P L D 1959 Privy Council 7 (PLP)

(b) an objection to the making of such assessment or additional assessment on the ground that the time limited for the making thereof has expired shall only be made on objection or appeal as provided for under the provisions of this Act". On the view which their Lordships take no question as to penalties arises at present. It would therefore be undesir able to deal with facts which on the issue may hereafter require consideration. The appellant has been resident in Kenya since 1921. According to his own statement he approached the Revenue authorities in 1943. This was disputed but it is not disputed that prior to 1953 he was not served with notices under section 59, nor did he make returns of his income. The appellant in 1950 gave oral notice to the respondent that he was chargeable in respect of 1950 and the previous eight years. As a result of that interview there was correspondence and information was asked for and some of it given. The machinery of the Act was not set in motion until 26th May 1953. On that day the res pondent wrote asking for information and a deposit of 2,

000. The letter also contained the following paragraph:‑ "As you do not appear at any time to have made a Return of total income and claim for allowances, I am sending under separate .cover forms covering years of Assessment 1943 to 1953. These should be completed and submitted to me along with the Accounts of your professional activities and of your property dealings as set out in preceding paragraphs." No previous notice requiring a return having been sent, the "time allowed" within section 71 would be the minimum of thirty days in accordance with section 59 (1). The appellant was at that time in England and replied asking for time until he could get back to East Africa, which might be by the end of July. The answer to this letter was as follows: Ref. No.

70. E‑A. Income Tax Department, Nairobi. 15th June 1953. Mr. G. R. Mandavia, 68, St. Mark's Road, London, W.10. Dear Sir, I have to thank you for your letter of the 4th June, and have noted your explanation concerning your absence from Kenya. I have further noted that there is no prospect of your being able to return before the end of July next. In these circumstances, and in order that there may be no undue delay in collection of duty, I propose to submit estimated Income Tax assessments for all years for which, on the basis of the figures which you have already submitted, you would appear to be liable. These assessments will, of course, be subject to adjustment on final agreement of liability. In view of the fact that you were clearly liable and must have been aware of the fact that you were liable to taxation for a considerable period before any approach was made to this Department, I propose to have the assessments made with the addition of penalties. The quantum of the penalties will also be subject to adjustment at the discretion of the Commissioner when your liability has finally been established. The notices of assessment will be issued to your Nairobi address and you will presumably be advised of their receipt and be able to give formal notice of appeal if you so desire. I am unable to agree that you are not in a position to pay any deposit. On your own showing you have substantial pro perties in Nairobi, from which presumably you could obtain funds. In these circumstances I would repeat my request for a payment on account of 2,

000. If this is sent to me at this address, it will be brought to account against the estimated assessments which it is proposed to raise, and final payment will be adjusted at a later date. Yours faithfully, REGIONAL COMMISSIONER. The assessments referred to were made on or before the 18th June. They were post-dated the 26th June but nothing turns on that. Assessments were often post-dated to allow the taxpayer more time. The taxpayer submitted that these assessments were ultra vires and void in that they were made before the "time allowed" by section 71 had expired. This is admitted by the respondent if the power to make these assessments has to be found under that section. The respondent justifies the assessments under tire words of section 72. "Where it appears to the Commissioner that any person liable to tax has not been assessed . . . . . the Commis sioner may assess such person at such amount as according to his judgment he ought to have charged." The assessments contained triple penalties under section 40 in addition to the tax. Being made under section 72 the proviso was relied on as justifying those assessments which related to years more than seven years from the time of the assessments. Both Courts below held that the assessments were properly made under section

