Swept Away Resorts Ltd v Commissioner of Taxpayer Appeals

• Jurisdiction: Jamaica
• Judge: ANDERSON: J ,ROY ANDERSON
• Judgment Date: 30 January 2006
• Judgment citation (vLex): [2006] 1 JJC 3001
• Court: Supreme Court (Jamaica)
• Date: 30 January 2006

IN THE SUPREME COURT OF JUDICATURE OF JAMAICA

IN THE REVENUE COURT

REVENUE APPEAL NO.: 2 OF 2004

BETWEEN

SWEPT AWAY RESORTS LIMITED

APPELLANT

AND

THE COMMISSIONER OF TAXPAYER APPEALS

RESPONDENT

REVENUE LAW - Interest on deposits - Exemption from tax

ANDERSON: J

1 This is an appeal by Swept Away Resorts Limited, ("the Appellant") against a decision of the Commissioner of Taxpayer Appeals ("the Respondent") made 24 ^th August, 2004, whereby the earlier decision of the Commissioner Taxpayer Audit and Assessment, was affirmed. The decision so affirmed was to the effect that interest earned by the appellant on bank deposits of surplus cash flow in the years of assessment 1995–1999, was not exempt from income tax by virtue of the provisions of the Hotels (Incentives) Act, ("the Act") under which the Appellant operated during the relevant period. The Appellant seeks an Order from this court "that it be declared that interest on deposits earned by the Appellant for years of assessment 1995 to 1999 is exempt from tax pursuant to the provisions of the Hotels (Incentives) Act and the Approved Hotel Enterprise (Swept Away Resort Hotel Enterprise) Order 1991, as such interest is properly to be treated as part of the profit arising or accruing from the operation of the enterprise". The grounds of the Appeal are set out below.

• 1. The Appellant is the owner and former operator of a hotel enterprise known as the Swept Away Resort (the Hotel), which hotel enterprise has been approved by the Minister pursuant to section 3 of the Hotel (Incentives) Act by the Approved Hotel Enterprise (Swept Away Resort Hotel Enterprise) Order 1991, the commencement date of which was 26 ^th March 1990. By section 9 of the Act, during the relevant years of assessment, the Appellant was accordingly entitled "to relief from income tax in respect of profits or gains arising or accruing... from the approved hotel enterprise." Hotel Enterprise is defined by section 2 of the Act as meaning "the business concerned with the establishment or operation of a hotel."

• 2. The Respondent failed to appreciate that in the normal course of carrying on the business operations of the hotel, the Appellant maintained interest bearing accounts to which surplus cash flow has been deposited and interest has accrued thereon. The maintenance as aforesaid of such interest bearing accounts was carried on as part of the usual and normal operations of the Appellant's hotel and was not a separate or distinct business activity from which profit or gain was derived. Accordingly, the Respondent erred as a matter of law in failing to treat such interest earnings for years of assessment, 1995 to 1999 as profits arising or accruing in the course of carrying on the business of operating the hotel and subject to the exemption from tax conferred by the Hotel (Incentives) Act.

• 3. Further or alternatively, the Respondent erred as a matter of law in failing to appreciate that in the normal course of operating the business of the hotel, the Appellant would maintain interest bearing accounts and interest would be earned on surpluses in such accounts, which would be taken into account in determining the profit or gain arising or accruing from the hotel enterprise. It would be an artificial and flawed application of the Hotel (Incentives) Act to treat such earnings as deriving from a business other than the business concerned with operating the hotel. In addition any such finding that the Appellant carried on a separate business from that concerned with operating the hotel from which interest income derived is wholly unreasonable and contrary to the facts.

• 4. The Respondent failed to appreciate that by section 9 of the Hotel (Incentives) Act, relief from income tax is enjoyed in respect of profits or gains arising or accruing from the approved hotel enterprise. On the Respondent's interpretation of that provision, simply for the purpose of importing a limitation on the exemption granted by the Act, interest from interest bearing accounts maintained in the normal course of operating the hotel must be treated as separate from other income arising or accruing from the normal course of the hotel's operations. Such an interpretation could only be arrived at by straining the language of the Act to have the wholly artificial result of treating part of the Appellant's income as deriving from the business concerned with the hotel operation while treating interest income as deriving from a separate business or enterprise when in fact the Appellant carries on no other business than that of operating the hotel whereby interest is derived from the Hotel's normal business activity of operating and maintaining interest bearing accounts to which surplus cash flow is deposited. The Respondent failed to appreciate that such earnings remained part and parcel of the business concerning the operation of the hotel and was as a matter of law properly to be treated as part of the profits derived from that enterprise to which the benefit of the Hotel (Incentives) Act was applicable.

