Wasif Mograbi V. Deputy Commissioner Of Income Tax (1948)
LawGlobal Hub Judgment Report – West African Court of Appeal
Income Tax Ordinance, section 18—Meaning of ” permanently ceases to carryon . . . a business “—Taxpayer taking in a partner.
A person who establishes a business as a sole trader and then takes in a partner does not permanently cease to carry on the business within the meaning of section 18 (4) of the Income Tax Ordinance.
Case referred to:
(1) Income Tax Commissioner for the City of London v. Gibbs (1942). A.C. 402; (1942), 1 A.E.R. 415; 111 L.J.K.B. 301; 86 Sol. Jo. 147; 166 L.T. 345.
Appeal from the Supreme Court of the Gold Coast.
Asafu-Adjaye for Appellant (appellant below).
McKeon, Crown Counsel, for Respondent (respondent below).
The following judgment was delivered:
M’Carthy, J. This is an appeal from a judgment of the Divisional Court, Kumasi, in which an appeal against certain assessments of the Deputy Commissioner for Income Tax was dismissed.
The nature of the case may be gathered from these passages in the judgment of the learned trial Judge:—
” Mr. Sioufi carried on the business of selling textiles until January, 1945, when he entered into partnership with Mr. Mograbi. He was assessed for the purposes of income tax on the profits of his business of the previous financial year. He contends that by entering into the partnership he ceased to carry on business by himself, and should therefore be assessed on the income of the year in which this cessation took place. He relies on section 18, sub-section 4.
” I think it is agreed that the question to be decided is whether there was a cessation of business, and the other grounds of appeal are really arguments in support of this contention of the appellant. The phrase is not defined and must bear its ordinary meaning.
” The respondent contends that there has been no cessation of business, and that Mr. Sioufi’s business of selling textiles has not ceased, but has gone on unchanged.
” I am not concerned here with the actual figures of the alternative assessment which, I have no doubt, can be agreed.
” The issue to be decided is clear although I have considerable difficulty in arriving at the correct answer. I have had considerable doubt as to whether it is a question of law or fact.
” I appreciate the weight of the appellant’s contention that a business carried on by a sole trader and a business carried on by a partnership cannot be regarded as the same in law. But in my opinion it is a question of fact for the Court to decide whether this particular business ceased when Mr. Mograbi became a partner. I am satisfied that the correct inference of fact to be drawn from the evidence before me is that Mr. Sioufi did not cease to carry on his business. He was preparing to leave the country and required someone to look after his business; Mr. Mograbi says that is how he came to be a partner and to take charge of the business.
” It is necessary to consider both concerns and see if they are in fact the same business. I am satisfied that they are in fact the same. The appellant’s argument seems to ignore the question of appellant’s business continuing to be his source of income and only considers the change of status of the person running the business; the change from sole trader to partner. It is the person who is to pay the tax who is assessed and not the business.”
The relevant parts of section 18 of the Income Tax Ordinance, 1943, are the following:.—
“18. (1) Save as provided in this section, the income of any person for each year of assessment from each source of his income (hereinafter referred to as ‘ assessable income ‘) shall be the full amount of the income from each such source during the year immediately preceding the year of assessment, notwithstanding that he may have ceased to possess any such source or that any such source may have ceased to produce income.
” (3) The assessable income of any person from any trade, business, profession, vocation, or employment for the year of assessment in which he commenced to carry on or exercise such trade, business, profession, vocation, or employment and for the two following years of assessment (which years are in this sub-section respectively referred to as ‘ the first year ‘, the second year ‘, and the third year ‘) shall be ascertained in accordance with the following provisions-
- for the first year the assessable income shall be the amount of the income for that year;
- for the second year the assessable income shall, unless such notice as hereinafter mentioned is given, be the amount of income for one year from the date of the commencement of the trade, business, profession, vocation or employment;
- for the third year the assessable income shall, unless such notice as is hereinafter mentioned be given, be computed in accordance with the provisions of sub-section (1).
” (4) Where a person permanently ceases to carry on or exercise a trade, business, profession, vocation, or employment his assessable income therefrom shall be-
- as regards the year of assessment in which the cessation occurs, the amount of the income of that year;
- As regards the year of assessment immediately preceding that in which the cessation occurs, the amount of the income as computed in accordance with the foregoing sub-sections, or the amount of the income of such year, whichever is the greater, and he shall .not be deemed to derive assessable income from such trade, business, profession, vocation, or employment for the year of assessment following that in which the cessation occurs:
” Provided that where any such person becomes entitled to receive after the day on which such cessation occurs a pension, such person shall be deemed to have commenced a new employment on the day next succeeding the day of such cessation and such pension shall be deemed to be income arising from such new employment and the provisions of this section shall apply accordingly.”
In arguing the appeal before this Court Mr. Asafu-Adjaye relied mainly on the case of Income Tax Commissioner for the City of London v. Gibbs (1) as authority for his proposition that as a matter of law, Sioufi, upon entering into partnership with Mograbi, permanently ceased to carry on the business which he had up to that time carried on as sole owner. This case, if appears, was unknown to Mr. Asafu-Adjaye until after judgment was given, and was not brought to the notice of the trial Judge.
