Mandavia v Commissioner of Income Tax (Civil Appeal No. 31 of 1956) [1950] EACA 303 (1 January 1950)

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

Before Sir Newnham Worley (President), Sir Ronald Sinclair (Vice-President) and BRIGGS, Justice of Appeal

# GOKULDAS RATANJI MANDAVIA, Appellant (Original Appellant) $\nu$ .

### THE COMMISSIONER OF INCOME TAX, Respondent (Original Respondent)

#### Civil Appeal No. 31 of 1956

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

Income Tax—Whether assessment of tax unlawful before return of income by taxpayer—When payment due—Calculation of penalties—Kenya Income Tax Ordinance, 1940—East African Income Tax (Management) Act, 1952, sections 8, 56, 71, 72, 82, 83 (1) and 84 (2) and (3)—United Kingdom Income Tax Act, 1918, section 125---United Kingdom Income Tax Act, 1952, section 41—Indian Income Tax Act, section 34.

The appellant, who was resident in Kenya, became chargeable with income tax in the year of income 1942 and was also chargeable for the years 1943-50 inclusive. He notified the Commissioner that he was so chargeable in 1951. No assessment was then made but at an interview with an officer of the Income Tax Department he was asked to supply the material necessary to ascertain the extent of the liability. Some of this was furnished but not all and the matter was apparently allowed to lapse until 1953 when another officer of the Department took the matter over. Forms of return for the years 1943 to 1951 were then sent in to him together with a request for accounts and a demand for payment on account of £2,000, a sum admittedly much less than the amount due even if penalties were not taken into account. The appellant was then in England and he wrote saying that he would deal with the returns on his return to East Africa at the end of July or later and that he was not in a position to make any payment on account. The Commissioner thereupon in June assessed the taxpayer for the years 1943-51 inclusive in the total sum, including penalties, of Sh. 454,628.

The taxpayer appealed to the Supreme Court alleging that the assessments were premature and unlawful under section 71 of the East African Income Tax (Management) Act, 1952, but the Court found that the assessments were properly made under section 72 and dismissed the appeal but remitted the penalty in respect of the year 1951.

On second appeal, of the total claimed all the moneys due for normal tax had been paid but nothing in respect of the penalties, which amount to Sh. 202,917 and it was submitted that the trial Judge had exercised his discretion to remit penalties on wrong principles and that if the penalties were not quashed in toto they should be remitted to the Commissioner or the Supreme Court to consider on a proper basis the remission of the whole or part of the penalties imposed.

Held (28-9-56).-(1) Section 82 (1) of the Act means that, apart from special cases, payment of tax is not due until 40 days after assessment and, if assessment is made more than 40 days before the 30th September of the year of assessment, payment is not due until the 30th September.

(2) The assessments had not been made under section 71 but had been made, and correctly made, under section 72.

(3) The view of the trial Judge that every person chargeable with tax is automatically under a duty to make a return of income within nine months of the time when the tax becomes chargeable was incorrect. Under section 59 of the Act, the taxpayer must make a return when required by notice to do so, and that notice must have been, or be deemed to have been, served on him.

(4) The finding of the trial Judge that the taxpayer rather than the Department was responsible for the delay from 1951 to 1953 was, on the evidence, a finding which was not open to him and, so far as his decision concerning penalties was based on this finding, it proceeded on a wrong principle and should be reconsidered.

Appeal dismissed generally. Assessments of basic tax for 1943-1951 confirmed together with that part of the assessments for 1943–50 inclusive which levied a penalty<br>equal to the basic tax for each year, but those parts of the assessments for 1948–1950<br>inclusive which levied a further penalty equal whole or any and what part thereof should be remitted.

Cases referred to: In re Krishnakumar and another, 58 Cal. 906; Rajendra v. I. T. C., 61 1. A. 10; R. v. Chapman, (1931) 2 K. B. 606; C. I. T. v. J., 1 E. A. T. C. 80; Russell v. Scott, (1948) A. C. 422; Kenya Civil Appeals Nos. 22-31 of 1954; Gould v. Bacup, (1881) 50 L. J. M. C. 44.

