Vela Fishing Ltd v. Commissioner of Inland Revenue (New Zealand) [2003] UKPC 32

Judicial Committee of the Privy Council
Case No Privy Council Appeal No. 36 of 2002Venue FROM THE COURT OF APPEAL OF NEW ZEALAND
Between
Vela Fishing LtdAppellantCommissioner of Inland Revenue (New Zealand)Respondent
Before
Lord SteynLord NolanLord HuttonLord Scott of FoscoteLord Walker of GestingthorpeDate 14 April 2003
[1]:- Lord Steyn Lord Nolan Lord Hutton Lord Scott of Foscote Lord Walker of Gestingthorpe [Delivered by Lord Walker of Gestingthorpe ] In 1994 the New Zealand Parliament enacted legislation in order to divide between two new statutes the provisions as to the levying and administration of income tax previously contained in the Income Tax Act 1976 ("ITA 1976") as amended. One of the statutes (running to 1475 pages in the official print) was the Income Tax Act 1994 ("ITA 1994"). Its purpose was (section AA1(1)):
"to re-enact the law, excluding certain administrative provisions, contained in the Income Tax Act 1976 in a reorganised form within soundly based and coherent structures of Parts and Subparts."
The other statute was the Tax Administration Act 1994 ("TAA 1994"). Its purpose was (section 2(1)):
"to re-enact the administrative provisions contained in the Income Tax Act 1976 and the Inland Revenue Department Act 1974 in a reorganised form."
Both statutes were described in their long titles as Acts "to reorganise and consolidate the law". They explicitly disavowed (in sections AA1(2) and 2(2) respectively) any intention to change the interpretation or effect of the existing law.[2]At about the same time there was published the report of an Organisational Review Committee which had reviewed the organisation and operations of the Inland Revenue Department. The Committee was chaired by the Right Honourable Sir Ivor Richardson, who later (as President of the Court of Appeal) presided over the appeal which has now come before the Board. One of the Committee's concerns was to improve the system of making tax assessments and resolving disputes arising on them. The Committee wished the procedures to be as quick, straightforward and fair as possible. It made recommendations to which effect was given by amending legislation, in particular (so far as now relevant) by amendments to TAA 1994 made by the Tax Administration Amendment (No. 2) Act 1996 ("the 1996 Act").[3]This appeal is concerned with two of the changes made by the 1996 Act. One was an alteration in the date of commencement of the four-year period after which the Commissioner of Inland Revenue ("the Commissioner") cannot normally (that is, in the absence of fraud or other serious default on the part of the taxpayer) increase the amount of an assessment. The other was the introduction of a new right (or power) for a taxpayer to waive the time bar (which would otherwise apply at the end of the four-year period) for a further period of up to six months.[4]The issue in the appeal is whether the taxpayer's power to waive the time bar applied to a tax assessment which (because it related to the tax year 1990-1) had been made not under TAA 1994, but under ITA 1976. It is therefore an issue of statutory construction of a technical nature. The Board was told that the issue affects a number (although not a very large number) of other unresolved cases. In each of these cases it is in the taxpayer's interest to establish that a waiver signed by the taxpayer on or before 17 November 1998 (the date on which an amending Bill was introduced) was ineffective. The Commissioner seeks to hold the taxpayers to their waivers (simply on the issue of construction; the Commissioner does not seek to rely on any estoppel). In a test case the trial judge (Penlington J) decided the point in favour of the taxpayer, Vela Fishing Limited ("Vela"). The Court of Appeal (Richardson P, Blanchard and McGrath JJ) reversed this decision. The judgments are reported at [2001] 1 NZLR 437 and [2002] 1 NZLR 49 respectively. Vela has appealed, with leave granted by the Court of Appeal, to the Board.[5]The essential facts are agreed and can be stated very briefly. Vela was in dispute with the Commissioner about its tax liability for 1990-1 (the New Zealand tax year runs from 1 April to 31 March). Vela filed its return for 1990-1 on 19 July 1993. An assessment was made by the Commissioner on 28 August 1993 (the Board was told that initial assessments are generated by computer on the basis of taxpayers' returns, without any close consideration of the return, and the assessment may be increased after the return has been more fully considered). The dispute continued for some years. On 24 March 1998 Vela (by an authorised representative) signed a waiver of the time bar which would otherwise have taken effect on 31 March 1998. The waiver was expressed as postponing the time bar until 30 September 1998. On that very day, 30 September 1998, the Commissioner made a further assessment on Vela. Vela now contends that the waiver was invalid, with the consequence that the further assessment was also invalid. Vela commenced proceedings for a declaration to that effect on 16 November 1998, that is a day before the introduction of the Bill which became the Taxation (Accrual Rules and Other Remedial Matters) Act 1999 ("the 1999 Act").[6]It is necessary to relate this simple sequence of events to the rather less simple sequence of legislation outlined above. ITA 1976 dealt not only with the substance of income tax law but also with its administration. Section 25(1) (in the form in which it was in force for 1990-1) provided as follows:
"When any person has made returns and has been assessed for income tax for any year, it shall not be lawful for the Commissioner to alter the assessment so as to increase the amount thereof after the expiration of 4 years from the end of the year in which the assessment was made."
