[1950] EACA 406

# H. M. COURT OF APPEAL FOR EASTERN AFRICA

Before SIR NEWNHAM WORLEY (President), BACON, Justice of Appeal and SIR OWEN CORRIE, J. (Kenya)

# ALFRED GRANVILLE ROSS, Appellant

#### $\mathbf{v}$

### REGINAM, Respondent

### Criminal Appeal No. 340 of 1955

(Appeal from the decision of H. M. Supreme Court of Kenya, Windham, J.)

Income and Excess Profits Tax-Inadequacy of summing-up-When Court will order retrial—Kenya Income Tax Ordinance, sections 7 (1) (a) and 75 (1) (a) and (e)—Kenya Excess Profits Tax Ordinance, sections 4 (1) and 17 (1) (o)— East African Income Tax (Management) Act, 1952, section 91 (1) and Fifth Schedule, paragraph 1.

The appellant had been convicted on 36 counts of offences under the Income Tax Ordinance and the East African Income Tax (Management) Act, 1952. The trial was before a Judge sitting with a jury and the case was very complicated. There was no clear direction to the jury on a number of essential points, the elements constituting the various offences were not explained or enumerated to the jury and in several other material respects the summing up was inadequate.

Held (17-11-55).—It could not be said that, had the jury had the case put to them fully and properly, they would inevitably have convicted on all the counts.

Appeal allowed. Retrial ordered. (See Privy Council Appeal No. 12 of 1955, p. 616 infra.)

Case referred to: C. I. T. v. P. Co. Ltd., (1954) 1 E. A. T. C. 131.

O'Donovan and Mrs. Kean for appellant.

Bechgaard and Kennedy for respondent.

JUDGMENT (prepared by Bacon, J. A.).—This appeal is against convictions of the Supreme Court of Kenya on 36 counts contained in an information dated 27th June, 1955, and against the sentences passed in relation to each of those convictions.

The information in effect charged the appellant with making false returns of income with intent to evade Kenya income tax and excess profits tax in respect of various years of assessment or chargeable accounting periods between 1941 and 1949 inclusive. The counts fall into three categories: first, 26 counts under sub-section (1) $(a)$ of section 75 of the Income Tax Ordinance (Cap. 254 of the Laws of Kenya, 1948) charging wilful omissions from income tax returns of income which should have been included therein; secondly, five counts under section 17 of the Excess Profits Tax Ordinance (Cap. 255) charging similar omissions; and thirdly, five counts under sub-section $(1)$ (e) of section 75 of the Income Tax Ordinance charging fraudulent inclusion of alleged expenses in income tax returns.

The 36 counts are also divisible into the following groups: —

First, those relating to returns made by the appellant declaring the income of a firm of which the appellant was a member; secondly, those relating to returns made by the appellant of his personal income; and thirdly,

those relating to returns made by the appellant on behalf of his partner who was, at all material times, not resident in British East Africa. As might well be expected, the returns of personal income, namely those in the second or third group, were as regards any given year calculated on the footing of the same omission or inclusion as was a feature of the partnership return for that year; but the Crown sought to prove that the consistency ended there, inasmuch as each of the returns in question was inconsistent with figures prepared by or within the knowledge of the appellant at the respective times when the returns were sent in.

The background of the case is briefly as follows: Throughout the material period the appellant was in partnership with one Thomas Lea Elliott under an agreement in writing made on 1st January, 1927, in the business of manufacturers' agents and representatives. Elliott and the appellant conducted the partnership business from offices in Birmingham, England, and in Nairobi respectively. The partnership held a number of agencies for English manufacturers covering British East Africa, Broadly speaking, the method of conducting most of the business was that the appellant canvassed for orders from customers in the British East African territories, he then passed the orders to the office in Birmingham, and Elliott made the arrangements for the supply and shipment of the goods. The profits of the business were thus—if not entirely, at any rate very largely—earned in the form of commissions on the orders thus obtained and fulfilled, that is to say, on offers to buy made in British East Africa and acceptances of those offers given in England. In general terms it may be said that the business was carried on by the co-operation of the partners operating at a distance. By clause 7 of the partnership agreement "the net profits, that is the balance remaining after deduction of all business expenses from the income derived by way of commission and any other source earned by the said partnership business" were to be divided between the partners as to one-third to Elliott and as to two-thirds to the appellant. Accounts were settled annually on the footing of figures supplied by the appellant to the Birmingham office and figures worked out in that office thereafter.

The statutory provisions upon which the charges were founded are as follows, omitting immaterial parts.

Sub-section (1) (a) of section 75 of the Income Tax Ordinance reads: $-$

"Any person who wilfully with intent to evade tax omits from a return made under this Ordinance any income which should be included... shall be guilty of an offence..."

Sub-section (1) (o) of section 17 of the Excess Profits Tax Ordinance applies section 75 of the Income Tax Ordinance to the assessment and collection of excess profits tax.

Sub-section (1) $(\vec{e})$ of section 75 of the Income Tax Ordinance reads:

"Any person who wilfully with intent to evade tax makes use of any fraud ... shall be guilty of an offence...."

The relevant charging sections are the following:—

Sub-section (1) (a) of section 7 of the Income Tax Ordinance reads-

"Income tax shall, subject to the provisions of this Ordinance, be payable... upon the income of any person who is not resident in the Colony, accruing in, derived from, or received in, the Colony, and upon the income of any person who is resident in the Colony, accruing in, derived from or received in, the Colony and/or another East African territory in respect of gains or profits from any trade, business...."