### Dingle Foot, Q. C., and Sandhu for appellant.

### Hooton for respondent.

BRIGGS, J. A.—This is an appeal by the taxpayer from a judgment and decree of the Supreme Court of Kenya dismissing his appeal against certain assessments to income tax.

The appellant, who was resident in Kenya, became chargable with tax in respect of the year of income 1942, and was also chargeable for the years 1943 to 1950 inclusive. He did not make any return at any time in or before 1951. and did not at any time before 1951 give notice to the Commissioner that he was so chargeable. He was thus repeatedly and gravely in default over a period of several years.

In 1951, and before 15th October of that year, he gave notice orally to the Commissioner that he was chargeable in respect of the year of income 1950 and the previous eight years. The Commissioner did not at once by notice in writing require him to furnish returns, but a Mr. Holden, who was then one of the Commissioner's officers, discussed matters with the taxpayer and they had some correspondence with the object of ascertaining the extent of liability. Mr. Holden asked the taxpayer for various accounts and other materials relevant for this purpose and received some, but by no means all, of what he asked, or what was reasonably necessary. Mr. Holden, admittedly in grave breach of his duty, appears then to have allowed the whole matter to lapse, and nothing further was done until a Mr. Martin, who had become head of the Investigation Branch, discovered in 1953 what had occurred. The taxpayer was, though still resident in East Africa, at that time in England, and on 26th May, 1953, the Regional Commissioner wrote to him at his Nairobi address setting out the facts of the case and calling for various accounts and other documents and information. He also sent under separate cover appropriate forms for the years of assessment 1943-51 inclusive. These forms are each two documents in one, comprising a notice in writing by the Commissioner requiring the taxpayer to make a return, and the form of return itself, which is to be completed by the taxpayer and submitted within the time stated in the notice. This time must not be less than 30 days from "service" of the notice, and service when effected by post is deemed to have been effected "not later than the seventh day succeeding the day on which the notice wou'd have been received in the ordinary course by post", in this case at the Niarobi address. It would seem, therefore that the Commissioner could not in prudence have fixed the limit of time for making returns at less than, say two days for

ordinary course of post, plus seven days, plus 30 days, from 26th May. The forms were not in evidence and we do not know what date was in fact fixed. In the letter of 26th May the Commissioner also called on the taxpayer to make an immediate payment on account of £2,000, a sum admittedly much less than the amount due by him, even if he were given credit for all possible allowances and not charged with any triple tax by way of penalty. The taxpayer wrote from England on 4th June acknowledging the letter of 26th May, which presumably had been forwarded by air mail. He implied that he had not received the forms of return, which may have been forwarded by sea, and promised to fill up the forms and co-operate in every way, but not until after his return to East Africa, which, he said, could not be before the end of July and might be much later. He said also that he was "not in a position to pay any deposit".

On 15th June the Regional Commissioner replied noting that the taxpayer could not, or would not, take any action until after the end of July, which would presumably have been substantially later than the time fixed by the notices for submitting returns. He said that to prevent further delay he proposed at once to assess the taxpayer for the years of assessment 1943–51 inclusive and to include penalties in the assessments, but that final adjustment both a regards initial liability and penalties could be made at a later date. He repeated the request for a deposit. In the next day or two the assessments were duly made for sums totalling Sh. 454,628. They were, however, post-dated 26th June, 1953, and this is now said to have a sinister significance. The taxpayer at once objected that the assessments were premature and unlawful. The Commissioner refused to withdraw or amend them, and the taxpayer appealed to the Supreme Court.

