CIVIL APPEAL NOS. HBA 0012, 0013 AND 0014 OF 1998
John Greenwood Q.C. and Michael S. Arjun for the Appellants
G.A. Keay for the Respondent
JUDGMENT
This is an appeal from the decision of the Hon. M.J.C. Saunders sitting as the Court of Review dated 6th October 1997. The facts which
are not in dispute are these:
Mr. Jamnadas, the First Appellant, practised as a lawyer in Suva, Fiji. In 1982 he acquired control of Michelle Apartments Limited
(Michelle). In 1987 he acquired control of Primetime Properties Limited (Primetime).
In 1988 Mr. Jamnadas moved himself and his family to Adelaide, South Australia for the purpose of educating his children in Australia.
He intends to return to the Fiji Islands upon completing the education of his children. He and his wife still retain their Fijian
passports. When he left for Australia he let the family home in Suva. He had an interest in a family deceased's estate, which produces
Fiji income and he retained his interests in Michelle and Primetime. He began to travel regularly and for considerable periods from
his Australian residence to Fiji to look after the estate and business interests. He had no business interests in Australia and ran
down his practice as a solicitor in Suva until it ceased at the end of 1990.
He derives no income in Australia other than small amounts of interest. His income is otherwise entirely sourced in this country.
When he came to Fiji the pattern of his visits was always the same. He left Adelaide, flew to Nadi and caught a bus from Nadi to Suva
where he stayed at the then-called Travelodge now Centra.
While at the Travelodge he paid for accommodation, telephone calls, faxes, laundry, dry cleaning and meals.
When he returned to Adelaide immediately after he finished his business in Suva he left Suva, stayed overnight in Nadi and then flew
across the following day to Adelaide. The reasons why he stayed at the Travelodge were that it was very central and that he could
use the hotel's facilities such as the telephone and fax.
After various discussions with the Respondent's representatives, made necessary as the financial position of each Appellant changed
Mr. Jamnadas and his Accountant Mr. Mudaliar reached agreement with the Commissioner on most of the items claimed as deductions by
the Appellants. When the matter came before me only two issues remained for determination, whether as a matter of law the taxpayer's
travel and accommodation expenses are deductible and what (if any) penalty should be imposed on Michelle Apartments for late lodgements
of returns. To determine these issues calls for this Court to interpret the meaning of Section 19 of the Income Tax Act Cap. 201 which reads so far as relevant:
"In determining total income, no deductions shall be allowed in respect of -
(a) personal and living expenses and, .......;
(b) any disbursement or expense not being money wholly and exclusively laid out or expended for the purpose of the trade, business,
profession, employment or vocation of the taxpayer;"
There is a considerable body of law on Section 19 and its equivalent in England including cases known in the profession as 'travelling
cases'. Mr. Justice Saunders treated this as a travelling case and likened it at p.9 of his Decision, p.1313 of the record, to that
of a commuter travelling regularly from his place of residence to his place of business. He said:
"Except for the distance, there is no difference between Mr. Jamnadas, say, living at Pacific Harbour, some 60 kilometres from
Suva, and travelling to Suva to attend to his businesses, and his travelling from Adelaide to Suva to attend to his businesses. His
accountant, Mr. Mudaliar, wrote to the Respondent on 18th November 1993 (p.78 of the bundle) saying "The taxpayer has been commuting
between Suva and Adelaide since September 1988"."
I consider it a great pity that the noun "commuter" or its verb "to commute" were ever used in these proceedings
because, having considered the material, it seems to me with respect that it may well have coloured the view which the judge took
of the admitted facts, particularly the admission by the Appellant that he does not need to live in Adelaide for the purposes of
his business.
In the Oxford Dictionary and Thesaurus edited by Sara Tulloch the first meaning of the verb commute is to travel to and from one's
daily work, usually in a city, especially by car or train.
Thus one talks of people commuting from their homes say in Nausori to Suva daily by bus and from even Pacific Harbour to Suva by bus
or by their own private transport. In countries such as Australia and England which have extensive public transport systems one speaks
for example of commuter trains or commuter trams or buses.
In this case I consider there is a clear distinction in the various cases between daily travel from the house where a taxpayer chooses
to live and sleep on the one hand and business or professional trips on the other. A barrister on circuit is on a professional trip
and his travelling expenses are always deductible. A barrister commuting daily from his home to his chambers is engaged in travel
that is part of his living expenses and is not deductible.
