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| Sunday, 5 September 2004 |
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Determination and the reasons for the determination Observations by Cecil Aluthwela - part 5 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. Under this caption Mr. Fernando takes issue with section 119 of the Inland Revenue Act. His objection is that the law does not require the Commissioner-General to give reasons for the determination in the first instance. Mr. Fernando calls this "an inexplicable piece of legislation". He also calls it "a retrograde piece of legislation". Here too, I am unable to agree with Mr. Fernando. Many of the appeals are on questions of fact. Huxhan, the author of the Income Tax Scheme, estimated appeals to be in the rough proportion of 10 of fact to 1 of law. Having heard appeals on behalf of the Commissioner-General for more that two consequent years, I am more than convinced that, where the issue is one of fact, to the majority of the appellants and to any discerning tax consultant the reasons for the eventual determination become obvious in the course of the appeal proceedings. From the submissions made by the appellant, from the submissions made by the assessor, from the evidence produce by either side, from the questions asked by the Commissioner-General, his expressions of opinion on what transpires in the proceedings, it becomes clear not merely as to what the eventual outcome is going to be but also the reasoning behind it. Thus, in a majority of cases it is unnecessary to set out the reasoning behind the determination. This is best illustrated by taking an example. Let it be supposed that a traders accounts have been rejected on the ground that the Day Book persistently ran into credit. After rejection of the accounts the Assessor has to decide what the assessment should be. He wishes to decide it on the basis of a rate of gross profit. The gross profit ratio returned by the appellant is 24%. The assessor after an examination of a sample of purchase vouchers and sales memos arrives at a rate of 30% and issues an assessment accordingly. The assessee appeals. No agreement is reached in terms of section 117(5). Hence the appeals finds its way to the Commissioner-General. The Commissioner-General indicates to the accountant, representing the appellant, that he wishes to have a further and fuller analysis of the purchase vouchers and sales memos. The analysis indicates a gross profit ratio of 28%. The Commissioner-General decides to determined the appeal on that basis. Now is it necessary to set out the reasons behind the determination? Are they not intelligible to the authorized representative or even to the appellant. In any event, if the appellant wishes to have the reasons behind the determination the Commissioner-General will merely be repeating What the appellant already knows. Apart from situations like this, there are a number of instances where appeals are determined on the basis of an agreement among the Commissioner-General, the appellant and his authorized representative. For there to be agreement the appellant and his authorized representative will already be aware of the reasons behind the determination. Finally, it is necessary to mention that as a general rule, the law notwithstanding, the Commissioner-General usually sets out the reasons for this determination along with the determination. Thus no prejudice is caused to the appellant by the law as it stands today. Mr. Fernando also points out "This is a retrograde piece of legislation which perhaps had its origins in the legislation drafted when an income tax was introduced into Ceylan more than 60 years ago". It might be a revelation to Mr. Fernando to know that even in the latter half of the 20th Century there was no obligation on the part of the General and Special Commissioners in the United Kingdom to give reasons for their determinations. The Annual Report of the Council on Tribunals for 1966 has this to say - "IX Revenue Tribunals We referred in paragraph 64 of our First Report (1959) to the Tribunals and Inquiries (Revenue Tribunals) order 1959, under which the decision of Revenue tribunals to which the appeal procedure by way of a Case Stated under section 64 of the Income Tax Act 1952, applies are in general excluded from the operation of section 12(1) of the Tribunals and Inquiries Act 1958. The effect of this order is to exempt the tribunals from an obligation to give reasons for their decisions ... A later order, the Tribunals and Inquiries (Revenue Tribunals) Order 1961, similarly exempts the Tribunal constituted for the purpose of the Finance Act 1960". "We recommended that the decisions of the tribunals, and of these tribunals only (i.e. Revenue Tribunals) should be exempted because we believed that reasoned decisions would be available when requested under the case stated procedure". (The words within brackets are mine) From the above it will be clear as to why the Commissioner-General in Sri Lanka and the General and Special Commissioners in the United Kingdom are not required to give reasons form their determination in the first instance and not because as Mr. Fernando will make us believe, that this piece of legislation is steeped in historical antiquity. Mr. Fernando then goes on to make a preposterous surmise regarding the legal requirement that the Commissioner-General should in the first instance give his determination only. This he says "seems to have been motivated by Lord Mansfield's advice to a colonial judge whose legal erudition was not of the highest calibre". Indeed there are a number of objections to this surmise. Firstly, it is inconceivable that Huxhan, the Income Tax Advisor, who before coming to Ceylon as Income Tax Advisor, had served 21 years in the Inland Revenue, United Kingdom, would ever have envisaged, that the Head of the Department of Income Tax should be protected from giving reasons for fear that his determination would be right, while the reasons leading to the determination would be wrong. (Incidentally Huxhan himself was the first Commissioner of Income Tax in Ceylon). Secondly, Chief Justice, Lord Mansfield's advice was not to a "Colonial Judge" but to a General whom the Colonial Office had decided to send as a judge to a colony. Thirdly, he was not learned in the law as Mr. Fernando would make us believe. Fourthly, Mr. Fernando is misquoting Chief Justice Lord Mansfield. He never said "Always give your judgement but never your reasons. For your judgement may be right but your reasons may be wrong". The advice given by the Lord Mansfield to the General is found in Campbell's "Lives of Chief Justices" Volume I page 572 (1849 edition). To quote: "Be of good cheer ........ take my advice and you will be reckoned as a great judge as well as a great commander in chief. Nothing is more easy; only hear both sides patiently ...... then consider what you think justice requires and decide accordingly. But never give your reasons; for your judgement will probably be right but your reasons will certainly be wrong". |
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