It should be noted that over the earlier years in issue in this case the Kenya Income Tax Ordinance, 1940 (later Cap. 254) was in force. It was replaced with effect from 1st January, 1951, by the East African Income Tax (Management) Act. 1952. We are assured by counsel that all relevant provisions in the two statutes are in pari materia, and I propose for convenience to do as they did, and refer only to the sections of the Act, leaving it to be understood that in many cases the governing provision was really the corresponding section of the Ordinance.

I think that at this stage, and indeed until much later, there was a genuine misunderstanding between the parties. The taxpayer believed that he had been assessed under section 71 of the Act, whereas the Commissioner had intended to assess, and had assessed, whether rightly or wrongly, under section 72. When Mr. Martin gave evidence in the Supreme Court about this, he was attacked very strongly, but the learned Judge accepted his evidence, and I think rightly. The importance of the matter is this. Under section 71 the Commissioner is to assess "as soon as may be after the expiration of the time allowed ... for the delivery of (the) return". It seems clear from this and from the whole tenor of the section that an assessment made before that time had elapsed would be irregular and a nullity. The assessments in this case were certainly made before the time which should properly have been limited had run out, and we must presume that a proper time was given. It was to this that the appellant intended to refer when he said that the assessments were made "prematurely"; but he did not state it anywhere with precision, or refer to section 71. The Commissioner's reply to the objection was that, where assessments were made in 1953 to cover liabilities up to 1950, "prematurely" was the wrong word to use of them. It seems clear to me that the question of the time limited by the notice did not then appear to him to be relevant. He thought the taxpayer was merely complaining generally that he was being hustled, if I may so put it, at a time and in a way which was inconvenient to him. The question of premature assessment was raised in the

memorandum of appeal to the Supreme Court, and some dates were given in the taxpayers' statement of facts, but again section 71 was not mentioned, and I think it came as a genuine surprise to Mr. Martin when it was suggested that he had acted under that section. It was put to him that the date 26th June, 1953, was inserted in the assessments to make it appear that they were made more than 30 days after being posted (on 26th May) to the taxpayer. He replied that the object of post-dating was to give time for them to reach the taxpayer and still give him his full 40 days under section 82 for payment. This was a most reasonable explanation, and I think almost certainly a true one. In the first place, I am not prepared to accept that the notices in this case required returns to be submitted on or before 25th June, 1953. To have fixed so early a date would have been both irregular and contrary to normal practice. I should expect the date fixed to be somewhere about 7th to 14th July. If this was so, the date 26th June would still be within the time limited, and could not have been chosen for the reason suggested. There is, however, an additional point which seems conclusively to show that Mr. Martin's evidence that he intended to act under section 72 was not, as suggested, a last-minute invention, but was perfectly true. In the respondent's statement of facts (paragraph 4) it appears that for reasons given the Commissioner considered that the taxpayer was guilty of wilful default "and," accordingly, made assessments in respect of periods prior to the seventh year of income from the date upon which the assessments were made". These words seem to refer directly to the provisions of section 72, and would, so far as I can see, be irrelevant if the assessments had been made under section 71. As I have said, the learned Judge was satisfied that the assessments were intended to be made, and were made, under section 72, and I am inclined to think that this was a finding of pure fact which we should not be entitled to disturb. One of the submissions made for the appellant was, however, that Mr. Martin must in the circumstances be deemed to have acted under section 71. This appeared to be a submission of mixed law and fact and we heard full argument on it. My conclusion is that, so far as the question is one of fact, the learned Judge below was right, and if Mr. Martin intended to act, and thought he was acting, under section 72, I see no reason whatever why he should be "deemed" to have acted under section 71, though I am prepared to accept that the taxpayer may have thought he was doing so. I should perhaps add that it does not appear from the notices of assessment themselves under which section they were, or purported to be, made.

