[*22] 1963 March 21

 

(FORSTHOFF, P., TRIANTAFYLLIDES and MUNIR, JJ.)

 

(JANUARY 8, 28, MARCH 21, 1963)

 

In the Matter of Article 144 of the Constitution,

And

In the Matter of a Reference by the District Court of Famagusta in Criminal Case No. 972/62 Entitled, IN THE MATTER OF THE TAX COLLECTION LAW NO. 31 OF 1962, and HJI KYRIACOS AND SONS LTD. OF FAMAGUSTA.

(Case No. 298/62)

Art. 188—A transitional provision applicable only to pre-Constitution legislation.

Reference—Art. 144—Mode of.

Conflict of texts—Art. 180.2 — “###” “###” & “personal taxes” in art. 87.1(f).

Imposition of Personal Contributions on Members of the Greek Community for the Year 1961, Law No. 16 of 1961 (Greek Communal Chamber Law*)—s.3, not contrary to, or inconsistent with, Arts. 87.1 (f) & 88.1—Income-tax a proper means of personal taxation—Relation of tax to actual deficit, Art. 88.1—Not violating the principle of equality in Art. 28—Not contrary to Art. 24.1—Has no retrospective effect contrary to Art. 24.3—Clauses 4 & 5 of the Annex to the Law not contrary to Arts. 87.1(f), 88.1 and 24.1 & 24.3—Differentiation in clause 5 made on reasonable considerations.

Art. 24.1—An aspect of the principle of equality in Art. 28, in the sphere of taxation.

Tax Collection Law, No. 31 of 1962†—Application of s. 9 to the collection of taxes due under Law 16 of 1961, not contrary to Art. 30.2, in view of clause 31 of the Annex to Law 16 of 1961.

Words and phrases—“###”, “###” and “personal taxes” in Art. 87.1 (f).

At the hearing of an application by and on behalf of the Director of Inland Revenue before the District Court of Famagusta, pursuant to the filing of a certificate under his hand, moving the court to issue a summons under s.9 of the Tax Collection Law, No. 31 of 1962†, and to fix a date for hearing the said application, counsel for the Debtors/Defendants raised a question of alleged unconstitutionality of certain laws which was referred to this Court as follows:-

“1.        Whether having regard to Articles 24, 87, 88, 144 and 188 the Law entitled ‘Greek Communal Law for the Imposition of Personal [*23] Contributions on Members of the Greek Community for the year 1961, No. 16/61’ and particularly sections 4 and 5 are unconstitutional (sic).

2.         Whether having regard to Articles 24, 87, 88, 144 and 188 section 9 of the Tax Collection Law No. 31/62 in so far as it provides for the collection of the tax in the present case is unconstitutional”.

Held : (a) Art. 188 was a transitional provision applicable only to pre-Constitution legislation and had no relevance to the constitutionality of the legislation in issue, a post-Constitution legislation;

(b)   a court making a reference to this Court under Art. 144 on the constitutionality of any enactment should specifically refer to the particular provisions of such enactment alleged to be unconstitutional and should state the extent of their alleged unconstitutionality on which this Court’s Decision would be required;

(c)   a conflict existed between the official Greek and Turkish texts of the Constitution as to the meaning of the expression “personal taxes” in Art. 87.1 (f) (which was translated into Greek and Turkish as “###”, i.e. “personal contributions” and “###”, i.e. “personal taxes”, respectively). In view of the coincidence between the Turkish text and the English version thereof, and in the light also of Art. 180.2, the expression “###” in the Greek text should be understood in a wide sense as meaning “personal taxes”;

(d)   the nature and the imposition of the “tax” envisaged by s.3 of Law No. 16 of 1961 were not contrary to, or inconsistent with, either Art. 87.1 (f) or Art.88.1 because-

(i)         the tax itself was one of the most usual and universally recognised modes of personal taxation, and

(ii)        the imposition of such a tax could not be contrary to the provisions of Art. 88.1 merely because the revenue to be collected might not coincide with exact mathematical accuracy with the anticipated deficit. So long as such revenue was not calculated to exceed the Chamber’s actual deficit, any resulting difference could be carried forward to the following year;