Sub-section (1) of section 4 of the Excess Profits Tax Ordinance reads-

"The profits chargeable with excess profits tax shall be all profits derived by any person from any business chargeable with income tax under the Income Tax Ordinance."

The trial was before a Judge sitting with a jury and the jury was called upon to deal with a considerably complicated case introducing a large number of exhibits and to reach their findings on what must have appeared to them as an involved series of issues.

The grounds of appeal against the convictions were, first, a number of alleged misdirections and non-directions by the learned Judge, and secondly, the absence of any evidence to support a finding of guilty in the case of any of the charges of wilful omission.

In our view it was of prime importance that the jury should have a clear understanding of the precise questions of fact to which they should address their minds, that they should clearly distinguish between the two classes of alleged offences and know the elements constituting each class, and that they should have explicit guidance in particular as to the factors which ought to be taken into account by them in determining what profits of the partnership business the appellant was obliged by law to include in the returns of income.

In the case of the 31 counts charging omission of profits the elements of the offence are these: first, that there was a certain income which should have been included in the returns; secondly, that that income was omitted; thirdly, that it was the accused who omitted it; fourthly, that he omitted it wilfully, that is to say, deliberately; and lastly, that he did so with intent to evade tax.

In the case of the five counts relating to expenses, the elements of the offence are, first, that a false item of expenses allegedly incurred by the partnership in the course of earning the income concerned was included in the return; secondly, that it was the accused who included it; thirdly, that he did so wilfully; fourthly, that in so doing he made use of a fraud, that is to say, was consciously dishonest; and lastly, that he did so with intent to evade tax.

Accordingly, the first question which arises on this appeal is as to whether the learned Judge put those matters clearly to the jury. We are unable to find in the summing-up a satisfactory answer. There was, we think, no clear direction on a number of essential points. The elements constituting the offences were not explained or even enumerated. In particular, no sufficiently clear guidance was given on the question of what categories of income should have been included in the returns, although this was a question of fact for the jury (see Commissioner of Income Tax v. P. Co. Ltd., (1954) 1 E. A. T. C. 131 at p. 148 and at p. 162). On the case presented for the Crown it was the basic issue as regards 31 out of the 36 counts and was the subject of such prolonged discussion at the trial as may well have left the jury wondering how the matter stood; the various considerations affecting this issue such as the location of the control of the business, the place or places where the capital was adventured and the source or sources of the partnership income were not brought to the jury's notice; and any mention of that part of the income which was actually received in the United Kingdom and might be found not to have accrued in or been derived from British East Africa was only a passing reference.

We must further point out that the learned Judge's calculation of the fine imposed on the appellant was based, not on any finding of the jury to whom the question was never put, but on the assumption that the whole profits of the partnership were chargeable for tax under the Ordinances.

We therefore feel obliged to hold that the summing-up was inadequate in several material respects. On this aspect of the case it remains to be decided whether the jury must inevitably have convicted on all the counts if the case had been fully and properly put to them by the learned Judge. We cannot say that in our opinion that would have been so; we think that it is open to question whether the jury really understood the issues with which they had to deal, and whether, if they had understood them, they would have decided as they did.

The Court was pressed by counsel for the appellant to quash the convictions and enter an acquittal on the strength of the inadequacy, as we think it was, of the summing-up, but in our opinion that is not the proper course. There is discretion as to ordering a new trial and in the exercise of that discretion we do so. In our view that is the only way in which justice can be done at this stage. In the circumstances we naturally refrain from commenting in any way on the merits of the case.

We feel, however, that we ought to put on record the view which we expressed during the hearing of the appeal on the appellant's contention that his books of account and the other documents which he produced were wrongly admitted in evidence, their production having been induced by an offer of clemency. That argument appeared to us to be wholly fallacious, as in fact those books and documents were not produced as a result of any such inducement but only after the expiry of a 10 days' ultimatum and in compliance with a statutory notice disobedience to which would have been a criminal offence.

A subsidiary question which would arise in the event of a conviction on any of these counts is that of the statutory provisions as to the sentence which may be passed. Since this matter was argued at the hearing of this appeal, and since it might become material on a new trial, we think we should express the view at which we have arrived. The question is whether the sentence which may be imposed is governed by sub-section (1) of section 75 of the Income Tax Ordinance or by sub-section (1) of section 91 of the East African Income Tax (Management) Act, 1952. The controversy arose out of the terms of paragraph 1 of the Fifth Schedule to that Act, the material part of which reads as follows: -

"1. The enactments repealed by section 99 (in this Schedule referred to as the repealed enactments) shall, notwithstanding their repeal by such section, continue to apply to income tax chargeable, leviable, and collectable, under those enactments in respect of the years of assessment (as defined in those enactments) up to and including the year of assessment commencing on the 1st January, 1951, as if those enactments had not been repealed, so, however, that as from the date of the publication of this Act in the Gazette the procedural provisions contained in Parts VIII to XIII inclusive of this Act shall apply as if such procedural provisions had been contained in the repealed enactments."

We do not think that the latter part of that paragraph commencing with the words "so, however," has any application to sub-section (1) of section 91 of the Act, which is a purely penal provision and cannot in our opinion be said to be a procedural provision. The result is that in our view it is sub-section (1) of section 75 of the Income Tax Ordinance which governs the penalty which might be imposed in the present case.

Accordingly we quash the present convictions and set aside the sentences imposed, and order that the case be remitted to the Supreme Court for a new trial.