This principle is clearly stated in the cases the first of which I mention is Newsom v. Robertson (1952) 2 All E.R. 728. This was a case where a barrister chose to live out of London at Whipsnade. He was disallowed his daily travel expenses between Whipsnade
and his London chambers as a living expense. It was an expense incurred to enable him to live and sleep some distance from his place
of work.
Romer L.J. put it this way at p.732, letter "F" of the report:
"Moreover, it cannot be said even of the morning journey to work that it is undertaken in order to enable the traveller to exercise
his profession. It is undertaken for the purpose of neutralising the effect of his departure from his place of business, for private
purposes, on the previous evening. In other words, the object of the journeys, both morning and evening, is not to enable a man to
do his work, but to live away from it."
On the other hand a business trip such as one undertaken by a barrister on circuit stands on an entirely different footing. It is
not daily commuting. It is not an expense of daily living. It is a special excursion for a special purpose. The expense of maintaining
the barrister's home continues while he is away. In my judgment that cannot be said of Mr. Jamnadas. In my view what he did when
coming to Fiji from time to time was to embark on a business trip. He did not travel home from Fiji each night. In no sense were
his travelling expenses to Fiji part of his daily living expenses.
To my mind there is a wealth of difference between a resident of Pacific Harbour travelling daily to Suva for the purpose of his business
or employment and that of a retired businessman such as Mr. Jamnadas travelling some thousands of miles from Adelaide to Fiji for
the purpose of his business interests. Thus in my judgment the learned Tribunal was wrong in equating the facts in Newsom v. Robertson to those of the instant case.
Likewise in my judgment Mr. Justice Saunders erred in relying on the case of Ricketts v. Colquhoun (1925) 10 TC 118, a decision of the House of Lords in which it was held that a barrister who held the Recordership of Portsmouth was not entitled
to deduct from the emoluments of his office the cost of travelling between London and Portsmouth in order to attend Quarter Sessions
(of which he was the Judge) his hotel expenses at Portsmouth or the cost of conveyance of his robes to the Court there.
The first comment I make about Ricketts v. Colquhoun is that it concerns a completely different schedule of the English Tax Act. It deals with schedule E and not D, the equivalent of
which in Fiji is Section 19 of the Income Tax Act. At p. 133, line 3 Viscount Cave, L.C. (using phrases derived from Rule 9 which applies to Schedule E) said:
"In order that travelling expenses may be deductible under this rule from an assessment under Schedule E, they must be expenses
which the holder of an office is necessarily obliged to occur, - that is to say, obliged by the very fact that he holds the office,
and has to perform its duties, - and they must be incurred in, that is in the performance of, those duties."
The Recorder was not claiming his expenses under Schedule D. As to this, in the Court of Appeal Lord Pollock M.R. pointed out at p.127:
"The intention of the Legislature was, I am sure, to make the deductions narrow, and, in as much as this emolument of an office
falls to be taxed under Schedule E, unless Rule 9 applies, it is of no moment to say that had it been taxable under Schedule D something
else might have been deducted."
In my opinion it is reasonable to infer from that remark that Lord Pollock would have accepted the Recorder's claims if he had brought
them under the correct Schedule.
In my judgment the fact of the Appellant living in Adelaide is irrelevant. If it were relevant the result would be that no retired
taxpayer could ever deduct business travelling expenses when monitoring his investments nor could any taxpayer still in the workforce
who chose to live somewhere that was not one of his business locations. There are many people in such situations. In my judgment
the true test is whether or not the trip is a business trip or, on the other hand, is part of the taxpayer's daily living expenses.
Hotel Accommodation
Accommodation when on a business trip is treated as a business expense for tax purposes. The approach taken both by the Courts and
the Commissioner for Inland Revenue in the United Kingdom seems to be that accommodation at a taxpayer's home is available to him
as part of his domestic expenses. If he is obliged to be away from home for a business purpose and incur the additional costs of
hotel accommodation, then these additional costs are incurred solely for a business purpose. They are expenses additional to and
quite distinct from his ongoing domestic expenses in maintaining a home. The principles are referred to by Nourse J. (as he then
was) in Watkis v. Ashford Sparkes and Harward (1985) 2 All E.R. 916. This was a case in which a large firm of solicitors who had four offices in the West of England held local office meetings at which
a modest lunch was provided weekly or fortnightly during the lunch hour and occasional evening meetings in which all the partners
met to discuss matters affecting the whole firm. The evening meetings were followed by dinner during which discussion of the firm's
business continued. The firm also held an annual weekend conference attended by the partners accompanied by their wives and children,
which involved staying overnight at the hotel where the conference was held. The firm appealed against the Revenue's refusal of a
claim to deduct the expenditure incurred in providing the meals at lunch time and evening meetings, and the cost of overnight accommodation
for the partners at the annual conference. They also appealed against the Revenue's refusal to allow the firm's share of the expenditure
incurred in providing a room and food and drink for the partners from three other firms and themselves which was held in a private
room at the hotel and at which dinner was provided.
