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Solomon Breweries Ltd v Commissioner of Inland Revenue [2004] SBCA 11; CA-CAC 014 of 2003 (10 November 2004)

SOLOMON ISLANDS COURT OF APPEAL

FILE NO/S: Appeal No 14 of 2003
Civil Case No 98 of 2003

PARTIES:

SOLOMON BREWERIES LIMITED
(applicant/appellant)

V

COMMISSIONER OF INLAND REVENUE
(respondent/respondent)

CITATION: Solomon Breweries Ltd v Commissioner of Inland Revenue

DIVISION: Court of Appeal
PROCEEDING: Civil Appeal
ORIGINATING COURT: High Court in Honiara

DELIVERED ON: 10 November 2004
DELIVERED AT: Honiara
HEARING DATE: 4 November 2004

JUDGES: Lord Slynn President, Goldsbrough and Williams JJA

JUDGMENT OF THE COURT

ORDER: Appeal dismissed with costs

COUNSEL: J Sullivan QC, with R Kingmele, for the appellant
N Moshinsky QC, with F Walensesia, for the respondent

[1] THE COURT: By Memorandum of Understanding dated 22 November 1989 between the appellant and the Solomon Islands Government the appellant was “granted a tax holiday period of 8 years”. It has now been accepted that that period commenced to run from 1 April 1993 when the brewery enterprise commenced operations.
[2] Provisions of the Income Tax Act and Investment Act dealt with the circumstances in which an enterprise could be granted tax exemption for a period and specified the detail of the tax exemption.
[3] From 1990 s 10 of the Income Tax Act was in the following terms:

“10.—(1) The Commissioner on the recommendation of the Board may exempt from income tax the profits and income of any approved enterprise for the period specified in the certificate of approval.

(2) Subject to the provisions of section 15 of the Investment Act, the extent and the period of the tax exemption referred to in subsection (1) shall be to the extent and period calculated in accordance with the formula specified in the First Schedule.

(3) Where an approved enterprise referred to in subsection (1), satisfies the requirements specified in section 9 of the Investment Act, the Board may recommend to the Commissioner to grant such approved enterprise a further tax exemption for a period not exceeding five years.”

[4] From 1990 until its amendment in 1998 s 14(a) of that Act was in the following terms:

“(a) no withholding tax shall be payable on any dividend paid to any shareholder of any approved enterprise on accumulated profits during the period of the tax exemption and a further period of five years thereafter, provided that the total amount of dividends paid to such shareholders do not exceed the investment”.

[5] The 1998 Act inserted the words “if applicable” so that the section thereafter read:

“(a) no withholding tax shall be payable on any dividend paid to any shareholder of any approved enterprise on accumulated profits during the period of the tax exemption and a further period of five years thereafter, if applicable, provided that the total amount of dividends paid to such shareholders do not exceed the investment”.

[6] Prior to the passing of the 1998 Amendment the appellant had the benefit of an exemption from income tax as provided for by s 10 and also an exemption from paying withholding tax on accumulated profits as provided for by s 14(a) until the end of March 2001. It also had an expectation derived from s 14(a) as it then stood that no withholding tax would be payable on accumulated profits for a further period of five years from 1 April 2001.
[7] The issue raised by this appeal is the extent to which the appellant’s position was affected by the 1998 Amendment.
[8] Counsel for the respondent submitted that the amendment made it clear that the further five year period referred to in s 14(a) was the period not exceeding five years referred to in s 10(3). In other words the enterprise would only obtain the benefit of a further five year exemption from paying withholding tax if a further tax exemption period was granted pursuant to s 10(3).
[9] On the other hand counsel for the appellant submitted that the words “if applicable” qualified all of the preceding words namely “during the period of the tax exemption and a further period of five years thereafter,” and were intended to clarify the fact that an initial tax exemption was a necessary condition precedent to the entitlement to exemption from withholding tax.
[10] In the court’s view the logical and ordinary interpretation of the section as amended is that contended for by counsel for the respondent. Section 10 only exempts the enterprise from income tax strictly as defined, and s 14(a) extends the exemption to withholding tax on accumulated profits. The exemption provided for by s 14(a) applies during the initial period of tax exemption and, if a further tax exemption for up to five years was granted pursuant to s 10(3), also during the period of that extension. There was no longer to be an automatic further five year period immediately following the initial tax free period during which withholding tax on accumulated profit was not payable. The legislature clearly intended to alter the effect of the operation of the earlier provision.
[11] That conclusion is reached applying usual canons of construction, but if there be any doubt it would be finally removed by reference to the Minister’s Second Reading Speech on the amending Bill which was not challenged or questioned in the debate.
[12] Counsel for the appellant submitted that was an unjust conclusion because the exemption would cease in the course of a tax year thereby effectively cutting the exemption period by a year. There is no substance in that contention. The same problem would arise however long the exemption period if the cut off date was other than the end of the tax year. Further to a large extent the problem is an accounting one and appropriate arrangements could undoubtedly be made.
[13] It was further submitted that such a construction would not be in the best economic interests of the Solomon Islands because it would tend to deter investment. Such a consideration, if valid, could not be used by the Court to reach a construction of the statute which was not in accord with its clear unambiguous meaning.
[14] Finally it was submitted that such a construction deprived the appellant of a vested right and that such a right could only be taken away by express words in the statute. In the circumstances the appellant has not established that it had such a right. Sections 10 and 14 of the Income Tax Act were not enacted until 1990, after the Memorandum of Understanding had been executed. The fact that the appellant embraced these sections shows that the entitlement was to the tax exemptions as enacted from time to time pursuant to the tax legislation. When s 14 was enacted in 1990 the appellant had no more than an expectation that it would be exempt from paying withholding tax on accumulated profits until 31 March 2006. The amendment in 1998 meant that the cut off date became 31 March 2001 unless the appellant qualified for and obtained a further exemption under s 10(3). In the circumstances no vested right was taken from the appellant.
[15] The preferred construction fits with the provisions of the statute and does not create other problems of interpretation.
[16] The appeal should be dismissed with costs.