Supreme Court declares retrospective income tax assessments under Law 53/63 null and void as unconstitutional.

[*780] 1965 June 30

(MUNIR, J.)

REVISIGNAL JURISDICTION

In the matter of Article 146 of the Constitution

Ioannis Chr. Phrangou,

Applicant,

v.

The Republic of Cyprus, through

1. The Attorney-General,

2, The Ministry of Finance, through

the Director of the Department

of Inland. Revenue,

Respondent.

(Case No. 118/64).

Taxes - Income Tax - Additional Assessments of Income Tax - The Taxes (Quantifying and Recovery) Law, 1963 (Law 53 of 1963), sections 3 and 23 - Assessment of additional amounts of income tax under sections 3 and 23 of the Law in respect of years of assessment for which original assessments were made under the Income Tax Law, Cap. 323 and paid before the expiry of such latter Law - Assessment invalid.

Constitutional Law - Constitution of Cyprus, Article 24.3 and the Taxes (Quantifying and Recovery) Law, 1963 (Law 53 of 1963), sections 3 and 23 - Assessment of additional amounts of income tax under sections 3 and 23 of the Law in respect of years of assessment by which original assessments were made and paid under the Income Tax Law, Cap. 323? before the expiry of such latter Law, amount, in the circumstances of this case, to retrospective taxation, contrary to Article 24.3 - Previous case (Vassos Constantlagg Ksriakides and The Republic, 4 R.S.C.C., p. 109) distinguished,

G. Ladas, for the Applicant.

L. C. Loucaides, Counsel of the Republic, for the Respondent.

JUDGMENT

By this recourse under Article 146 of the Constitution the Applicant seeks a declaration that the additional [*781] assessments of income tax made upon him under the provisions of the Taxes (Quantifying and Recovery) Law, 1963 (No.53 of 1963) in respect of the years of assessment 1957, 1958 and 1959 of the respective amounts of £58.-, £50.- and £9.800, which were made on the 31st December, 1963, 17th March, 1964, and the 17th March, 1964, respectively, are null and void and of no effect whatsoever.

The Taxes (Quantifying and Recovery) Law, 1963 (hereinafter in this Judgment referred to as "Law 53/63"), having been enacted by the House of Representatives and published in the official Gazette, came into operation on the 1 8th July, 1963.

It is not in dispute that income tax, in accordance with original assessments which had been made on the Applicant under the Income Tax Law, Cap, 323, in respect of the years of assessment 1957, 1958 and 1959, had been paid by the Applicant before Cap. 323 ceased to be in force.

Relying on the provisions of sections 3 and 23 of Law 53/63 the Respondent made the following assessments of additional amounts of income tax on the Applicant in respect of the same three years of assessment in question:-

(1) In respect of the year of assessment 1957 (year of income 1956) an additional assessment of £58 was made on the 31st December, 1963.

(2) In respect of the year of assessment 1958 (year of income 1957) an additional assessment of £50 was made on the 17th March, 1964.

(3) In respect of the year of assessment 1959 [*782] (year of income 1958) an additional assessment of £9.800 mils was made on the 17th March, 1964.

On the 2nd September, 1964, the Applicant signed an undertaking to pay an amount of £553.300 in respect of the years of assessment 1957 to 1964 which sum included the £117.800, being the additional amounts assessed on the Applicant in respect of the three years of assessment 1957, 1958 and 1959, which are the subject-matter of this recourse.

It is against these additional assessments that the Applicant has now made recourse to this Court.

The provisions of Law 53/63 which are more particularly relevant to the determination of this recourse are sections 3 and

23 and it is convenient, for the purposes of this Judgment, to set out the provisions of these two sections in full.

Section 3 of Law 53/63 reads as follows:-

"3. Save where other provision is made in any other Law, any tax whether imposed before or after the date of the coming into operation of this Law, shall be quantified and recovered under the provisions of this Law".