The submission for the taxpayer to which I have referred came logically fourth in order, though I have found it convenient to dispose of it first. The first submission made was that section 71 as a whole operates only after notice requiring submission of a return has been served, and in the absence of such notice no assessment can be made thereunder. In particular, sub-section (3) only operates when there has been actual default in making the return. Unless the time limited therefor has run out, it cannot properly be said that the taxpayer "has not delivered a return", and consequently an assessment cannot be made under that sub-section. With regard to this submission, it is only necessary to say that the Commissioner did not seriously contest it, since his case was that the assessments were made under section 72. I think the submission was almost certainly correct, though it is not strictly necessary to decide the point.

The second, and principal, submission for the appellant is that section 72 applies only in cases where the taxpayer has made a return. If he has failed to make a return, section 72 has no application and he can be assessed only under section 71 (3). The third submission is alternative to the second, and is that sections 71 and 72 afford the Commissioner alternative courses of action in any case. He may elect to use either section, but cannot use both at the same time. If he serves notice requiring a return to be made, he is bound by that notice in the sense that he must wait until the time limited has expired, and can then assess under section 71 (3), but cannot before time has expired assess under section 72. It is implicit in the third submission that section 72 can apply whether or not a return has been made.

In addition to the question of the legality of the assessments the learned Judge on first appeal was asked to consider the question of quantum, and in particular to reduce the assessments by remitting the triple tax charged as penalty. He held that the assessments were lawfully and properly made under section 72. but that there was sufficient ground for remitting the penalty claimed for the year of assessment 1951. This amounted to Sh. 138,054, the taxpayer's income having been considerably higher in that year than in previous ones. This deduction reduced the total claimed to Sh. 316,574, of which Sh. 202,917 represents penalties and Sh. 113,657 is normal tax. We are informed that the amount due for normal tax has now been paid, but the penalties have not. Before us it was submitted that the learned Judge had exercised his discretion to remit penalties on wrong principles, and that we ought, if the assessments were not quashed in toto, to remit them to the Commissioner or to the Supreme Court to consider on a proper basis the remission of the whole or part of the sum of Sh. 202,917. Alternatively it was submitted that we should ourselves exercise the discretion vested in the learned Judge on first appeal and grant remission.

I turn now to the impressive argument addressed to us by Mr. Dingle Foot in support of the appellant's second submission. It begins from the historical angle. It is submitted that sections 71 and 72 of the Act both have their origin in section 125 of the United Kingdom Income Tax Act, 1918, now section 41 of the Income Tax Act, 1952. On the question of time for exercise of the powers given by section 41, section 47 of the Act of 1952 is also relevant. In general, this must be accepted. The argument proceeds that, so far as possible, sections 71 and 72 should be read as conferring together powers similar to those given by section 41, but not further or additional powers. The contention that section 72 does not apply unless a return has been made is supported by the consideration that there is no restriction of time for assessments made under section 71 (3), or in cases of wilful default or fraud where assessments are made under section 72, but there is a limit of seven years in other cases under section 72. This suggests that section 72, apart from proviso (a), is directed to cases where the taxpayer has done his full duty, and the failure to assess or under-assessment has been due to the fault of the Commissioner.

From this point it is necessary to diverge at some length on the question when and how liability to pay tax arises. The learned Judge on first appeal took the view that section 8 of the Act creates an immediate liability to pay such income tax as may, under all the provisions of the Act relevant for that purpose, be found to be due. He held, in effect, that returns and assessments are really no more than machinery for resolving doubts which might otherwise exist as to the amount of the debt in any case, and do not in truth determine that amount. On this view he held that from 1943 onwards the taxpayer had been in default, not only in failing to give notice of chargeability, but also in failing to pay in each year tax actually due and payable by him, although not assessed. I think that this is incorrect. It is clearly not correct in England. See Konstam's Income Tax, 12th ed., paras. 425 et sqq. And I think the system is the same in East Africa. The charging section (section 8) creates only what I would call a notional liability, which crystallizes into an actual debt only upon assessment, whether made in the ordinary course under section 71, or in special cases under some other section. Even so, the debt is not normally payable upon assessment, but at a later time (section 82 (1)). Contrast special provisions to meet unusual circumstances, such

