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| Sunday, 29 August 2004 |
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Power of Commissioner - General to increase assessment on appeal Observations by Cecil Aluthwela - Part-4 In a series of articles former Deputy Commissioner of (Appeals) Department of inland Revenue Cecil Aluthwela gives his observations on the article titled " On tax appeals - Some reflections" by Stanley Fernando (BA Ceylon) Attorney-at-Law Lecturer and Examiner in Tax Law, Council of Legal Education, Visiting lecturer in Tax Law, Faculty of Law, University of Colombo which appeared in the July 1993 issue (vol.1 No.1) of the Journal of the Institute of Taxation. These observations present different points of view which may be of benefit and interest to the tax paying public.The Inland Revenue Act (Sri Lanka) referred to is Act No 28 of 1979. The sections referred referred to are those in the Act. According to Mr. Stanley Fernando the commissioner-general cannot increase the assessment in respect of a source not included in the assessment under appeal To quote "It is submitted that it is not competent for the commissioner-general to increase an assessment under section 117 (11) of the act from a source not included in the assessment under appeal" Mr. Fernando derives support for his contention from:- The Indian Case quoted by him namely: Shapoorji Palloji Misty v C.I.T. There it was said that the Appellate Assistant Commissioner has no jurisdiction to tax beyond the subject matter of the assessment and his power of enhancement relates only to that income which has been subjected to the process of assessment. There are several other Indian cases where it has been held that the Appellate Assistant Commissioner cannot increase an assessment under appeal in respect of new sources of income. A chance remark of HNG Fernando S.P.J. in Casie Chitty and 4 others v CIR. Here, the Judge did not decide the issue as to whether the Commissioner could increase an assessment under appeal by taking into account income or profits derived from a source not appearing in the notice of assessment. However, he made the remark that "The Indian decisions referred to in the order of the board of review appear to lead to the conclusion that, that question should receive an answer in the negative". But the important point to remember is that the Indian courts were construing the provisions in the Indian Act. In terms of section 31 (3) of the Indian Income Tax, Act 1922 and in terms of section 251 (1) of the 1961 Act the Appellate Assistant Commissioner has no jurisdiction to enhance the assessment under appeal by taking into account entirely new sources of income. The Appellate Assistant Commissioner's power is restricted to the subject matter of the Assessment Note: The subject matter of the Assessment and NOT the subject matter of the appeal. Accordingly, while the Appellate Assistant Commissioner cannot enhance the assessment under appeal by taking into account entirely new sources, he could enhance the assessment under appeal in respect of a source considered by the Income Tax Officer, despite the fact, that the Income Tax Officer has decided that source is not liable to tax. Thus, the only fetter placed on the Appellate Assistant Commissioner in the matter of enhancement is that he cannot enhance the assessment under appeal by taking into account entirely new sources of income. There is no such restriction on the Commissioner-General when he acts under section 117 (11) of the Inland Revenue Act. He can enhance the assessment under appeal in respect of all sources of income regardless of whether they appear in the return of income of the appellant or not, whether they appear in the notice of assessment or not, whether the assessor had considered them in arriving at the assessment or not. I derive support for this stand of mine by consideration of section 123 of the Island Revenue Act. In terms of that section what the Commissioner-General determines on appeal is the Assessable Income. He cannot determine the Assessable Income without considering the entirety of the sources of income. This means that the Commissioner-General can enhance the assessment appealed against in respect of an entirely new source of income. Hence, Mr. Fernando's contention that "It is submitted that it is not competent for the Commissioner-General to increase an assessment under section 117 (11) from a source not included in the assessment under appeal" is based on a misconstruction of the law. Not merely is Mr. Fernando's stand contrary to the Sri Lankan statute it is even narrower than the dicta in the Indian cases. For, in India the Appellate Assistant Commissioner can enhance an assessment under appeal in respect of a source not included in the notice of assessment, if that source has been considered by the Income Tax Officer. That was the state of the Indian law until the Indian Supreme Court decision in C.I.T. v Nirbheram Deluram (1997). In this context the caution administered by Dias J. to the late Mr. H.V. Perera Q.C. in the case, Gamini Bus Company v C.I.T. becomes highly relevant. To quote "one must of course be careful when citing English and Indian cases in regard to the construction of a statute like the income tax ordinance, the provisions of which are not identical with the English or the Indian acts". |
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