[1998] PNGLR 203

PAPUA NEW GUINEA

[supreme court of justice]

national capital district commission

v

public officers superannuation fund board

waigani: amet cj, kapi dcj, los j
26 February and 13 June 1997

taxation – Tax under National Capital District Sale sand Service Tax 1994 – Whether income from rental of properties subject to services tax – Whether rental of property for accommodation is a service capable of being sold.

Facts

The appellant, a municipal authority within the powers given to it by legislation, namely, the National Capital District Commission Act 1990, enacted the National Capital District Sales and Services Tax Law 1994, imposing services tax on rentals, imposed by the respondents on their clients and employees. The respondents successfully challenged the validity of the Sales and Services Tax Law 1994 where the services tax imposed was declared on nullity. On appeal by the appellants:

Held

1.	Rental collected by the respondents is undoubtedly income in nature.

2.	The power to impose sales and services tax is expressly authorized by Sections 37(1)(g) and 38(a) of the National Capital District Commission Act 1990.

3.	We find that the National Parliament through the Income Tax Act and the 1990 Act authorized certain kinds of income to be subject to more than one tax. This does not constitute unlawful double taxation.

4.	There is no provision in the Income Tax Act which prohibits the same income to be subject to other kinds of tax.

5.	A landlord who has property which he is renting to others in return for money is selling a service hence subject to the sales and services tax.

Counsel

D Hill, for the appellant.
J Bray, for the respondent.

13 June 1997

By the court. The Public Officers Superannuation Fund Board (hereinafter referred to as the respondent) owns and rents properties in the National Capital District.

The National Capital District Commission (hereinafter referred to as the Commission) passed a law, Sales and Service Tax Law 1993 (No 1 of 1993) (hereinafter referred to as "the 1993 Law"). The respondent filed proceedings in the National Court seeking a declaration "that the Public Officers Superannuation Fund Board formerly the State Services and Statutory Authorities Superannuation Board is not liable to pay service tax to the National Capital District Commission for rentals the Board collects on properties it owns within the National Capital District and leased or rented out to the public as well as its employees".

The appellant then passed the National Capital District Sales and Service Tax 1994 (hereinafter referred to as "the 1994 Law") which amended the 1993 Law. The respondent then filed an amended application and sought a declaration that the "the National Capital District Sales and Services Tax Law 1994 in so far as it purports to impose sales or service tax on rentals received by the plaintiff from its rental properties is ultra vires and of no effect".

It is the latter proceedings, which went before the National Court for determination. The Court handed down its decision on 1 October 1996 in which the Court granted the declaration sought. The appellant has appealed against this decision.

The central issue in this case is whether income received from rental of properties can be subjected to what is called "services tax" under the provisions of the 1994 Law.

This issue calls for a proper interpretation of the 1994 Law. The power of the Commission to make the 1994 Law is not in issue. The power to impose any tax is vested in the National Parliament and the exercise of this power shall be regulated by an Act of Parliament: see s 209 (1) of the Constitution. For the purposes of this case, the relevant Act is the National Capital District Commission Act 1990 (hereinafter referred to as "the 1990 Act"). Under s 21 (a) (i), finances of the Commission shall consist of, apart from others, tax imposed by laws made under Part VII of the 1990 Act. Section 37(1)(g) of the 1990 Act gives the Commission power to legislate in respect of services tax and related taxes: see s 38(a) of the 1990 Act. The 1994 Law was passed by the Commission in accordance with legislative framework authorised by the Parliament.

In the present case, the trial judge granted the declaration on the following basis:

"I consider rental is a regular money coming into the landlord as a return on his capital i.e. his building which he retains. It has an element of recurrence, regularity and periodicity.

A sale involves the passing of title, a diverting of the article from the seller to another person. Rental is not a sale.

A service also involves the transfer of benefit of expertise from the person performing the service to the recipient. Rental is not a service.

