[1950] EACA 317

## H. M. COURT OF APPEAL FOR EASTERN AFRICA

Before SIR RONALD SINCLAIR (Vice-President), BRIGGS and BACON, Justices of Appeal

## DHIRAJLAL SHANKERLAL TRIVEDI, Appellant (Original Appellant)

## THE COMMISSIONER OF INCOME TAX, Respondent (Original Respondent) Civil Appeal No. 5 of 1954

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

Income Tax—Whether profit on isolated transaction by an accountant in the sale of land taxable—Kenya Income Tax Ordinance (Cap. 254), section 7 (1)— East African Income Tax (Management) Act, 1952, sections 1 (2), 8 (1) and (7) and 99. Fifth Schedule, paragraphs 1 and 3-Kenya Income Tax (Rates and Allowances) Ordinance, 1952-United Kingdom Income Tax Act, 1952, sections 122 and 123.

The appellant was a chartered accountant, who acted as accountant to a company owning a sisal estate. The company, having decided to dispose of the estate, asked the appellant to negotiate the sale, although he had never negotiated a sale of property before. He disposed of the estate receiving as commission under an enforceable agreement the sum of £7,500. He was assessed to tax on this amount by the Commissioner and his appeal to the Supreme Court was dismissed.

It was submitted for the appellant that English decisions have settled that a gain or profit arising from an isolated transaction pursuant to a contract for services has never been held to be chargeable under the English provisions corresponding to section 7 of the Kenya Income Tax Ordinance.

Held (29-9-56).—(1) The structure of the statutory provisions regarding income tax in England differs materially from that of the Kenya provisions and the English decisions referred to cannot be accepted as applicable in Kenya.

(2) The word "business" in section 7 of the Ordinance covers a transaction such as the one in question and the sum of £7,500 was therefore taxable.

Appeal dismissed.

Cases referred to: Brocklesby v. Merricks, (1934) 18 Tax Cases, 576, C. A.; Commissioner of Inland Revenue v. Hogard, (1929) 14 Tax Cases, 433, H. L.; H. Co. Lid. v.<br>The Commissioner of Income Tax, 1 E. A. Tax Cases, 65.

Cleasby and I. T. Inamdar for appellant.

Hooton for respondent.

JUDGMENT (prepared by Bacon, J. A.).—This was a second appeal by a taxpayer from a decree of the Supreme Court of Kenya whereby his appeal from a decision of the Local Committee for Income Tax Appeals for the Coast Province was dismissed with costs. The effect of the decree, and of the previous decision was that the appellant's gains or profits from a certain transaction were taxable<br>under sub-section (1) of section 7 of the Income Tax Ordinance (Cap. 254 of the Laws of Kenya). We dismissed the appeal with costs and now give our reasons for so doing.

The facts were not disputed. The appellant is a chartered accountant practising in Mombasa. In 1954, when the first appeal to the Supreme Court was initiated, he had been in practice for over 17 years. One of his clients was Mathuradas Kalidas & Co. Ltd., whose accounts he audited periodically. The company owned a sisal estate which, in 1949, it decided to sell. The appellant had never negotiated or concluded the sale of any property for brokerage or at all. However, in June, 1949, the company's managing director asked him to effect the sale of the sisal estate, promising him brokerage or commission at the rate of $2\frac{1}{2}$ per cent if he succeeded. In September, 1949, the appellant duly concluded the sale for the sum of £300,000, thereby earning £7,500 commission. That commission was, in due course, paid to him together with certain ancillary sums amounting to Sh. 2,950. With the latter amount neither the first appellate court nor this Court was concerned. It was common ground that the profit or gain of £7,500 was earned pursuant to an enforceable contract for services made between the appellant and the company. The only question for us was whether the £7,500 was taxable under the above-mentioned section of Cap. 254. The relevant year of assessment was, admittedly, 1950.

We should first refer to the enactments by which, in recent times, the power to assess and to collect income tax in Kenya has been vested first in the Government of Kenya and latterly in the East Africa High Commission.

In 1950 the material enactment was the Income Tax Ordinance to which we have referred. Its provisions which are relevant for present purposes were contained in section 7, the material parts of which were as follows:-

- "7 (1) Income tax shall $\ldots$ be payable $\ldots$ upon the income of any person who is resident in the Colony... in respect of— - (a) gains or profits from any trade, business, profession or vocation for whatever period of time such trade, business, profession or vocation may have been carried on or exercised; - (b) gains or profits from any employment. $\ldots$ ."

Previously, however, the East Africa (High Commission) Order in Council, 1947, had been passed, establishing the High Commission, constituting the Central Legislative Assembly and empowering the former to legislate with the advice and consent of the latter in respect of, inter alia, administrative and general provisions relating to the assessment of taxpayers and the collection of income tax in Kenya and other territories.