as sections 82 (2), 84 (2) and (3) and 56. That there can be no default by nonpayment in the absence of assessment is, I think, clear also from section 83 (1). It is true that the words of section 82 $(1)$ might be read as meaning that, even without assessment, tax is payable "within nine months of the end of the year of income": but I think that, having regard to the scheme of the Act as a whole, that is not the meaning. I think the sub-section means that, apart from special cases, where assessment has been made, payment is not in any case due until 40 days after assessment and, if the assessment is made more than 40 days before 30th September of the year of assessment, payment is not due until 30th September.

I return to Mr. Dingle Foot's second submission. He stressed the difference between the words "chargeable with tax" in section 71 and "liable to tax" in section 72, and suggested that since, on the wording of section 72, there may be a "person liable to tax" who "has not been assessed", liability cannot depend wholly on assessment. He cited in support of this dicta of Rankin, C. J., in In re Krishnakumar and another, 58 Cal. 906, approved by the Privy Council in Rajendra v. I. T. C., 61 I. A. 10, on the meaning of the words "escape assessment" in section 34 of the Indian Act. I do not find much assistance in these cases. I think the words "liable to tax" in section $72$ are used in a loose, or, to use a politer word, a proleptic, sense, and mean "who is, or ought to be made, liable to tax". If one abandons the principle that liability depends on assessment, the result may be chaos. If I understood the argument aright, it was that the departure from that principle indicated by the words "liable to tax" in section 72 is not so grave where a return has been made as it would be if no return had been made, so section 72 should be read as applicable only where there has been a return.

The learned Judge in the Court below held that every person chargeable with tax is automatically under a duty to make a return of income within nine months of the time when the tax becomes chargeable. I cannot accept this view. On the plain wording of section 59 the taxpayer must make a return when required by notice to do so. I can find no indication anywhere in the Act that he can be under a duty to make a return unless that notice has been, or is deemed to have been, served on him. The other view also involves consequences of extreme inconvenience, having regard to the practice of the Department. Returns are in practice made on a printed form supplied by the Department and forming part of the same document as the notice requiring a return. A duplicate is supplied for retention by the taxpayer, but a note appears on this that a return made on it will not be accepted. Under section 35 claims for allowances may be made only on the "specified form", which is in fact the ordinary form of return, or part of the same document. There is clearly no intention that "home-made" returns should be sent in at random without notice. The learned Judge appears to have considered that "liability to tax", and so liability to be assessed under section 72, might spring from failure to make a return, although no notice requiring a return had been served. I cannot accept this view, and I think the solution I have suggested, that "liable" in section 72 is used proleptically, is not only a simpler escape from the difficulty, but gains some support from the English section 41 (1) (i) (a), which provides that where no assessment has been made "the survevor shall ... assess the person liable to the full amount". There is no "person liable" in the earlier words of the section, and I think that here also the word "liable" is used proleptically. The taxpayer is assessed so as to make him liable. If section 72 were confined, as the marginal note suggests, to additional assessments, there would be no difficulty. It is not impossible that it was first drafted to apply only to additional assessments, and that when the words allowing first assessments under it were added the inappropriateness of the words "liable to tax" escaped notice. I have found no other example in the Act of confusion between chargeability and liability, and appreciate that my suggested construction

$\overline{a}$

is a bold one, but I see no satisfactory alternative. It may be slightly assisted by the point that, in order to bring section 72 into operation, it is not necessary that the taxpayer should in fact be liable to tax, but only that it should appear to the Commissioner that he is so liable. Contrast section 71, which depends on fact, not on opinion.