Section 23 of Law 53/63, under which the additional assessments in question were more particularly made, reads as follows

"23. Where it appears to the Director that any person on whom the tax has been imposed under any Law, whether before or after the coming into operation of this Law, has not been assessed or paid the tax imposed or has been assessed at or paid an amount less than that which ought to have been paid, the Director may, within the [*782] year of assessment or within six years after the expiration thereof, assess such person at such an amount of tax or additional amount of tax as was imposed and ought to have been assessed and recovered under the provisions of the Law imposing the tax, and the provisions of this Law shall apply to such assessment and to the tax assessed thereunder".

The former Income Tax Law, Cap. 323, which has now ceased to be in force, also contained in its section 45 provisions similar to the provisions of section 23 of Law 53/63 whereby the Commissioner of Income Tax was likewise empowered to make assessments of additional amounts within six years after the expiration of the year of assessment in question.

It will be recalled that in the Interim

Decision of the Supreme Constitutional Court of the 18th December, 1962, which was given in the well-known case of Vasos Constantinpn Kyriakides. and The Republic, 4 R.S.C.C., p. 109 (hereinafter referred to as the Kyriakides Case”) the question of the validity of provisions such as those contained in section 45 of Cap. 323 was left open by that Court. The Supreme Constitutional Court in its aforesaid Interim Decision stated as follows on this point at p. 115:-

"The question, however, of the validity of the application in a given case of a provision such as section 45 of Cap. 323 does not have to be decided at this stage."

The issue to be determined in the case now before me is the specific question of the validity of the application, in this particular case, of the provisions of section 23 of Law 53/63. That is to say, whether the application of the [*784] provisions of the said section 23 in the circumstances, and having regard to all the facts, of this particular case amounts to the imposition on the Applicant of the additional tax in question with retrospective effect contrary to the provisions of paragraph 3 of Article 2b. of the Constitution.

Counsel for Applicant has submitted that inasmuch as the Applicant had been assessed originally under the provisions of the old Income Tax Law, Cap. 323, prior to its ceasing to be in force, and that the full amounts with which he had originally been assessed were fully paid by him before Cap. 323 ceased so to be in force, then in his submission, the liabilities and obligations of the Applicant under Cap. 323 had been fully met and discharged by him before Cap. 323 ceased to be in force. No outstanding liability of the Applicant had, therefore, accrued under Cap. 323 on the date on which Law 53/63 came into operation. In support of this submission counsel for Applicant cited from the above-mentioned Interim Decision of the Supreme Constitutional Court in the Kyriakides Case, at p. 11 b, where the said Court refers to "liabilities to pay income tax which had accrued ...... and had not already been met". Counsel for Applicant submitted that as the liability under Cap. 323 had already been met prior to the ceasing to be in force of Cap. 323, then the principle laid down in the Kyriakides Case did not apply to this Case, In support of this argument counsel for Applicant also referred to the more recent Judgment of this Court in the case of Demetris Petrou Christou and The Republic, which is now reported in the Monthly Publication of the Judgments of this Court, (1965) b J.S.C., P. 404. [*785]

Counsel for Respondent, on the other hand, has submitted that the additional amounts in question were, like the original amounts assessed, also chargeable under Cap,323 before it ceased to be in force and the fact that the full amounts which had been imposed and charged by the relevant sections of Cap. 323 had not been correctly assessed at the time the original assessments were made did not preclude the subsequent making of new assessments, or of revising the original assessments, under the provisions of section 23 of Law 53/63. In the view of counsel for Respondent the making of the additional assessments in question did not amount to the imposition of taxation with retrospective effect contrary to paragraph 3 of Article 24 of the Constitution but amounted to the correction of an earlier assessment and the quantifying of certain outstanding liabilities which had already accrued before Cap.323 ceased to be in force. Counsel for Respondent also submitted that when the Applicant had paid all the amounts originally assessed upon him before Cap.323 ceased to be in force he was not in fact meeting all his liabilities because the original assessment had inadvertently been an assessment of only a part of his liabilities.

