Liner Diner (1968) Ltd & E.S. Campbell & Company (1968) Ltd v The Commissioner of Income Tax

 
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Revenue Court

Marsh, J.

12 and 13 of 1972

Liner Diner (1968) Ltd. & E.S. Campbell & Company (1968) Ltd.
and
The Commissioner of Income Tax
Appearances:

Mr. E. Grant instructed by Messrs. Clinton Hart & co. for the appellant.

Mr. A. Hudson-Phillips and Mr. B. Kieran, instructed by the Crown Solicitor for the respondent.

Revenue Law - Income Tax — Appeal — Additional assessment

Marsh, J.
1

These two appeals, although listed separately, were consolidated and heard together pursuant to an application to that effect, by counsel for the respondent, under Rule 22 (b) “of the Revenue Court Rules, 1972.

2

Both appeals are in respect of additional assessments raised on the appellants for the Years of Assessment 1966 and 1967, under section 47(4) of the Income Tax Law, 1954.

3

As regards the first named appellant (hereinafter referred to as “Liner Diner”) the respective amounts are as follows–

  • (a) for the Year of Assessment 1966 — $61,895, and

  • (b) for the Year of Assessment 1967 — $76,156.

4

As regards the second-named appellant (hereinafter referred to as “Campbell and Company”) the amounts are as follows–

  • (a) for the Year of Assessment 1966 — $55, 272, and

  • (b) for the Year of Assessment 1967 — $70,190.

5

Decisions were in due course made by the respondent confirming these additional assessments in the sums just stated, and it is in respect of those decisions that the appellants have now appealed to this court.

6

The assessments arise out of a refusal by the respondent to accept that certain payments made by the appellants to a third company known as Airport Services Limited, allegedly by way of management fees, constituted expenditure wholly and exclusively incurred by the appellants in acquiring their incomes for the relevant years of assessment.

7

The issue reaches this court by way of additional assessments because the amounts claimed had originally been allowed by the respondent in the tax computations of the appellants for the two years in question, and then subsequently reversed, upon a further review of the matter.

8

Most of the relevant facts are contained in the pleadings. Evidence was also given by Mr. C.L. Campbell a Director and Shareholder in both of the appellant companies, as well as, in Airport Services Limited. A number of exhibits were also tendered in evidence, as an agreed bundle of documents.

9

The respondent's case in justification of the assessments, stated briefly is as follows–

  • (i) That the amounts claimed are to be disallowed as they do not represent expenditure wholly and exclusively incurred by the appellants in acquiring their incomes for the years in question, or

  • (ii) In the alternative, that they are artificial or fictitious transactions, the result of which is to reduce the amount of tax payable by the appellants, and as such are to be disregarded pursuant to the provisions of the section 10(1) of the Income Tax Law 1954.

10

Four Grounds of Appeal were relied on by the appellants. They are as follows–

  • “(1) That the said additional assessments are excessive, arbitrary and unreasonable.

  • (2) further and in the alternative, that they are unlawful in that the respondent had no jurisdiction to make them.

  • (3) Further and in the alternative, that the said expenditure was at all material times wholly and exclusively incurred by the appellants in acquiring their incomes, within the intendment of Section 8 of the Income Tax Law, and as such ought to be deducted therefrom in arriving at their chargeable incomes for the Years of Assessment 1966 and 1967, respectively, and

  • (4) Further and in the alternative, that the employment of the Management Services of Airport Services Limited, by the appellants in the operation of their businesses, was a bona fide commercial transaction, and as such does not fall within the intendment of Section 10 of the Income Tax Law 1954.”

11

The Statement of Case by the respondent in respect of Campbell and Company sets out the following material facts –

  • “(a) The appellant, a company limited by shares, and formerly known as E.S. Campbell and Company Limited, was incorporated on the 27 th April 1956.

  • (b) On the 17 th May 1968, the said appellant company changed its name to E.S. Campbell and Company (1968) Limited.