At p.933 (f) Nourse J. said:
"The cost of the food, drink and accommodation at the annual conference stands on a different footing. I do not think that the
cost of the accommodation can necessarily be said to have been expenditure which met the needs of the partners as human beings. They
did not need it for that purpose because they all had their own homes where they could have spent the night. The reason why they
needed it was so that they could continue their discussion of the particularly important topics informally between the formal sessions
on the Saturday afternoon and the Sunday morning. If they had had to break up and go home after dinner on the Saturday evening and
come back on the Sunday morning, that continuity, which was of considerable importance and value, would have been broken or at least
seriously damaged. In the circumstances, it seems to me that the commissioner was entitled, on the facts found, to conclude that
the business purpose in incurring the cost of the accommodation was the exclusive purpose and that the private benefit to the partners
was purely incidental."
He then continued at letter (h):
"The same considerations do not necessarily apply to the cost of the food and drink. The well-established general practice of
the Inland Revenue in the case of what are known as 'travelling occupations' is not to distinguish between the cost of travel and
accommodation on the one hand and food and drink on the other. In other words, hotel bills, if reasonable in amount, are usually
allowed in full. I have no reason to think that the practice does not correctly represent the law. However, counsel for the Crown
has suggested, although I think rather faintly, that since the profession of a solicitor is not usually regarded as a travelling occupation, the position is different in the present case. It seems to me that that suggestion cannot stand with the decision
of Cross J in Edwards (Inspector of Taxes) v. Warmsley Henshall & Co. (1968) 1 ALL ER 1089. In my view no distinction is to be made between the cost of the overnight accommodation on the one hand and the food and drink on
the other."
In my judgment the remarks of Nourse J. can be applied to the facts of the present case.
Likewise I consider the same principles apply to his laundry claims. These were an additional expense necessitated by his being on
a business trip. At home his wife would have attended to laundry requirements. All laundry bills claimed like the meals were part
of his hotel bill.
The next case relevant is Bentleys, Stokes and Lowless v. Beeson (1952) 2 All E.R. 82. The headnote reads as follows:
"The partners in a firm of solicitors were accustomed to entertain existing clients of the firm to luncheon at a social club
and various restaurants. During luncheon, business was discussed. The legal advice given to clients at luncheon was charged to them
in the normal way, but the fees charged did not include the expenses of the meals, which were paid by the firm. This practice was
adopted by the partners both for their own convenience, so that they could devote the remainder of the day to other work in their
offices, and for the convenience of clients. The partners claimed to deduct the cost of these entertainments (which included the
cost of their own meals) in computing the profits of the firm for assessment to income tax. The Income Tax Act, 1918 scheduled D,
Cases I and II, r.3(a), forbids the deduction of "any disbursements or expenses, not being money wholly and exclusively laid
out or expended for the purposes of the trade, profession, employment, or vocation."
HELD: in spite of an element of hospitality which was necessarily inherent in what was done, in the circumstances the sole object
in incurring the expenses was the promotion of the business of the firm, and, therefore, they were "money wholly and exclusively
laid out or expended for the purposes of the profession" within r.3(a) and were properly to be deducted in computing the amount
of the firm's profits to be charged to tax.
Per curiam: "If the activity be undertaken with the object both of promoting business and also with some other purpose, for example,
with the object of indulging an independent wish of entertaining a friend or stranger or of supporting a charitable or benevolent
object, then the rule is not satisfied though in the mind of the actor the business motive may predominate."
This case appears to have been rejected by the House of Lords in the later case of Mallalieu v. Drummond (Inspector of Taxes) (1983) 2 All E.R. 1095 in which the House of Lords over-ruling both the Judge at first instance Mr. Justice Slade and the Court of Appeal held that a practising
lady barrister could not claim as a tax deduction the cost of replacing, cleaning and laundering of certain items of clothing which
she wore in court for the purpose of complying with the notes for guidance on dress in court approved by the Bar Council and which
had received the assent of the Lord Chief Justice.