As the writers of above text have said precedent is not a great help, each case must be considered individually on its facts and law. It is common ground that this tax on rental is not a tax on land and does not purport to be a land tax. It is a tax within s 38(a) of the National Capital District Commission Act. Section 38 does not and cannot tax income, that is the exclusive prerogative of the National Government. I consider that rental is not a sale, nor a service. It is an income and the National Capital District Commission has no power to tax income."

Several issues arise for consideration from this passage. The first is that as rentals from properties are income, the Commission cannot tax this income by way of services tax under the 1994 Law. The trial judge reasoned that taxation on such income is the prerogative of the National Government and is already imposed under the Income Tax Act.

Counsel for the Commission has not disputed that rentals for properties is income. However, he submitted that there is no prohibition by any legislation that the same income cannot be the subject of any other kind of tax such as services tax.

Counsel for the respondent simply supports the reasoning by the trial judge.

In our opinion, rentals collected from properties is undoubtedly income in character. Counsel for the appellant agrees. The question which arises is whether the same income can be subjected to more than one tax, such as income tax as well as services tax.

We have already held that the power of any taxation is subject to authorization and control by the Parliament and that this power shall be regulated by an Act of the Parliament: see s 209(1) of the Constitution. Income tax is imposed by the Income Tax Act. There is no provision in that legislation which prohibits the same income from other kinds of tax. The question of sales and services tax has been expressly allowed to be imposed by the Commission under s 37(1)(g) and s 38(a) of 1990 Act. An examination of the true nature of goods and services tax under the 1994 Law reveals that in effect these taxes are an indirect taxation on the same income which is already the subject of tax under the Income Tax Act. A person who is selling goods gets income. This income is subject to income tax. This same income is made subject to the goods and services tax. If we take a sole lawyer practitioner, all legal fees earned by the lawyer is income subject to income tax but the same income is also made subject to the services tax under the 1994 Law. Such an examination of the 1994 Law clearly shows that the National Parliament through the 1990 Act authorised certain kinds of income which is already subject to the Income Tax Act is also made subject to the goods and services tax. We find that the National Parliament through the Income Tax Act and the 1990 Act authorised certain kinds of income to be subject to more than one tax. We have not found any legislation nor has any such legislation been drawn to our attention, which prohibits double taxation as discussed in this case. We find that the National Court fell into error in this regard.

The trial judge then considered whether rental of a property is a service, which is capable of being sold and whether it is a service capable of being transferred to the recipient. These questions arise out of the interpretation of the scheme set out in the 1994 Law. The definition of "seller", in so far as it is relevant to services tax, is defined at law as "in relation to the sale of taxable services means the person selling the services". Service tax may be imposed at the "point of sale". Taxable services is described in s 4 of the 1994 Law:

"Subject to this Law, all services sold in the National Capital District by persons in the ordinary course of business, not being services under a contract of employment, are taxable services." (emphasis added).

It is clear from the scheme set out under this Law that a service which is made subject to the services tax is capable of being sold. A reference to Sch 2 (2) of the 1994 Law gives some indication of the nature of these services such as services provided by accountants, lawyers and other professionals. The question is whether rental of accommodation to tenants is a service, which is capable of being sold in the same sense.

With respect we find ourselves unable to agree with the decision of the trial judge. We find that a landlord who has property and is renting it to others in return for money is selling a service. To be precise, the service, which passes to the recipient, is the possession and use of accommodation for a period of time. This service is no different in nature to the services provided by hotels, motels, inns and resorts: see Sch. 2(2)(m) of the 1994 Law. The same may be said of car-hire services: see Sch. 2(2)(u) of 1994 Law. Neither property passes nor title is transferred to the occupier or the hirer. Nevertheless, they provide a service and these are services sold in the ordinary course of business: see s 4 of 1994 Law.

In the result we would allow the appeal and quash the decision of the trial judge. We would order that the respondent pays the appellant’s costs of and incidental to this appeal and of the proceedings below.

Lawyers for the appellant: Allens Arthur Robinson.
Lawyers for the respondent: Pato Lawyers.