72. The learned Judge remitted the triple penalties for 1951 because the appellant had given notice of his liability to tax for that year and supplied some figures. The appellant appealed. The Court of Appeal confirmed the assess ments in respect of the tax and a penalty equal to the amount of the tax. As regards the further penalties the Court remitted them to the Supreme Court for retrial by another Judge. The question of ultra vires is a difficult one and their Lordships have been much assisted by Counsel on each side. The appellant before the Board submitted that (1) Section 72 did not apply until the machinery under section 71 had been put into operation and that the assessments were therefore ultra vires. (2) Alternatively that if, sections 71 and 72 were alternatives the respondent had elected to give notice under section 59 and could not then operate section 72 during the currency of the "time allowed". (3) That the Court of Appeal had not judicially considered the question of wilful default or neglect under sections 40 and 72 or alternatively that in any event the whole sum assessed as penalties should be remitted to the Supreme Court. If he succeeds on his first submission points (2) and (3) do not arise. The arguments on the first point may be summarised as follows. The appellant submitted that section 71 (1) lays down the procedure which has to be followed in all cases. The words "time allowed", and this is not disputed, refer to the time allowed for the furnishing of the return under section 59 (1). If therefore the Commissioner believes someone to be assessable or possibly assessable he must serve a notice. If a return is made and is accepted the Commissioner proceeds under section 71 (2) (a). If he does not accept the return then he proceeds under section 71 (2) (b). In no return is delivered then section 71 (3) A applies. In no case can he assess until the "time allowed" has expired. There may be cases in which the return and particulars show that no tax is chargeable and no assessment is therefore made. The return is accepted or not disputed but does not lead to an assessment. Coming then to section 72, it is submitted for the appellant that the cases in which the person has not been assessed will beta those referred to in the last paragraph, but in which at some later date additional information makes it appear to the Commissioner that an assessment ought to have been made. In other words section 72 is dealing only with cases where subsequent information leads either to an assessment for the first time or to an additional assessment. It has no application to cases in which the machinery of section 59 (1) has not been operated. The respondent relies on the general words of section

72. They cover he submits any case in which a person has not been assessed whether he has had a notice and "a time allowed" under sections 59 and 71 or not. He conceded that it would be contrary to the scheme of the Act to operate section 72 in current cases. Sections 59 and 71 were clearly intended to by the normal machinery. But if a year or longer had elapsed following the year of income section 72 was properly available. It seemed impossible to formulate any precise limit of time before which the use of section 72 would be ultra vires. The Court of Appeal accepted the argument that the two Sections overlap over the whole period. "If the Department were to abandon altogether the practice of requiring returns to be made, and began to assess in every case by guesswork under section 72, the Courts might not be slow to say that the powers given by the Act were being abused. But where powers given to a Department of Government, or other statutory authority, are capable of being, through perver sity, misused, it does not follow that they are likely to be misuse, and much less does it follow that they should be con strued in an unnaturally restricted sense merely because of the theoretical danger of misuse." Their Lordships have come to the conclusion that the con struction submitted by the appellant is right for the following reasons. If the power to make an assessment under section 72 applies to the making of an original assessment their Lordships are unable to imply a term restricting it to back cases or making it ultra vires to operate it at any time. One would expect an opportunity to make a return to be a condition precedent to assessment. This is supported by the pro visions for personal allowances in Part VI of the Act. If the respondent is right any person can be assessed without having any, such opportunity. There would be two concurrent jurisdictions one providing reasonable protection for the tax‑payer and the other providing no protection quoad the original assessment, apart from a right to appeal. Such a construction seems to their Lordships incon sistent with the general and mandatory provisions of section

71. That section is providing how all original assessments are to be made. Section 72 deals inter alia with additional assessments, with cases in which, owing presumably to subsequent information, the Revenue desires to reopen what had apart from section 72 been settled. Having regard to the wording of section 71 it seems to their Lordships necessary to restrict the words as to assessing for the first time in section 72 to cases in which the machinery of section 59 (1) having been operated no assessment has been made. So far as the taxpayer is concerned after he had made his return or had an opportunity of doing so, it was settled that he was under no liability to tax for that year. Subsequent information leads the Revenue to reopen the matter and decide that he ought to be assessed. Section 72 is dealing with the reopening of cases which had been settled under the normal procedure. This explains the fact that section 72 contains a prima facie limitation of seven years whereas section 71 contains no limitation. On the respondent's argument this seems inexplicable. On the other argument it seems reasonable that there should after a certain time be no reopening of what has been settled unless there has been fraud or wilful default. The construction also gains support from the words "ought to have been charged", when they occur for the second time in section

72. They there apply to "such amount" as well as "such additional amount". Before making the assessments therefore the "time allowed" under section 71 had to elapse. It is common ground that it did not and their Lordships will humbly advise Her Majesty that the appeal be allowed and the assessments set aside. The res pondent must pay the appellant's costs throughout. A. H. Appeal allowed.