Mr. Dingle Foot's argument continues, that section 72 should have a restricted rather than a general application, because it inflicts hardship on the taxpayer. He cannot, for example, claim allowances, for he will never have had the "specified form", if he is assessed before making a return. The taxpaver relied on the principle that, where a penal statute or a taxing statute is of ambiguous meaning, the construction more favourable to the subject should be adopted, and cited in support R. v. Chapman, (1931) 2 K. B. 606, 609. The provision in question in this case was not "a provision giving the taxpayer relief in certain cases from a section clearly imposing liability", and was not within the exception that such provisions need not be construed in the taxpayer's favour, See C. I. T. $v_1$ J... 1 E. A. T. C. 80, 90, and cases there cited. On the other hand, the case was within the principle laid down by Viscount Simon in *Russell v. Scott*, (1948) A. C. 422, at p. 433, where he said: $-$

"I must add that the language of the rule is so obscure and so difficult to expound with confidence that—without seeking to apply any different principle of construction to a Revenue Act than would be proper in the case of legislation of a different kind-I feel that the taxpayer is entitled to demand that his liability to a higher charge should be made out with reasonable clearness before he is adversely affected. In the present instance, this reasonable clearness is wanting".

Finally, Mr. Dingle Foot dealt with the objection that his second submission does not accord with the wording of section $40(3)$ of the Act, which clearly implies that section 72 may be brought into play where returns have not been furnished. He referred to the decision of Windham, J., in Kenya Civil Appeals Nos. 22-31 of 1954, unreported, where it was held that, if the assessment is made under section 71 (3), the wording of section 40 (3) precludes the inclusion of penalties, and pointed out that the learned Judge below in the present case disagreed with that construction, though the passage was obiter, since here the assessments were under section 72. Whichever of these views may be right, and I think it quite unnecessary to decide the question, I find section $40(3)$ a very serious obstacle to the acceptance of the second submission. We are being asked in the first place to read into section 72 certain words which are not there, and here is another provision of the Act which clearly suggests that they were never intended to be there. Even if section 40 (3) is defective in other respects, I do not think that detracts from its importance for this purpose. But before dealing further with the second submission I must deal shortly with the third.

It is submitted that, if sections 71 and 72 overlap, in the sense that where no return has been submitted it might be possible to use either, the Commissioner must elect under which section he will proceed. If he has served notice requiring a return, that amounts to an election to proceed under section 71. He is then obliged to wait until either a return has been made, in which case he assesses under section 71 (2), or the time limited for making the return has run out, in which case he can assess under section $71$ (3). He cannot in any event assess in the first place under section 72, either before or after time has run out, though section 72 might later permit an additional assessment. Mr. Dingle Foot referred in support of this contention to Gould v. Bacup, (1881) 50 L. J. M. C. 44. I accept the principle that, where a statutory authority may apply two methods of pressure to a subject, an expressed intention to apply one method may preclude the

authority from changing its mind and applying the other; but I do not think the principle is applicable here.

In the course of describing the second and third submissions I have set out certain objections which may be urged against their acceptance. Some of these are substantial. But I think the real answer to the second submission is not one of detail, but is based on a consideration of the whole purpose and policy of the Act. The construction for which the taxpayer contends is certainly not a "natural" construction. If it had been intended to restrict the use of section 72 to cases where a return has been made, it would have been perfectly simple to say so. And the consequences of rejecting the submission are by no means necessarily so serious to the subject as Mr. Dingle Foot suggests. It is not necessary for the Commissioner to contend that section 72 has in practice an unlimited scope. 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 perversity, misused, it does not follow that they are likely to be misused, and much less does it follow that they should be construed in an unnaturally restricted sense merely because of the theoretical danger of misuse.

I reject the historical argument, first, because it is always unwise to expect one set of statutory provisions to have the same effect as an earlier set in another jurisdiction which are in a widely different form, even if parentage is establieshed. Secondly, it is by no means unreasonable that the legislatures of Kenya and East Africa should have thought it necessary to give wider powers to the Department here than those enjoyed by their colleagues in England. Circumstances in East Africa may make such wider powers essential. Thirdly, as I have suggested, there are slight indications in the form of section 72 that it was deliberately widened in scope after initial drafting.