In that case four persons carrying on business in partnership had taken in a fifth partner. All five partners had given the notice provided for in the proviso to rule 11 (1) of the Rules applicable to cases I and H of Schedule D to the Income Tax Act, 1918.
It is provided in this sub-rule that upon such notice in such circumstances being given, the tax payable for the relevant years of assessment shall be computed, charged, collected and paid as if the trade had been discontinued at the date of the change, and a new trade had been set up or commenced.
The question in issue was whether rule 9 of the said Rules, which, if applicable, contained convenient machinery for adjusting inter se the liabilities of the members of the two partnerships in respect of the amounts payable as income tax under rule 11, actually applied to the case.
The answer depended upon whether the partnership of five persons could be regarded as having ” succeeded ” within the meaning of sub-rule 9 (1), to a partnership of the four original partners.
It was held, (Lord Russell dissenting), that it was possible to answer the above question in the affirmative, and that this. was the correct interpretation of the rule, which would otherwise be entirely ineffective.
It is clear that the decision of the House of Lords was due to its reluctance to treat rule 9 as a ” piece of dead wood “, to its view (further to quote Viscount Simon, L.C.) ” that it is its duty in construing the rules to find out what the legislature must be taken to have really meant by the expressions which it has used, without necessarily attributing to the legislature a precise appreciation of the technical appropriateness of its language ” and to its desire to avoid a difference of interpretation in England and Scotland of a statute that applied to both countries.
Viscount Simon also said:—
” I concede without any doubt or qualification the proposition relating
to the English law of partnership on which the judgment of the Court of
Appeal is largely based. Strictly speaking, it is certainly true that an old
partnership cannot be regarded as ceasing ‘ to carry on the trade, and
the new partnership cannot be regarded as ‘ succeeding ‘ to it when some
members of the old partnership are also members of the new, and thus do
not individually cease to carry on the trade at all. . . . If language is
accurately used, a partnership firm does not carry on a trade at all. It is
the individuals composing the firm who carry on the trade in partnership.
It is not the firm which is liable to income tax. The individuals composing
the firm are so liable though by rule 10 when a trade is carried on by two or
more persons jointly the tax is computed and stated jointly and in one
-um and is separate and distinct from any other tax chargeable to those
peras or any of them, and a joint assessment is made in the partnership
If, therefore (it is argued), rule 9 is applied to a partnership, it
applies not because a partnership is ‘ a person charged under this schedule ‘,
it because the singular includes the plural, and instead of a single person
the case is one of a number of persons who are jointly so charged. So far
?..; English law is concerned, it is indisputable that a partnership firm is
not a single person, though a different view obtains in Scotland, and in
construing a taxing statute which applies to England and Scotland alike,
it is desirable to adopt a construction of statutory words which avoids
differences of interpretation of a technical character such as are calculated
to produce inequalities in taxation as between citizens of the two countries.”
I now turn to the present case. Mr. Asafu-Adjaye contends that by reason of the decision in the Gibbs case (1) it follows that the partnership formed by the appellant and Mograbi should be regarded as having ” succeeded ” to the business carried on by the appellant as sole trader, and that consequently he
must have 7 permanently ceased ” to carry on his former business, within, the meaning of section 18 (4) of the Income Tax Ordinance, 1943.
I find nothing in the Ordinance which requires or even suggests that the words ” permanently ceases ” occurring in section 18 (4) should be given any other than what is their natural meaning in their context, having regard to the law of partnership.
As in the English Income Tax Code, so under the Ordinance, it is the individuals composing a partnership who are chargeable with income tax, one difference being that under the latter the assessment is not even made in the partnership name.
It has been urged by Mr. Asafu-Adjaye that the final lines of section 18 (4) :—
• • • and he shall not be deemed to derive assessable income from such trade, business, vocation, or employment for the year of assessment following that in which the cessation occurs.”
indicate that the sub-section contemplates that a sole trader who has adopted a partner, continues to carry on the business after ” cessation ” in the statutory sense.
This is consistent with his main argument, but it seems to me that an equally reasonable interpretation of these words is that they are intended to make it clear that, inasmuch as the person who has ceased to carry on a business under section 18 (4) (a) pays tax in respect of the income for the year in which the cessation occurs, he is not liable to pay tax in respect of that year in the following year of assessment, as would normally be the case under section 18 (1).
It is also contended that, because under section 19 (a) the income of a partnership is to be ascertained in accordance with the provisions of the Ordinance, and special provisions are made in section 18 (3) in respect of the assessment for tax of any person commencing to carry on a trade, the appellant should be assessed under the latter sub-section, To my mind this submission simply begs the question; it assumes that the appellant has ceased to carry on his old business and cbmmences to carry on a new one.
The main question in the Gibbs case was regarded in the House of Lords and in the Courts below as a question of law. The question now in issue, is, as Mr. Asafu-Adjaye urges, one of law. In my opinion, as a matter of law, a person who establishes a business as a sole trader and then takes in a partner does not permanently cease to carry on the business.
In my opinion the appeal should be dismissed with costs assessed at £27 3s. Od. Lucie-Smith, C.J. I agree.
Appeal dismissed.