As stated above, the basic issue which is for determination in the case now before me is whether the application of the provisions of section 23 of Law 53/63 to the facts and circumstances of this case comes within the principle laid down in the Kyriakides Case or whether it amounts to the imposition of taxation on the Applicant with retrospective effect contrary to paragraph 3 of Article 24 of the Constitution. [*786]

In determining this issue it is useful to consider the whole tenor and spirit of the aforesaid Interim Decision of the 18th December, 1962, of the Supreme Constitutional Court in the Kyriakides Case. A perusal of that

Decision makes it quite clear, in my view, that the principle laid down therein was intended to apply to liabilities which had accrued under Cap, 323 prior to the date on which it had ceased to be in force and which "had not already been met" (see p. 114 P - G of the Decision) by that date. The Kyriakides Case was further considered and applied by this Court in the case of Demetris Petrou Christou and The Republic (supra).

As previously stated, it is not in dispute that earlier assessments had been made on the Applicant by the Respondent in respect of the former's liability to pay income tax under Cap. 323 in respect of the three years of assessment in question. This liability, which had been imposed and charged under Cap. 323, had been assessed and determined by the Respondent under the relevant provisions of Cap. 323, at a time when Cap. 323 was still in force. Thus, whatever liability the Applicant may have had to pay income tax under Cap, 323, in respect of the three years of assessment in question, as then believed by both the Applicant and the Respondent to exist at the time, had been fully met and discharged by the Applicant prior to the ceasing to be in force of Cap. 323.

In my opinion, where, as in the present case, a liability which had been imposed and charged under the provisions of Cap, 323 has been fully met and discharged to the then satisfaction of the Respondent before the ceasing [*787] to be in force of Cap. 323, it cannot be said that such liability continues to be accrued and remains, undischarged, under the principle laid down in the Kyriakides Case, after the ceasing to be in force of Cap. 323.

Having come to the conclusion that the facts of this case do not, for the reasons I have explained, come within the principle laid down in Kyriakides' Case (supra) and subsequently followed by this Court in the Case of Demetris Petrou Christou (supra), I am of the opinion that the making of the additional assessments in question on the Applicant, under sections 3 and 23 of Law 53/63 in respect of the years of assessment 1957, 1958 and 1959, having regard to all the circumstances of this particular case, amount, in effect, to the imposition on the Applicant of a tax liability with retrospective effect contrary to the provisions of paragraph 3 of Article 24 of the Constitution.

Counsel for Applicant has not contended in this case that the provisions of section 23 of Law 53/63 are unconstitutional as a whole but has confined his arguments to the question of the validity of the application of the said provisions to the facts of this particular case. In the present circumstances, I do not consider it necessary to decide, at this stage and for the purposes of determining this case, on the question of the constitutionality of section 23 of Law 53/63 as a whole. I simply hold, for the reasons given above, that the application of the provisions of section 23 of Law 53/63 by the Respondent in the particular circumstances of this case is unconstitutional as being contrary to paragraph 3 of Article 24 of the Constitution. [*788]

With regard to the question of the written undertaking which the Applicant signed on the 2nd September, 1964, Counsel for Respondent has readily conceded, and quite properly so in my opinion, that if the Court were to find that the additional assessments in question could not have been validly made then he would not contend that the signing by the Applicant of the undertaking in question would in itself validate such assessments. Having come to the

conclusion that the assessments in question could not have been validly made, I agree with the submission made by Counsel for Applicant, which, as I have stated, was not challenged on this point by Counsel for Respondent, that the written undertaking in question, signed by the Applicant, to pay an amount which included the amounts of the additional assessments in question, does not, in itself, in all the circumstance validate such invalid assessments.

For all the reasons given above, the three additional assessments, made upon the Applicant under the provisions of sections 3 and 23 of Law 53/63 in respect of the years of assessment 1957, 1958 and 1959 on the 31st December, 1963, 17th March, 1964, and 17th March, 1964, respectively, are hereby declared to be null and void and of no effect whatsoever.

Assessments complained of

declared null and void.

No order as to costs.