  • (c) the appellant company was established to carry on the business of, inter alia, restaurant keepers, refreshment room proprietors and licensed victuallers, and at all material times was providing catering services for the airlines which used Montego Bay Airport, and held a concession to operate all catering services at that airport.

  • (d) By Agreement dated third day of October 1961, between the appellant company and Airport Services Limited, a company incorporated in Jamaica and having its registered office at Palisadoes Airport, the appellant company having requested Airport Services to arrange and supervise the operations of its catering services at Montego Bay Airport, it was agreed, inter alia, as follows–

    • “(i) Airport Services would manage and supervise the operation of the concession in a good efficient and prudent manner and would use its best endeavours to see that the concession referred to in sub-paragraph (c) hereof was operated to the complete satisfaction of all parties, and in particular the airlines.

    • (ii) The appellant company would pay Airport Services by way of remuneration, an amount of £100 for the first year and an amount equivalent to 95% of the net profits of Campbells for the second and each subsequent year until the termination of the agreement, such amount to be paid annually… in no case later than the 31 st December of each year…”

  • (e) At all material times the same persons were directors of both the appellant company and Airport Services Limited.

  • (f) By letter dated the 17 th August 1966, the respondent agreed with Messrs. Price Waterhouse and Company, then auditors of the appellant company, that the latter's statutory and chargeable income for the Year of Assessment 1966 was nil, subject to, inter alia, information as to whom management fees of Thirty Six Thousand, Eight Hundred and Forty Nine Pounds (£36,849) and concession fees of Fifteen Thousand One Hundred and Twenty Seven Pounds (£15,127) were paid.

  • (g) By letter dated the 1 st September 1967, Messrs. Peat, Marwick, Mitchell and Company, presently auditors of the appellant company, wrote to the respondent indicating that there had been an error in the appellant company's tax computations for the Year of Assessment 1966, and making a claim for tax deducted at source from dividends.

  • (h) By letter dated the 13 th October 1967, the respondent replied to Messrs. Peat, Marwick, Mitchell and Company enclosing for agreement, an amended computation showing a chargeable income for the Year of Assessment 1966 of Five Hundred and Sixty Three Pounds £563), the tax due on this chargeable income being Two Hundred and Eleven Pounds Two Shillings and Six Pence (£211.2.6), the tax deducted at source from the dividends being Nine Hundred Pounds (£900). The net refund of Six Hundred and Eighty Eight Pounds Seventeen Shillings and Six Pence (£688.17.6) was carried forward by the respondent to be set off against the tax payable by the appellant company for the Year of Assessment 1968.

  • (i) In or about 1969, the respondent discovered that the sum of Fifty Five Thousand, Two Hundred and Seventy Two Dollars $55,272) which it had allowed the appellant company to deduct for tax purposes from its gross income as being fees paid for management services and an expense wholly and exclusively incurred in acquiring its income for the Year of Assessment 1966, had in fact been paid to Airport Services Limited, a company which was, at all material times, under the control of the same group of persons who controlled the appellant company, and which had gone into voluntary liquidation in or about 1967.

  • (j) Accordingly, the respondent taking the view that the said alleged management fee had been paid for the purpose of reducing the amount of tax, which ought to have been paid by the appellant company, and being of the opinion that the said appellant company had been assessed to a less amount than that/ which it ought to have been charged, wrote to the appellant on the 3 rd December 1969, subsequently assessed it for the Year of Assessment 1966, by notice dated the 31 st December 1969, to an additional chargeable income of Fifty Five Thousand, Two Hundred and Seventy Two Dollars ($55,272).

  • (k) To this Notice of Additional Assessment, Messrs. Peat, Marwick, Mitchell and Company, by letter dated the 20 th January 1970, received by the respondent on the 2 nd February, 1970, gave formal Notice of Objection on behalf of the appellant company.

  • (l) In or about 1967, the...

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