Section 25(2) made an exception for fraudulent or wilfully misleading returns.[7]In TAA 1994 these provisions were reproduced in virtually identical terms in section 108 (referred to in argument, for reasons which will become apparent, as "the old section 108"). ITA 1994 (section YB3(1) and Schedule 21) repealed the whole of ITA 1976. But section YB5(2) contained a general saving of the repealed provisions for all purposes in respect of outstanding liabilities for any tax year before 1995-6 (both ITA 1994 and TAA 1994 took effect on 1 April 1995 and applied for 1995-6 and subsequent years: sections A1(2) and 1(2) respectively).[8]For the purposes of disposing of outstanding liabilities for earlier years the repealed provisions (including section 25 of ITA 1976) were "deemed to remain in full force and effect" (ITA 1994, section YB5(2)). So the result, in short, was that the old section 108 came into force on 1 April 1995 and applied for tax years from 1995-6; section 25 of ITA 1976, although formally repealed, imposed exactly the same time bar for earlier years.[9]Section 227(4) of the TAA 1994 is of central importance to this appeal. Section 227 is the first section in Part XIV of the Act, headed "Transitional Provisions and Savings". Subsection (1) is a general provision as to the continuity of the law, and it defines the enactments repealed by section YB3 of ITA 1994 (which include section 25 of ITA 1976) as "the repealed enactments". Subsection (2) contains a general saving in terms virtually identical to section YB5(2) of ITA 1994. Subsection (3) relates to prosecutions for offences. Then comes subsection (4), which must be set out in full:
"Any express or implied reference in any enactment, instrument, or document (including this Act) to any provision of this Act, or to things done or to be done or failing to be done under or for the purposes of any provision of this Act, shall, if and so far as the nature of the reference permits, be construed as including, in relation to the times, circumstances, or purposes in relation to which the corresponding provision in the repealed enactments has or had effect, a reference to, or to things done or to be done or failing to be done under or for the purposes of, that corresponding provision."
Subsection (5) is a sort of mirror-image of subsection (4), and subsection (6) relates to the punishment of offences.[10]After the report of the Organisational Review Committee a package of measures was put forward in order to implement its recommendations. Initially these were comprised in a single composite Bill, but it was subsequently split into seven separate Bills. One of them became the 1996 Act which (so far as now material) made the two changes already mentioned. The old section 108 was repealed and replaced by a new section 108 ("the new section 108") and section 108B was introduced in order to permit a taxpayer to waive a time bar. A waiver could allow more time for negotiations between the Inland Revenue and the taxpayer, and so avoid the need for an abrupt assessment, which might drive the parties into entrenched positions.[11]The new section 108(1) provided as follows:
"Except as specified in this section or in section 108B, if - (a) A taxpayer provides a tax return and is assessed for tax for the return period; and (b) 4 years have passed from the end of the income year in which the taxpayer provides the tax return, - the Commissioner may not alter the assessment so as to increase the amount assessed."
It did not therefore make any radical change. Its effect was to keep the normal four-year time bar (in the absence of fraud or serious default) but to make the four-year period run from the end of the tax year in which the taxpayer filed his return, rather than the tax year in which the Commissioner first made an assessment. Mr Milne QC (for the Commissioner) told their Lordships, without dissent from Mr Cranston QC (for Vela), that in most cases this would make no practical difference, since normally returns are made in July or August and are followed by assessments within a matter of weeks. However in some cases (and especially if a taxpayer filed his return during the month of March) the change could mean that the time bar was accelerated by a whole year. There is no dispute but that the new section 108 amounted to an amending provision.[12]The old section 108 was repealed and replaced by the new section 108 with effect from 1 October 1996. That was the effect of sections 2(2) and 29 of the 1996 Act. In addition the new section 108(1) was (under a textual amendment embodied in the new section 108(4)) to apply "to all returns filed on or after 1 April 1997". This created an unintended gap which had to be filled (with a new section 107A) by amending legislation in 1997; but that complication can be ignored since both sides agree that it is irrelevant to the issue to be decided on this appeal.[13]Section 108B has now been replaced by a new section 108B introduced by section 101 of the 1999 Act (although whether its replacement was necessary depends on the outcome of this appeal). The original section 108B was in the following terms: "A taxpayer may, before the expiry of the period of 4 years applicable under section 108 or section 108A, sign a waiver in the prescribed form to extend the applicable time bar by up to a further 6 months." (Section 108A is not relevant.)[14]It is now possible to identify more precisely the issue which emerges from this tangled thicket of legislation. Does the reference in section 108B to (the new) section 108 include a reference to section 25 of ITA 1976 (that being the time bar provision applicable to Vela's outstanding liability for 1990-1)? This depends on whether section 227(4) of TAA 1994 (the full terms of which are set out in para 9 above) operates (in its essentials) in the following way:
"Any … reference in … [section 108B] to [the new section 108] … shall, if and so far as the nature of the reference permits, be construed as including, in relation to the times, circumstances or purposes in relation to which the corresponding provision in the repealed enactments [sc. section 25 as well as the old section 108] has … effect, a reference to … that corresponding provision [section 25 or the old section 108]."
