellant's appeal dated May 16, 2011 be confirmed and for costs of the appeal.
In essence, the respondent contends that the audit and the results of the subsequent appeal to the TAD were correct. All actions taken by the revenue were permissible pursuant to the provisions of the Income Tax Act (and the Education Tax Act).
There is one main issue in this appeal; and that is: whether the arrangements that existed between the appellant and her workers amounted to contracts of service or contracts for services; or, put another way, whether the appellant's workers were employees or independent contractors. If the arrangements in existence are caught by the provisions of section 5 (1) (c) (ix), they would be employees, and the appellant would be liable for the payment of Income Tax (under the PAYE system) and Education Tax. That also means that the initial assessment would have to be confirmed. If they were independent contractors, on the other hand, then the appellant would not be so liable and the workers would be responsible for their own tax payments.
There are subsidiary issues as well, but they all relate to the central issue. One of these, for example, is the significance (if any) to be given to the label or description that the parties have given to the arrangement. Is such a label or description conclusive? Also, in looking to see whether the appellant's arrangements fell under the relevant section, should the respondent and the relevant revenue agents have had regard to the eight-point checklist as they did? Or, should they have had regard only to the provisions of the section?
The relevant provision in the Income Tax Act (‘the Act’) was introduced by way of an amendment to the existing legislation in 2002. To my mind, the essence of the section (and the source of the contention between the parties in this case), is to be found in the wording of sub-paragraph (ix). Although the entire section has been set out in full in paragraph 2 of this judgment; it will still be useful to set out that sub-paragraph at this point to give greater focus to matters to be considered:
‘(ix) where under the terms of a contract or arrangement any person (hereinafter in this section called ‘the employee’) is under an obligation to render personal services to another person (hereinafter in this section called ‘the employer’) whether on his own behalf or on behalf of a company, and –
(C) the employee is subject to, or to the right of, supervision, direction or control by the employer as to the manner in which he renders those services; and
(D) the remuneration for the services would not, apart from this paragraph, be treated as emoluments,
then the relevant services shall be treated as duties of an office or employment of profit held by the employee and the income arising or accruing therefrom shall be treated as emoluments of that office or employment, and accordingly, the employer shall deduct from the remuneration the income tax payable.’
It may be best at this stage to consider the submissions of the respective parties as to how the section ought to be construed. Should it be the purposive approach that is to be taken, as advocated by counsel for the respondent? Or, should the court take a stricter, more-restrictive approach, as contended by counsel for the appellant?
Over the years, the courts have adopted a particular approach to the interpretation of taxing statutes, generally, which might be summed up in the following passage from Cases and Materials in Revenue Law , by A.J. Easson,...
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