It was suggested in argument that the correct view of section 72 might be that it applies only in cases of default by the taxpayer. Since Mr. Dingle Foot's client has been so obviously in default, this suggestion could not be expected to commend itself to him. I think it is still too restrictive. One of the cases which the section seems designed to meet is where there has been default, or something like it, in the Department, I think Mr. Hooton for the Commissioner described it fairly as a "stop-gap" section. Mr. Dingle Foot would accept that on the footing that only one kind of gap was intended to be stopped, the gap where a return has been made, but no adequate assessment based on it. I think the true purpose and meaning of the section is that it is intended to be applied in practically any case where the course of collection of tax has not "run smooth", whatever the reason may have been. Consider for a moment the facts of this case. The taxpayer is in grave default for many years. He reports to the Department and is handed over to an officer almost as dilatory as himself. In 1953 practically nothing has been done and ten years' tax is unpaid. To suggest that in such a case the Commissioner must go through all the usual routine before he can begin to collect anything seems to me most unreasonable. One would expect that the legislature would have provided him with a powerful weapon which in such a case could be used immediately. I think section 72 is such a weapon. The occasions on which it may properly be used are not defined, partly because any definition might accidentally exclude some cases which should be included, and partly because there is no reason to suspect that it would be used in cases where it should not be. In this case it was properly used, subject to what remains to be said concerning the third submission.

Mr. Dingle Foot placed much reliance on the point that the duty to assess under section 71 (1) is mandatory and without exception. He argued that, if an assessment is made under section 72 and a return is later made, there must be another assessment under section 71, *quod est absurdum*. He raised this point on both his second and third submissions, as I understood it; but from either point of view there seems to be no absurdity at all. In some cases of assessment before return under section 72 the Commissioner may have some material to work on, but quite often he will assess purely by guesswork. He may assess too low. He must still have available the right to call for returns and other material in order to ascertain whether an additional assessment is necessary. If his assessment under section 72 is high, he may be prepared, as he was in this case, to reduce it after considering a return and all other relevant material, and if the taxpayer is reasonably co-operative. A reassessment, or amended assessment, may be necessary, and in practice is frequently made. I think the argument for the appellant is without weight in relation to either submission. If, as I have held, sections 71 and 72 overlap pro tanto. I think the principle of Gould v. Bacup should only be applied if a switch from one section to another could be shown to be unfair in practice to the taxpayer. He relies on inability to claim allowances; but this is being unduly technical. If he had been prepared to submit returns with proper accounts and other information, he could have had his allowances long ago. Instead, he has chosen to rely on a dangerously self-contradictory line of argument. He says the assessments are invalid and nullities, and apparently uses that as excuse for having done nothing since they were made; but, if they were could not destroy $\overline{or}$ affect his obligation nullities. thev $\mathbf{to}$ make returns as required. It is his failure to make returns which has $\overline{a}$ long last caused him to lose the benefit of allowances. Where there is longstanding default, it cannot be unfair to the taxpayer to assess first under section 72 and at the same time, or before or after, to call for returns. I see neither merit nor sound legal basis in the third submission.

For these reasons I am of opinion that the assessments were lawfully made under section 72, and I have no doubt that there was such wilful default as entitled the Commissioner under proviso (a) to go back beyond the seven-year period. It remains to consider the question of penalties.