[15]Before the judge the Commissioner put forward a number of arguments which are no longer relied on before the Board. In particular, there were some elaborate submissions as to TAA 1994 having been partly retrospective which Mr Milne expressly (and rightly) disavowed. The judge dealt only very briefly with what the Court of Appeal regarded as the crucial point, that is whether section 25 of ITA 1976 should be regarded as a "corresponding provision" for the purposes of section 227(4) of TAA 1994. Penlington J considered that section 25 could not be a "corresponding provision" because the new section 108 "prescribed a different trigger event and therefore a different limitation period" (see [2001] 1 NZLR 437, 470, para 149).[16]The Court of Appeal at [2002] 1 NZLR 49, 54-56 paras 27-35 took a different view, citing their earlier decision (in a judgment of the court delivered by Turner J) in Winter v Ministry of Transport [1972] NZLR 539. That was a case on much-amended legislation dealing with breath tests for motorists. The prosecution had relied on section 20A of the Acts Interpretation Act 1924, which was in terms comparable to section 227(4) of TAA 1994. Turner J said of the argument of the appellant's counsel (at p 541):
"He confined his argument exclusively to the submission that the sections were not 'corresponding' sections. This submission was founded upon the proposition that the 1970 provisions, taken as a whole, were different from those of 1968. But this must be so whenever a new statutory provision is substituted for an old one. We read 'corresponding' in s 20A as including a new section dealing with the same subject matter as the old one, in a manner or with a result not so far different from the old as to strain the accepted meaning of the word 'corresponding' as given in the Shorter Oxford English Dictionary – 'answering to in character and function; similar to'."
[17]In their Lordships' opinion the Court of Appeal was right to follow Winter v Ministry of Transport , and correctly applied the principle in that case. The Court of Appeal was also right to treat that as the crucial point in the case, so that it was unnecessary to go into other issues which were ventilated before Penlington J.[18]Before the Board Mr Cranston strenuously argued that section 227(4) is a transitional provision, not an amending provision, and that it should not be given the drastic effect of an amending provision. That is, with respect, an incomplete analysis. The Board accept that section 227(4) is part of a group of transitional and savings provisions of a fairly elaborate nature such as are called for in legislation dealing with the complexities of administering (sometimes, as in this case, through many years of dispute) a tax which is levied on an annual basis. The particular function of section 227(4) is interpretative, that is to extend the scope of current legislation so as to include, where appropriate, past (and not dissimilar) legislation dealing with the same subject-matter. The relevant amendment (which can hardly be called drastic) was made by section 108B. Mr Cranston did not (as their Lordships understand his submissions) contend that section 108B's reference to section 108 did not include the old (as well as the new) section 108. Yet the old section 108 and section 25 of ITA 1976 were for practical purposes in identical terms. The appellant's approach does not accord like treatment to taxpayers in the same situation.[19]Mr Cranston also submitted that even during the currency of the four-year period Vela had a contingent right to a time bar, and that Vela should not be deprived of that right without clear words. Their Lordships cannot accept this submission. Vela cannot sensibly be described as having had any sort of right to a time bar while the four-year period was running, any more than a potential defendant has a contingent right to plead the statute of limitations before time has run against the potential claimant (see the English and New Zealand authorities referred to by Professor J F Burrows, Statute Law in New Zealand, 3rd edition (2003) pp 422-3). Moreover it was not amending legislation that prevented Vela from obtaining the benefit of a time bar on 31 March 1998. It was Vela's own decision to sign a waiver (which it then rightly believed to be effective). The taxpayer alone has power to make a waiver, and the taxpayer must be taken to be the best judge of his own interests. Section 108B is a benefit and not a burden to taxpayers.[20]For these reasons their Lordships will humbly advise Her Majesty that the appeal should be dismissed with costs.