Pursuant to that power the East African Income Tax (Management) Act, 1952-to which I shall refer as "the 1952 Act"-became law on 11th June, 1952, with effect as from 1st January, 1951. As regards Kenya, it was in effect provided<br>by sub-sections (1) and (7) of section 8 of the 1952 Act that income tax and surtax should be charged, levied and collected by the Commissioner of Income Tax in respect of the year of income commencing on 1st January, 1951, and of each subsequent year at the respective rate imposed by the appropriate Income Tax Ordinance of that Colony. The combined effect of section 99 and paragraph 1 of the Fifth Schedule of the 1952 Act was that the charging, levying and collection of income tax in Kenya should continue to be governed by the Income Tax Ordinance (Cap. 254 of the Laws of Kenya) and any amendments thereto in respect of the years of assessment up to and including the year commencing on 1st January, 1951, but that such Ordinance and amendments were repealed in so far as any subsequent year was concerned. By paragraph 3 of that Schedule the continuity of the operation of the law relating to income tax was preserved by appropriate provisions of the usual kind mutually operative as between the Ordinance and the 1952 Act. By sub-section (2) of section 1 of the 1952 Act, as regards Kenya the act is to be read and construed as one with the operative Kenya Ordinance relating to the rates of tax and allowances. We shall presently

nevert to the charging provisions of section 8 of the 1952 Act and of section 7 of the Income Tax Ordinance of Kenya, the latter section, as we have observed, having been kept alive for the purposes of this appeal inasmuch as the relevant year of assessment was 1950.

It may be mentioned in passing that the Income Tax (Rates and Allowances) Ordinance, 1952-Kenya Ordinance No. 33 of 1952-took effect as from 1st January, 1951. It prescribed the rates of tax and allowances applicable to assessments for the year of income commencing on 1st January, 1951, and each subsequent year, it provided that it should be read and construed as one with the 1952 Act, and it again repealed the Income Tax Ordinance (Cap. 254) subject to a proviso analogous to that which we have mentioned as being contained in paragraph 1 of the Fifth Schedule of the Act. In our view, this Ordinance No. 33 of 1952 adds nothing to the statutory structure which is relevant to this appeal.

We now go back to section 8 of the 1952 Act. The charging provisions of that section are, for all present purposes, identical with those of section 7 of the Income Tax Ordinance (Cap. 254), with one exception, namely that in section 8 of the Act the words "or services rendered" appear immediately after the word "employment", whereas in section 7 of the Ordinance there were no such words at all. In the result, the position is this: the charging provisions relating to the year of assessment with which we were concerned in this appeal—the year 1950 are, by virtue of the 1952 Act, those to be found in section 7 of Cap. 254 and there is no express mention therein of tax being payable on gains or profits from services rendered, whereas the corresponding provisions relating to each year of assessment commencing with the year 1952 do expressly embrace such gains or profits.

Accordingly, Mr. Cleasby, for the appellant, submitted with characteristic clarity and vigour the following argument. For present purposes the Act of 1952 is to be read as one with Cap. 254, which it supplanted as the paramount income tax legislation relating to Kenya, at the same time preserving the very terms of section 7 of that Ordinance as the operative charging provisions which we must here apply. The Act of 1952 was superimposed and took effect before the commencement of the proceedings which ultimately gave rise to the present appeal. In the case of a chain of statutes such as those two enactments constitute, one may and should look at the later one in order to clear up an ambiguity in the earlier one. In this instance, the gain or profit of $£7,500$ arose from an enforceable agreement which was in the nature of a contract for services. The inclusion of the words "services rendered" for the first time in the charging provisions relating to the year of assessment 1952 clears up the doubt which had previously existed as to whether gains or profits from contracts for services were chargeable with<br>tax under section 7 of Cap. 254, in other words, the previous ambiguity. Now, since the passing of the 1952 Act-it is clear that such gains or profits were previously exempt. Moreover, a survey of the English decisions shows that the gain or profit arising from an isolated transaction pursuant to a contract for services has never been held to be chargeable under the English provisions which correspond to section 7 of Cap. 254, and a loss incurred as a result of an isolated transaction distinct from the normal conduct of the taxpayer's business or profession has never been allowed as a deduction in computing his business or professional profits: see, e.g. Brocklesby v. Merricks, (1934) 18 Tax Cases, 576 C. A., and Commissioners of Inland Revenue v. Hogard, (1929) 14 Tax Cases, 433, H. L. Admittedly, Mr. Cleasby continued, if one enters into a series of contracts for services—for example, as an architect or as an advocate—one is then engaged in a "business, profession or vocation" within the meaning of section 7 of Cap. 254; but there are no words in that section which catch a single transaction, however profitable, pursuant to such a contract and beyond the scope of one's