(e)   Law 16 of 1961 was not contrary to, or inconsistent with, Art. 24.1 because the principle of equality enshrined in Art. 28, of which Art. 24.1 was an aspect in the sphere of taxation (vide Argiris Mikrommatis and The Republic (Minister of Finance and another), 2 R.S.C.C. p. 125 at p. 131), was not violated by the fact that the said taxation, in respect of one of the public burdens, was not based on the totality of one’s means but only on the basis of personal income;

(f)    Law 16 of 1961 was not contrary to, or inconsistent with, Art. 24.3, as the taxation thereby imposed could not be said to have retrospective effect, merely because by virtue of clause 5 of the Annex thereto the assessment of the tax on sources other than emoluments was made on the basis of the taxable income derived during the year immediately preceding the year of assessment; tax on income being a tax imposed on an annual basis, the relevant legislation could be enacted at any time during the currency of the year of assessment, the income from sources other [*24] than emoluments derived during the year immediately preceding the year of assessment being used, in effect, as the basis for the calculation of the unascertainable, from the said sources, income in such year of assessment;

(g)   clauses 4 and 5 of the Annex to Law 16 of 1961 were not contrary to, or inconsistent with, Arts. 87.1 (f), 88.1 and 24.1.3 for the same reasons for which the law itself was not, the differentiation made in clause 5 thereof not being arbitrary but based on reasonable considerations in view of the intrinsic nature of the two sources of income (Argiris Mikrommatis and The Republic (Minister of Finance & another), supra;

(h)   the application of s.9 of the Tax Collection Law, No. 31 of 1962, for purposes of collection of tax due under Law 16 of 1961, would not be contrary to, or inconsistent with, Art. 30.2 because there was express provision in clause 31 of the Annex to Law 16 of 1961 for this Court to inquire into the justice of the imposition of the relevant liability and the validity of an assessment made thereunder (Hannis Djirkalli and The Republic (Chief Revenue Officer), 1 R.S.C.C., p. 36 at pp. 42-43, distinguished) ;

Clauses 4 & 5 of the Annex to Greek Communal Chamber Law, No. 16 of 1961, were not contrary to, or inconsistent with Arts. 24, 87 & 88.

S. 9 of the Tax Collection Law, No. 31 of 1962, was not contrary to, or inconsistent with, Art. 30.

Cases referred to :

Argiris Mikrommatis and The Republic (Minister of Finance and another), 3 R.S.C.C.

Hannis Djirkalli and The Republic (Chief Revenue Officer), 1 R.S.C.C.

A. Triantafyllides with C. Melissas for the Respondents.

A. E. Munir, Counsel of the Republic, for the Attorney-General.

G. Cr. Tornaritis for the Greek Communal Chamber.

Cur. adv. vult.

March, 21. The Decision of the Court was read by:

FORSTHOFF, P. : The Court declares—

Clauses 4 and 5 of the Annex to the Greek Communal Law for the Imposition of Personal Contributions on Members of the Greek Community for the Year 1961 (Law 16/61* [*25] of the Greek Communal Chamber) are not unconstitutional as being contrary to, or inconsistent with, Articles 24, 87 and 88, and section 9 of the Tax Collection Law (Law 31/62* of the Republic) is not unconstitutional as being contrary to, or inconsistent with, Article 30.

†This is a reference of a question of alleged unconstitutionality made by the District Court of Famagusta in Case No. 972/62, under the provisions of paragraph 1 of Article 144 of the Constitution. It is dated the 8th November, 1962, it was received in the Registry of this Court on the 27th November, 1962, and the Case has been heard on the 8th and 28th January, 1963.

The question as reserved for the decision of this Court is as follows :-

“1.        Whether having regard to Articles 24, 87, 88, 144 and 188 the Law entitled ‘Greek Communal Law for the Imposition of Personal Contributions on Members of the Greek Community for the year 1961’ No. 16/61, and particularly sections 4 and 5 are unconstitutional (sic).

2.         Whether having regard to Articles 24, 87, 88, 144 and 188 section 9 of the Tax Collection Law No. 31/62 in so far as it provides for the collection of the tax in the present case is unconstitutional”.