Miss Mallalieu did not only wear her subdued clothing in Court but she also wore it occasionally on social outings.
Her argument was that the Court and the Tax Commissioner should look primarily at her intention which she said was to buy clothing
that was appropriate for her appearances in Court from which she derived her income.
The Commissioners of Taxation, the first appellate authority, disagreed with her. They took the view that she had a domestic or social
purpose as well. Mr. Justice Slade and the Court of Appeal reversed that finding. Sir John Donaldson M.R. said in the Court of Appeal
(1983) 1 All E.R. 801 at 806:
"From those findings of fact there is in my judgment only one reasonable conclusion to be drawn, namely that the taxpayer's sole
purpose in incurring the expenditure was a professional purpose, any other benefit being purely incidental."
In the House of Lords, Lord Elwyn-Jones dissenting agreed with Sir John Donaldson. The majority of four law Lords however upheld the
Commissioners, the leading speech being given by Lord Brightman. The House held that because Miss Mallalieu had a dual purpose namely
a domestic or private purpose as well as her business or professional purpose she must fail.
With all due humility and with the respect which any Puisne Judge must pay to a decision of the House of Lords I am obliged to say
that I prefer the opinion of Sir John Donaldson. In this however I derive much solace from the decision of the Supreme Court of Fiji
in Sweetman v. Commissioner of Inland Revenue Civil Appeal No. CBV 0005 of 1995S unreported judgment of 23rd October 1996.
Whatever the precise naof t of the ratio in Mallalieu's case it is clear in my judgment that the Supreme Court has emphatically endorsed and perhaps extended the approach exempd by Bentleys Stokes and Lowless v. Beeson. At p.19 p.19 the Supreme Court (Lord Cooke, Sir Anthony Mason and Sir Maurice Casey) said:
"It may be said that an expenditure which serves the purpose of the taxpayer's business or profession also serves the taxpayer's
personal purposes on the basis that what is good for his business or profession will be good for him personally. However, it is scarcely
to be supposed that the legislature intends to disqualify an expenditure for that reason. In other words, the non-business or non-professional
purpose to be excluded by s.19(b) is a purpose distinct from the business or professional purpose which justifies the deduction of
the expenditure. And this supports the view that motive, though it may be a relevant factor, is by no means a decisive factor. If
the purpose of the expenditure is truly for the purpose of the taxpayer's business or profession, it matters not that the taxpayer
has in mind some personal advantage which is a consequence of that purpose.
Here the immediate purpose of the expenditure was to discharge the personal liability of the partners arising under s.13 of the Partnership Act. Lying beyond that immediate purpose was unquestionably another purpose, namely the purpose of restoring and maintaining client confidence
in the firm, thereby maintaining or enhancing its profit-earning capacity. In these circumstances, is it possible to conclude that
the moneys were laid out or expended exclusively for the purpose of the taxpayer's profession? In our view, the answer is in the
affirmative. Although the immediate purpose of the payment was to discharge what was personal liability, it was a partnership liability
and was incurred in the capacity of a partner. The fact that the liability was personal does not give the disbursement a character
or purpose which is independent of the conduct of the professional practice of the taxpayer and his partners. The personal purpose
served by the disbursement purpose was an integral element in the professional purpose which the disbursement served."
In my judgment the decision of the Supreme Court must make it now more difficult in Fiji for the Commissioner to reject deductions
(such as expenditure on meals which has a business purpose) merely because that expenditure also served a personal purpose of the
taxpayer. I am satisfied on the facts that in Jamnadas case all the meal expenditure which he claimed is in motel bills incurred for business accommodation and which in my judgment fall in
the special category referred to by Mr. Justice Nourse and should be allowed.
Penalties
The only penalty still in dispute is one of the $26,313.00 imposed on Michelle Apartments Limited. Since the hearing before Mr. Justice
Saunders the Commissioner has issued a re-assessment which reduced the penalty to $11,621.00. Mr. Jamnadas contends that this is
still too heavy.
The reason why this penalty was imposed in the first place was because of the late filing by Michelle of returns. This is because
the records which Mr. Jamnadas needed, the books of Michelle Apartments could not be found. The records of a High Court action related
to Michelle Apartments also could not be found until much later.