2 Shortly stated, the facts upon which this appeal was brought are that by an Order duly published in the Jamaica Gazette pursuant to Section 3 of the Act, the Appellant was declared to be an "Approved Hotel Enterprise". This order to which reference will be made later, "The Approved Hotel Enterprise (Swept Away Hotel Resort Enterprise) Order 1991", declared that the Appellant was entitled to relief from income tax in respect of profits or gains arising or accruing during the currency of that Order. Between the years 1995–1999, it was the practice of the management of the hotel enterprise to place in Interest-bearing accounts, all surplus cash flow which was not immediately required to meet day-to-day operating requirements. As a result of this practice, the hotel generated significant interest income. It was the contention of the Appellant that such income fell within the terms of the exempting order since it was "profits or gains arising or accruing from an Approved Hotel Enterprise". By section 2 of the Hotels Incentives Act, "Hotel Enterprise" is defined as "the business concerned with the establishment or operation of a Hotel". It was the Appellant's contention therefore that that term, in its ordinary meaning was wide enough to cover any profits arising from the "operation of a Hotel".

3 The Respondent on the other hand arrived at his decision on the basis that the interest which accrued to the Appellant did not derive from the operation of a Hotel but from a separate act; to wit, the investment of funds with a bank or banks and that therefore such income was not earned and did not arise or accrue from the business concerned with the establishment or operation of a Hotel. The narrow issue which the court must decide in this case is whether income arising from the interest bearing accounts maintained by the hotel with the Bank, fell within the exemption from Income Tax or whether it was taxable.

4 It should be noted that initially the appellant in submitting his Income Tax returns for the relevant years of assessment had indeed treated the interest income as subject to tax and had made payments accordingly. Subsequently, on April 27, 2001 and May 8, 2001 amended returns were filed by its then accountants and tax advisors, KPMG Peat Marwick, which amended returns purported to treat the Interest income as not being subject to tax. The amended returns claimed refunds totaling $7,478,370.70 representing estimated tax paid of $7,271,856.30 as well as tax at source on interest of $206,514.40. By letter dated September 17, 2003 the Taxpayer Audit & Assessment Department advised that the interest income in question was taxable under Section 5 of the income Tax Act as the interest "was not earned or arose/accrued from the business concerned with the establishment of the Hotel". The Appellant's accountant submitted a Notice of Appeal of the decision in accordance with Section 75(6A) of the Income Tax Act and the Revenue Administration (Appeals and Dispute Settlement) Regulations. It was contended that Section 9 of the Hotel (incentives) Act was applicable to exempt the income from the application of the Income Tax Act. Section 9 of the Incentives Act is in the following terms:-

Any Company to which Section 8 applies shall be entitled to relief from Income Tax in respect of profit or gains arising or accruing during the relevant concession period from the Approved Hotel Enterprise or of an approved extension of any Hotel of which it is owner, client or operator.

5 Counsel suggested that this subsection must be read in conjunction with section 2 of the Act which defines approved hotel enterprise as "a hotel enterprise approved by the Minister pursuant to section 3". There, "hotel enterprise" is defined as:

"the business concerned with the establishment or operation of a hotel"

6 He further submitted that, in arguments before the Commissioner of Taxpayer Audit and Assessment, the attorneys for the Revenue had relied upon two (2) English decisions. These were firstly NORTHEND V WHITE & LEONARD AND CORBIN GREENER (1975) 2 ALL E.R. 481 a decision of Templeman J. as he then was and an earlier decision BUCKS V BOWERS f1970) 2 ALL E.R. 202. However, he suggested that the reliance upon those cases was ill-founded in that they were directed at construing particular provisions in U.K. legislation which were materially different in its language to that of the Jamaican statute. In support of this submission he cited a passage from Templeman J's judgment at page 488 paragraph d of the Northend decision where he states the following:

"The relevant relief was claimed under Section 211 of the Income Tax Act 1952 which provided for a deduction of Income Tax on a fraction of the earned Income of a Tax payment. Section S25 (1)(c) defined earned income as incfuding:-

any...