TRINIDAD LAKE ASPHALT OPERATING CO LTD Vs. COMMISSIONERS OF INCOME TAX FOR COLONY OF TRINIDAD AND TOBAGO

JUDGEMENT

(1.) This is an appeal from an order made on 1 April 1842, by the Full Court of the Supreme Court of Trinidad and Tobago, upon a case stated for the opinion of the Full Court by Perez J. whereby he dismissed an appeal by the appellant against an assessment to income-tax made by the Commissioners of Income-tax for the Colony on the appellant under S. 30, Income-tax Ordinance of 1940, Ch. 33, No. 1, then in force in the Colony. It is also an appeal against the order of Perez J. whereby in accordance with the judgment of the Full Court he formally dismissed the appeal of the appellant against the assessment. The assessment was on the sum of $1,394,227.00, and was for the year 1940, the tax chargeable being $336,424.75. If the appellant fails in its objections in law to the assessment it does not now dispute that the amount is correct. The assessment was made in respect of a dividend amounting to $1,207,817.05 declared by the appellant in favour of the Barber Asphalt Corporation of New Jersey, U.S.A. (hereinafter called "Barber") as the holder of 499,992 shares out of 500,000 shares constituting the issued capital of the appellant. The business of the appellant was to win and refine asphalt in the colony and sell and deliver it to purchasers, including Barber. The dividend was declared in accordance with a resolution of the appellant's directors dated 24 November 1989, on which date Barber owed to the appellant $1,207,817 for asphalt purchased by it from the appellant. The resolution was in the following terms: "Resolved that a dividend in the amount of $1,207,817 be declared payable by cancellation of the Trinidad Lake Asphalt Company's claim in alike amount against Barber Asphalt Corporation and that in addition a cash dividend of equal proportion amounting to $12.10 be paid to local share-holders making a total of $1,207,828.16." It was not in question that the resolution ought properly to be construed as compendiously embodying two items, (1) the declaration of a cash dividend of $1,207,817.06 in favour of Barber, (2) an agreement between Barber and the appellant that the dividend was payable by cancellation of the appellant's claim against Barber for asphalt sold and delivered to him.

(2.) Barber was at all material times non-resident in the Colony. It carried on business at its head office in Barber, New Jersey in the United States. It had no place of business in the Colony and has never exercised or carried on any trade or business in the Colony. Perez J. held that the dividend was income of Barber accruing in, or derived from, the Colony within the meaning of S. 5 of the Ordinance and that Barber was accordingly liable to tax on the dividend. The appellant does not dispute that part of the judgment. It is clearly right and is in accordance with principles laid down by the House of Lords in regard to the territorial limits within which the imposition of income-tax is permissible. To quote one statement, it was said by Lord Herschell in the leading case in (1889) 14 AC 4931at page 504 : "The Income-tax Acts . . . themselves impose a territorial limit; either that from which the taxable income is derived must be situate in the United Kingdom, or the person whose income is to be taxed must be resident there." These words of Lord Herschell were quoted and applied by Lord Wrenbury in (1926) AC 372at p. 55, where the question was the changeability to super-tax of a non-resident alien-an American subject residing in the United States. He was not in England but he drew a large income from property situated here. It was held that a non-resident alien was chargeable in respect both of income-tax and of the additional duty of income-tax called super-tax. So it was decided by all their Lordships. Other authorities to the same effect need not be quoted. Though the usual ground on which competency to tax is based, namely residence, did not exist in that case, the alternative ground, namely that the income was derived from property in the country which imposed the tax was sufficient. These principles apply to the Ordinance of 1940 which by S. 5 expressly provides for the imposition of tax upon the income of any person accruing in or derived from or received in the Colony in respect of (inter alia) dividends, interest or discounts. The authorities referred to show that there is no general rule of international comity which renders such taxation on non-residents incompetent. Equally, in their Lordships" judgment, it is not incompetent by reason of the circumstance that the Colony cannot pass extra-territorial legislation. A tax in this form is not extra-territorial, so long as it does not affect to tax property . not situate in the Colony. On the ground that this rule was infringed it was held in (1927) 1 Ch. 1073that the legislation there in question was extra-territorial inasmuch as it sought to impose or enforce taxation on a non-resident shareholder in respect of property not situate in the Colony, namely, dividends which were an English debt due in respect of shares locally situate in England. This decision was prior to the Statute of Westminster of 1931, the effect of which was discussed in in (1935) AC 5004at p. 516. The principle however still applies to a Colony like Trinidad.

(3.) Section 30 of the Ordinance, it was also said, if construed as the Full Court has done, might be regarded as extra-territorial in effect. But S. 30, under which the assessment is made, seeks legitimately to meet the difficulty that, as Barber is in New Jersey and not in Trinidad, the tax cannot be enforced against him since the Courts of one country will not enforce the revenue laws of another. The section is in the following terms: "Any resident agent, trustee, mortgagor or other person, who transmits rent, interest, or income derived from any other source within the Colony, to a non-resident person, shall be deemed to be the agent of such non-resident person, and shall be assessed and pay the tax accordingly." There is in their Lordships' judgment no ground for treating this section as extra-territorial in affect or requiring it to be construed otherwise than in accordance with the ordinary meaning of the words used. It is not extra-territorial merely because its purpose is indirectly to secure payment from the non-resident, alien of the tax which is validly imposed upon him. The person directly affected is the statutory agent, in this case the appellant, who is within the Colony. The obligation is imposed directly on him. His liability is complete when within the Colony does the act which transmits the income to the non-resident. The transmission begins in the Colony, though it continues until delivery to the non-resident alien. Similarly in (1903) AC 471,5the penalty was imposed on the steamer when she came back to an Australian port with the seals upon the bounded stores broken, though they had been broken outside territorial waters. The breaking of the seals and the use of the bounded stores were what it was intended to prevent or punish. But the condition of enforcing the law was the vessel's entering the territorial limits with the seals broken. So here the condition of the liability of the statutory agent was the transmitting of the income to the non-resident. Section 80 was accordingly not open to objection as exceeding the territorial limitations. Indeed Mr. Tucker did not contend that the Ordinance was invalid but he sought to impose a narrow construction which he said was necessary to avoid the objection. In their Lordships' opinion, the whole objection is baseless and the section must be construed according to its natural meaning whenever it applied. That left the substantial question whether it did apply on the facts in this case. It will now, in order to decide the question, be necessary to examine the facts more closely, with particular reference to the question whether the appellant transmitted the dividend to Barber in New Jersey. That is the second question of law stated for the opinion of the Court, and is in their Lordships' view the only one now material.