It has to be stated at the outset that Articles 144 and 188 of the Constitution are not at all relevant to the substance of the matters under reference. Article 144 is the provision of the Constitution creating the competence of this Court to entertain a reference like the present and as such it does not render the legislation in question unconstitutional; the mere fact that the question of unconstitutionality involved in this reference was raised under Article 144 did not warrant such Article being included among the provisions of the Constitution relevant to the said question of unconstitutionality. Article 188 is a transitional provision of the Constitution which is applicable only to pre-Constitution legislation and, therefore, it can have no relevance at all to the constitutionality of the legislation concerned, which is post-Constitution legislation.

The Court would observe, next, that it is not proper upon a reference like the present to deal with the constitutionality of each and every provision of an enactment, such as the aforesaid Law 16/61, as it might appear, at first sight, to be required of this Court by paragraph 1 of the question referred to it. Any particular provisions of such enactment [*26] which may be alleged to be unconstitutional, other than those already specified in such paragraph 1, must be specifically referred to this Court in the proper manner. The Court, therefore, will, in this Case, deal with Law 16/61 as a whole only in so far as it is necessary to consider whether or not the object of such Law is constitutional, because in determining the constitutionality of the particular provisions of Law 16/61, which are specified in the said paragraph 1, it is necessary to consider the constitutionality of the object of Law 16/61 as a whole.

It will be examined whether or not the said object is unconstitutional as being contrary to, or inconsistent with, Articles 87 and 88 of the Constitution. The relevant part of Article 87 reads as follows:-

“1.        The Communal Chambers shall, in relation to their respective Community, have competence to exercise within the limits of this Constitution and subject to paragraph 3 of this Article, legislative power solely with regard to the following matters;

……………………………………………………………

(f)        imposition of personal taxes and fees on members of their respective Community in order to provide for their respective needs and for the needs of bodies and institutions under their control as in Article 88 provided;

……………………………………………………………

The relevant part of Article 88 reads as follows:

“1.        The power of imposing taxes under sub-paragraph (f) of paragraph 1 of Article 87 of a Communal Chamber shall be exercised for the purposes of meeting the part of its expenditure provided in its budget in each financial year which is not met by the payment made to such Communal Chamber in respect of such financial year by the Republic out of its Budget as provided in paragraph 2 of this Article or by any other revenue which such Chamber may have in that financial year”.

The long title of Law 16/61 reads “Greek Communal Law for the Imposition of Personal Contributions on Members of the Greek Community for the Year 1961”. By section 2 of this Law the expression “personal contributions” is defined as bearing the meaning attributed to it under paragraph 1(f) of Article 87.

It may be noted at this stage that there appears to exist some conflict between the official texts of the Constitution on this point. The Greek text uses the expression “###”, which translated into English means “personal contributions”, whereas the Turkish text uses the expression [*27] “###” which translated into English means “personal taxes”. The English version also uses the expression “personal taxes”. In view of the coincidence on this point between the Turkish text and the English version, as aforesaid, the Court is of the opinion, in the light also of Article 180.2 of the Constitution, that the expression “###” in the Greek text should be understood, in a wide sense, as corresponding to the expression “personal taxes” and not in the sense in which the expression “###” is used in Article 24.2 as denoting “rate”.

Section 3 of Law 16/61 reads as follows:-

“3(1) The personal contribution imposed on each member of the Greek Community for the 1961 year of assessment, with a view to meeting the deficit appearing in the 1961 budget, shall be equal to the amount of the tax with which such person is burdened on the basis of the provisions contained in the Annex to this Law.

(2) No other personal contribution shall be imposed on a member of the Greek Community for the 1961 year of assessment”.

It has been alleged by counsel appearing for the defendants in the civil case under reference that Law 16/61 is in essence an enactment imposing income-tax and that such mode of taxation is outside the competence of a Communal Chamber under Article 87.1(f).

It is, indeed, clear form the whole of the provisions of the Annex to Law 16/61 that the “tax” referred to in section 3 of such Law is a tax imposed on the basis of income. Such tax, however, by its very nature is a personal tax and is one of the most usual and universally recognized modes of personal taxation and the Court is, therefore, of the opinion that it is not contrary to, or inconsistent with, the provisions of paragraph 1(f) of Article 87.