habitual occupation as a bread-winner. While accepting Windham, J.'s, decision in H. Co. Ltd. v. The Commissioner of Income Tax, 1 E. A. Tax Cases, 65 (adopted by MacDuff, J., in his judgment on the first appeal in the present proceedings) in which the learned Judge held that the words "profits from any business" include the profit accruing from an isolated business transaction-and all the more clearly so when read with the words "for whatever period of time such business may have been carried on or exercised"-Mr. Cleasby would, nevertheless, have had us hold that MacDuff, J., was wrong in applying that principle to the instant case since he thereby erroneously treated the term "business" as a residual net designed to catch any profitable operation which is not within the mischief of the remainder of section 7. In a word, we were invited to take the view that the term "business" in that context does not embrace a single successful venture by a chartered accountant into what is normally an estate agent's domain. Neither, submitted Mr. Cleasby, does the term "employment" in sub-section (1) $(b)$ of section 7 cover such a transaction as this, as appears from a series of English decisions. Thus, when the Central Legislative Assembly added the expression "services rendered" in section 8 of the 1952 Act it was not merely by way of clarification but by way of introducing a fresh category of taxable gains, and the only category within which the appellant's £7,500 profit can properly be said to fall.

We have necessarily compressed a lengthy argument but hope that we have done it adequate justice. In our opinion, there were several answers which defeated it.

First, we respectfully agree with MacDuff, J., in rejecting the proposition that there is a close analogy between section 7 of Cap. 254 and Cases I and II of Schedule D of the United Kingdom tax legislation (now sections 122 and 123 of the Income Tax Act, 1952). In our view, it is impossible to hold that those two sets of charging provisions are "for all practical purposes identical". It suffices to note the following provisions of those sections. Section 122 charges-

- "(a) the annual profits or gains arising or accruing $\ldots$ from any trade, profession, employment or vocation ... and - (b) all interest of money, annuities and other annual profits or gains not charged under Schedule A, Schedule B, Schedule C or Schedule E, and not specially exempted from tax. $\ldots$ ."

followed by a proviso limiting the instances in which "profits or gains ... from an office, employment or pension" are chargeable under Schedule D. Section 123 provides, inter alia-

"(1) Tax under Schedule $D$ shall be charged under the following cases respectively, that is to say—

Case I—tax in respect of any trade $\ldots$ ;

. . . . . . . . . . . . . . . . . . . .

Case II—tax in respect of any profession or vocation not contained in any other Schedule;

Case VI—tax in respect of any annual profits or gains not falling under any of the foregoing cases and not charged by virtue of Schedule A, Schedule B, Schedule C or Schedule $E$ ,

and subject to and in accordance with the provisions of this Act applicable to the said cases respectively."

The structure of those provisions clearly differs in material respects from that of the Kenya provisions; the United Kingdom system of assessing and charging income accordingly differs substantially from that which obtains in the Colony. It follows that the English decisions to which we were referred cannot be accepted as applicable to the very different statutory structure with which we are concerned.

Secondly, there was, in our opinion, no such abiguity in section 7 of Cap. 254 as that for which Mr. Cleasby contended and, consequently, it is neither necessary nor proper to treat the expression "services rendered" in section 8 of the 1952 Act as being intended to dispel a doubt as to the scope either of the word "business" or of the word "employment" as used in section 7. In our view the word "business"—and especially when regarded in juxtaposition with the expression "for whatever period of time such ... business ... may have been carried on or exercised"—plainly covers a transaction such as the appellant's procurement of the sale of an industrial concern pursuant to an enforceable agreement to pay him a commission. Without disrespect to Mr. Cleasby's argument we may ask: If that was not a business transaction in the fullest and most natural sense, what was it? The fact that the appellant's normal profit-earning activities constitute another kind of business (and incidentally a profession) is in our opinion incapable of taking the estate transaction outside the ambit of the word "business" in the context concerned.

We mention in passing that there might well have been an additional reason in support of that view. For, in such a case as this, evidence could, no doubt, be adduced to the effect that it is common practice in Kenya (and in other Colonial territories) for practising accountants to act as intermediaries for the sale of going concerns, and that, accordingly, there is nothing in the least unusual in such a practitioner combining the activities of one who would in England be known as a business agent with the more humdrum work of accountancy. In the instant case, there was no such evidence and, of course, we did not take that aspect of the matter into account.

Thirdly and lastly, there is the contrast between the word "employment" standing alone and the conjunction therewith of the expression "services rendered". In our view, this particular transaction falls also within the word "employment" standing alone. The appellant was, we think, employed (within the meaning of section 7) by his client the company to find, for remuneration, a buyer for its sisal undertaking. The addition of the expression "services rendered" may well have widened the taxing net; it is, for example, conceivable that the doing of work for another on a *quantum meruit* footing could only be caught by that expression; possibly other forms of profitable activity could also only be so caught. But, to have succeeded in his argument in so far as it was based on this part of the provisions of sections 7 and 8, the appellant would have had to go so far as to show that no services rendered came within the word "employment", not merely to show that some services rendered were so included and some were not. For the contention rested wholly on the proposition that the expression "services" rendered" is, in its context, opposed to the word "employment" and not to any extent covered thereby.