I consider this a very bad case of wilful default. The taxpayer is and was at material times a practising lawyer. He cannot have been in the slightest doubt at any time prior to May, 1951, that he was wrongfully evading payment of tax. I think it is permissible to look at his conduct as a whole after that date as an indication of his motives and frame of mind before he gave notice of chargeability. Judging from the facts as a whole I am satisfied that this was not a case of mere negligence, but of deliberate and wilful evasion. It was not, however, a case of fraud, and it can also be said for the taxpayer that he did at last take the initiative and give notice that he was chargeable. He was not merely found out and brought to book. Also, the delay from 1951 to May, 1953, was not his fault or at worst was only his fault in a slight degree. It was mainly, if not wholly, Mr. Holden's fault. I can think of little more that can be said on the taxpayer's behalf, and if I were sitting on first appeal I should not necessarily feel obliged to remit any part of the penalties now assessed. There can be worse cases than this, but they are apt to lead to prosecutions and sentences of imprisonment as well as penalties. On the other hand we are sitting in second appeal and I think we must, as asked, examine the basis on which the learned Judge below approached the question of penalties and consider whether it was correct. It must be noted, first, that the materials in the Commissioner's hands when he made the assessments, though of assistance to him, afforded no certainty that the basic assessments, apart from penalties, were sufficiently high, and we have still no

means of judging whether this was so. Secondly, the taxpayer has not made any offer or submission to pay partial penalties, even on a basis of the equivalent of interest on money overdue. This would represent a very substantial sum.

The learned Judge appears to have considered this case to be about as bad as it possibly could be. I need not quote him, but it is fair to say that the language in which he describes the taxpayer and his conduct is vigorous and at times verges on the immoderate. This might not matter; but I think that on onepoint at least the learned Judge has misdirected himself. He blamed the taxpayer for having thrown dust into the eyes of Mr. Holden in such a way that he, rather than Mr. Holden, was responsible for the delay from 1951 to 1953. I think that, on the evidence and on the admissions made by counsel for the Commissioner, it was not open to the learned Judge so to find, and so far as his decision concerning penalties was based on this finding it proceeded on a wrong principle. It is impossible to be certain that this particular finding did not affect the decision on penalties. Again, I think there is a real danger that the decision on penalties may have been affected by the view which the learned Judge took. erroneously, as I think, concerning obligation to make returns without demand and to pay tax before assessment. It is possible that none of these matters affected the decision, but I cannot feel confident that is so. In the circumstancees, the remission of all penalties for 1951 must be confirmed, since they were not chargeable and in any case there is no cross-appeal, but the refusal to remit or reduce penalties for the years 1943-50 inclusive must be taken to have been arrived at unjudicially and must be set aside. The question of those penalties must therefore be reconsidered. On the other hand I do not wish this matter to be prolonged indefinitely, I cannot conceive that it would be proper to remit all the penalties, and I think the taxpayer should be made to pay some of them at once. I would therefore confirm the assessments for 1943-51 inclusive as regards the basic tax, and confirm that part of the assessments for 1943-50 inclusive which levies a penalty equal to the amount of the basic tax for each year. These penalties together amount to Sh. 67,639. As regards those parts of the assessments for 1948-50 inclusive which levy the further penalty equal to twice the amount of basic tax, a total of Sh. 135,278, I would remit them to the Supreme Court for retrial by another Judge of the issue whether the whole or any and what part thereof should be remitted. I would add a direction that the Commissioner may, if he so desires, before the rehearing require all such returns to be made and accounts and information, including claims for allowances, submitted, as will enable him to assess to his satisfaction the true basic liability to tax of the taxpayer for the years in issue. If the Commissioner has the true figures, it will clearly be much easier for him to reconsider his claim for penalties and, if so advised, modify it. This might even result in agreement which would obviate retrial, and would, at the worst, greatly facilitate the task of the Supreme Court when the trial of the issue takes place.

In the result, I think the appeal fails generally, but there should be a retrial on one issue, as I have indicated. In view of this I would order that the taxpayer should pay two-thirds of the Commissioner's costs of this appeal. The order of the Court below as to costs of the first appeal should stand and the costs of the retrial will be in the discretion of the Judge.

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WORLEY, President.—I also agree and do not wish to add anything. An order will be made in the terms proposed in the judgment of the learned Justice of Appeal.

SINCLAIR, Vice-President.—I am in entire agreement with the judgment of the learned Justice of Appeal and have nothing to add.