Mr. Justice Saunders was obviously sympathetic to Mr. Jamnadas and his company but he held that he did not have jurisdiction to entertain
an appeal against penalty tax. In my view he erred in so holding. Penalties are imposed by way of assessment and Section 62 of the
Income Tax Act gives the right of objection to taxpayers dissatisfied with "an assessment". Section 63 confers jurisdiction
on the Court of Review to hear "appeals from the assessment of the Commissioner".
In my judgment the Act makes it clear that all penalties are imposed by way of an assessment. For example in Section 94 which deals
with penalties for not making a return the section says in part:
"all such penalties shall be assessed and collected from the person liable ... in the same manner in which tax is assessed and
collected ..."
The Appellant submits, and I agree, that when Sections 62 and 63 confer rights of objection and appeal against the Commissioner's
assessments, they must include a right to object and appeal against his assessment of penalties.
In my judgment if the taxpayer is to be deprived of a right of appeal against an assessment of a penalty the words in Sections 62
and 63 would have to be read down or even rewritten. For example, in Section 63 the words conferring jurisdiction on the Court of
Review would have to be read down as if they confer jurisdiction to hear:
"appeals from the assessment of the Commissioner but only assessment of primary tax and excluding an assessment of penalties".
To do so in my view would be quite contrary to principle in that the taxpayer is entitled to receive the benefit conferred by the
legislation. I consider the intention is quite plain. Section 63 provides that the Court of Review is established:
"for the purpose of hearing and determining appeals from the assessment of the Commissioner ..."
All penalties are to be imposed by assessments and all taxpayers have the right of objection and appeal against assessments.
In my judgment therefore the Court of Review was wrong in refusing to accept that it had jurisdiction to deal with penalties.
I said earlier that Mr. Justice Saunders was obviously sympathetic to Mr. Jamnadas or Michelle Apartments on the question of penalties.
At p.1317 of the record the Judge said this:
"For several years, until 1995, the Respondent has encouraged, and suggested to Mr. Jamnadas's methods of claiming both travel
and accommodation expenditure which, in the clearest terms and the best authority, is not allowed under the Act. It is clear to this
Court, having seen and listened to all the witnesses, that having reduced his income to such an extent that it was not worth claiming
travel and accommodation expenses any longer against it, he, Mr. Mudaliar and the Respondent got together to arrange a redistribution
of these unlawful expenditure claims against the growing incomes of Primetime and Michelle.
The Respondent should have disallowed them from 1988 onwards. Mr. Jamnadas, of course, thought that he could continue to claim them
but in a different way, and the Respondent should have stopped him.
For these reasons, I would think that the Respondent would be bound to exercise his discretion in respect of penalties to a greater
extent than he has indicated."
Counsel for the Respondent had informed Mr. Justice Saunders that the Respondent was prepared to forego 80% of the penalty in each
case. Obviously Mr. Justice Saunders thought this was not enough and I agree. The penalty originally imposed was $26,313.00 in respect
of Michelle Apartments which had been reduced when the appeal came before me to $11,621.00.
However it cannot be forgotten that the failure by the Appellant to lodge the returns for Michelle Apartments was not the fault of
the Revenue. Probably Mr. Jamnadas did what he could in the circumstances to overcome the problem but in my judgment it would be
unfair to allow him to escape scot free from the imposition of any penalty. In all the circumstances I consider it be fair to impose
a penalty of 10% or $1,160.00.
For the reasons I have given I uphold the appeals and order that the Respondent must pay the Appellants' costs both in the Court of
Review and in this Court.
I shall adjourn the further hearing of this case to a date to be fixed to hear argument as to the amount of these costs.
JOHN E. BYRNE
JUDGE
Cases referred to in Judgment:
Bentleys, Stokes and Lowless v. Beeson (1952) 2 All E.R. 82.
Mallalieu v. Drummond (Inspector of Taxes) (1983) 2 All E.R. 1095.
Newsom v. Robertson (1952) 2 All E.R. 728.
Ricketts v. Colquhoun (1925) 10 TC 118.
Sweetman v. Commissioner of Inland Revenue Civil Appeal No. CBV0005 of 1995S unreported judgment of 23rd October 1996.
Watkis v. Ashford Sparkes and Harward (a firm) (1985) 2 All E.R. 916.
The following additional case referred to in argument:
Murgatroyd v. Evans-Jackson (1967) 1 WLR 423.
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