It has also been submitted that the imposition of the taxation in question is not within the powers of a Communal Chamber because under the provisions of paragraph 1 of Article 88 taxation of such a nature could not have been envisaged at all, the reason being that what is aimed at under such provisions is to meet a budgetary ‘deficit’ for a particular year, i.e. an eventually ascertainable amount, whereas taxation to be imposed on the basis of income in any particular year cannot be expected to produce a pre-ascertainable amount coinciding exactly with the given amount of the said ‘deficit’.

In the opinion of the Court there is nothing in the context of paragraph 1 of Article 88 to make the rigid proposition [*28] propounded above an inevitable outcome thereof. It is correct that what is intended to be provided under such paragraph 1 is that the taxation powers of a Communal Chamber shall only be exercised for the purpose of meeting such part of its expenditure which cannot be met otherwise, but so long as the taxation imposed is not otherwise outside the competence of such Chamber, such as taxes other than personal taxes, and so long as the revenue thereby is not, at the time, obviously calculated to exceed the aforesaid part of the Chamber’s expenditure, such taxation is not excluded by the provisions of paragraph 1 of Article 88 merely because such revenue might not eventually coincide with exact mathematical accuracy with the part of the expenditure to be met. As the Communal Chambers are going concerns it follows that any difference that might result would have to be credited or charged, as the case might be, to the budget of the ensuing year, as a purely accounting transaction; some such difference would be always bound to occur in practice no matter what the mode of personal taxation to be adopted might be.

Law 16/61 was enacted on the 29th December, 1961. At the time it had already been definitely anticipated, in effect, by Law 4/61*, i.e. the 1961 budget of the Greek Communal Chamber, which was enacted on the 19th May, 1961, that a part of the Chamber’s expenditure amounting to £899,572 would have to be met partly by an increase by £300,000 in the amount of the Government grant, under Article 88, for that year, and partly by an amount of £599,572 to be collected through taxation under the then in force Law 1/61†. By the 29th December, 1961, when Law 16/61 was enacted (and which Law repealed the said Law 1/61† as well as Law 15/61‡ which had amended it in the meantime) the expected increase in the Government grant had not materialized and the whole aforesaid amount of £899,572 had to be met by revenue from taxation. It has been stated to the Court and not disputed, that the taxation imposed by means of Law 16/61 was not calculated, and is not expected, to bring in more than £600,000 to £700,000 i.e. less than the aforesaid part of the 1961 expenditure.

Thus, the Greek Communal Chamber by means of the personal taxation in question has aimed at collecting an amount in any case not in excess of the aforesaid part of its expenditure in the budget for 1961 and in the circumstances the Court is of the opinion that what was done is both within the letter and spirit of paragraph 1 of Article 88. [*29]

It follows, therefore, that the object of Law 16/61 is not contrary to, or inconsistent with, Articles 87.1 (f) and 88.1.

The next issue to be examined is whether or not the said object is contrary to, or inconsistent with, Article 24 of the Constitution. In this connection two submissions have been made:

(a)        that paragraph 1 of Article 24 has been contravened in that under Law 16/61 the contributions towards meeting part of the expenditure in the budget of the Greek Communal Chamber are made, not in accordance with the total means of each of the members of the Greek Community, but only on the basis of one aspect of such means viz. income, and

(b)        that Law 16/61 amounts to the imposition of taxation retrospectively, contrary to paragraph 3 of Article 24, in that at the very end of 1961 some of the members of the Greek Community are taxed back with reference to their income, from emoluments, in 1961 and their income, from other sources, in 1960.

Concerning submission (a) above, the Court may usefully reiterate what it has already stated in its Judgment in Argiris Mikrommatis and The Republic (Minister of Finance & another), 2 R.S.C.C. p. 125 at p. 131, to the effect that paragraph 1 of Article 24 is an aspect, in the sphere of taxation, of the principle of equality enshrined in Article 28 of the Constitution. In the opinion of the Court the said paragraph 1 in providing that “Every person is bound to contribute according to his means towards the public burdens” does not lay down that every person should contribute in accordance with the totality of his means towards every and each particular head of public burdens, one of which is the relevant part of the exexpenditure in the budget of a Communal Chamber. Contribution towards one head of the public burdens may be based on one particular criterion of means, such as income, and will still be a contribution according to the means of every person, in the sense of paragraph 1 of Article 24; income as a basis for taxation on a large scale is a sufficiently reasonable and equitable criterion so as to ensure that the principle of equality is not infringed. Thus the Court is of the opinion that paragraph 1 of Article 24 has not been contravened.

Concerning submission (b) above, the Court has come to the conclusion that no question of retrospectivity, contrary to paragraph 3 of Article 24, arises. As it is also apparent from the provisions of section 3(1) of Law 16/61 and clause 4 of the Annex to such Law the personal tax imposed under the said Law is a tax imposed during the currency of a particular [*30] year, i.e. 1961, in respect of expenditure in the Communal Chamber budget, as under Article 88.1 provided, for that very same year. It is not retrospective taxation to tax in any year a person on the basis of his income in that particular year, by means of legislation enacted during that same year, because tax on income is imposed on an annual basis and, therefore, the relevant legislation may be enacted at any time during the currency of the year concerned. The mere fact that, under clause 5 of the Annex to Law 16/61, (the text of which is set out hereinafter) the tax in question is charged, as far as income from sources other than emoluments is concerned, on the taxable income derived in the year immediately preceding the year of assessment, does not render such tax a retrospective taxation on the income of the preceding year, i.e. 1960; it still remains a tax imposed, in all respects, on the basis of the income in 1961, the year of assessment, and simply because the taxable income in 1961, from sources other than emoluments, is not readily ascertainable in the year of assessment, such income is computed, subject always to the application of the appropriate legal principles, on the basis of the taxable income from the said sources in 1960. That this is the proper construction to be placed upon a provision such as the said clause 5 is borne out by the construction given to practically identical provisions in the income-tax legislation of other countries including England, on the income-tax legislation of which the corresponding legislation in Cyprus happens to have been modelled for years and from which Cyprus legislation the formula in clause 5 appears to have been adopted. It is for the legislature to choose the proper method of the computation of income in respect of the year of assessment.

There remains now to deal specifically with the constitutionality of clauses 4 and 5 of the Annex to Law 16/61. In the question referred to the Court in this Case such provisions are described as sections 4 and 5 of Law 16/61 but it is clear, and undisputed, that this is a misdescription and that what is meant thereby are not sections of Law 16/61 itself but clauses 4 and 5 of the Annex to such Law.

The said clauses read, in their material parts, as follows:

“4(1) Subject to the provisions of this law and at the rates specified hereafter, a contribution is imposed, for the year of assessment, upon the income of any person which is derived from any of the sources set out hereunder ……..” and then there follows an enumeration of the relevant sources of income.

“5. In respect of the year of assessment tax is charged and collected on the taxable income of any member which was derived during the year immediately preceding the year of assessment: [*31]

Provided that in computing the chargeable income of any member who derives his income from emoluments, the emoluments of the year of assessment shall be substituted for the emoluments of the year immediately preceding the year of assessment”.

By clause 2 of the Annex, as amended by Law 8/62, “person” is defined as a member of the Greek Community and includes a body of persons, “year of assessment” is defined as the period of twelve months commencing on the 1st January, 1961, and “tax” is defined as meaning personal contribution.

The Court is of the opinion, for the reasons given earlier, in respect of the constitutionality of the object of Law 16/61 vis a vis Articles 87.1(f), 88.1 and 24.1 and 3, and which need not be repeated here, that the above clauses 4 and 5 are not contrary to, or inconsistent with, the said constitutional provisions.

With regard, however, to the constitutionality of clause 5, in relation to Article 24.1, it is necessary to state also the following:

It has been submitted that Article 24.1 has been contravened in that clause 5 differentiates between the various sources of income in a manner contrary to the principle of equality. It is correct that such clause 5 results in a differentiation between income from emoluments and income from all other sources. With regard to the latter the income in the year immediately preceding the year of assessment is taken into account for the purpose of computing the income in the year of assessment and with regard to the former the income in the year of assessment itself is taken into account. It should, first, be observed that the differentiation thus made is not a differentiation between classes of taxpayers, as such, but between sources of income. In the opinion of the Court the said differentiation is reasonably based on intrinsic differences in the nature of the sources of income concerned; income from emoluments is readily ascertainable during the currency of the year of assessment, and it is not, thus, either necessary or proper to compute it by reference to the income from emoluments in the year immediately preceding the year of assessment, whereas, as stated earlier, the contrary considerations apply, regarding ascertainability, to income from sources other than emoluments. In the circumstances, the Court is of the opinion that the differentiation in question, not being arbitrary and being based on reasonable considerations, does not contravene the principle of equality (vide Argiris Mikrommatis and The Republic etc., supra).

It must also not be lost sight of that, though no question of applying the “pay-as-you-earn” system of collection of [*32] the tax with regard to emoluments could have arisen in the case of Law 16/61 in view of the fact that it was enacted at the very end of 1961 - and the Court leaves open the question of the validity of the application of such a system to taxation of the type concerned - nevertheless, it appears that Law 16/61, which was enacted after the cessation of the operation of the Income Tax Law, CAP. 323, had, for reasons also of practicability and fair treatment of taxpayers, to fit its clause 5 into the pattern existing previously under section 6 of CAP 323. For this reason too the differentiation made, under clause 5, between income from emoluments and income from other sources appears to the Court to be reasonably justified.

It has also been submitted that clause 5 contravenes Article 24.1 in that, the Greek Communal Chamber not having been in existence before the 16th August, 1960, the operative part of such clause 5, concerning taxable income from sources other than emoluments, can only apply to such income which was derived between the 16th August, 1960, and the 31st December, 1960, whereas the proviso to clause 5, concerning taxable income from emoluments, is applicable to such income for the whole year 1961. This is not, however, a valid argument because it is based on the misconception, dealt with earlier in this Decision in relation to the submission concerning retrospectivity, that clause 5, in effect, taxes the income, as such, in 1960, which is not the case; the taxable income for the whole of 1960, from the sources concerned, will have to be relied upon under clause 5 in making the computation for the purposes of the taxation in 1961.

Lastly, the Court will deal with paragraph 2 of the question of unconstitutionality referred to this Court viz. the alleged unconstitutionality of section 9 of the Tax Collection Law, Law 31/62 of the Republic. This section provides about the enforced collection, through proceedings before a court, of unpaid taxes. It has been submitted that the application of the said section 9 to a case of tax imposed under Law 16/61 would be unconstitutional in that, contrary to Article 30.2 of the Constitution, it prevents, by sub-section (6) thereof, the court concerned from enquiring into the justice of the taxation in question.

The Court, in the Case of Hannis Djirkalli and The Republic (Chief Revenue Officer), 1 R.S.C.C. p. 36 at pp. 42-43 has dealt with a similar situation in examining the constitutionality of section 15 of the old Tax Collection Law, CAP. 329, and which provision corresponds to sub-section (6) of section 9 of Law 31/62.

In the aforesaid Case the Court has held that the application of a provision such as section 15 of CAP. 329 to the case of an enforced collection of a sum due under the Recovery of Compensation for Injury to Property Law, CAP. 84, [*33] would contravene the provisions of Article 30.2, because by virtue of section 8 of CAP. 84 no inquiry into the justice of the imposition of the relevant liability was possible at the time of such imposition. By Law 16/61, however, express provision is made, under clause 31 of the Annex thereto, for a recourse to this Court against the validity of an assessment thereunder. In the circumstances, and in the light, of the Judgment of this Court in the aforesaid Case, the Court is of the opinon that it would not be unconstitutional to apply section 9 of Law 31/62 for the purposes of collection of tax due under Law 16/61.

The constitutionality of section 9 of Law 31/62 has been raised also in relation to Articles 24, 87 and 88, not in that this section contravenes itself such Articles, but because it was being applied in relation to a tax-liability under Law 16/61. This matter, however, still remains a question concerning the constitutionality of Law 16/61, and its specific provisions involved in this reference, which have been already dealt with, and not the constitutionality of section 9 of Law 31/62 as such.

As nothing else has come to the notice of the Court concerning the constitutionality of the legislation, the subject-matter of this reference, in relation to any provisions in the Articles of the Constitution concerned, other than those provisions thereof dealt with hereinbefore in this Decision, the Court, for the Reasons set out above, declares as stadet in The Order.