Daly v Revenue Commissioners

JurisdictionIreland
JudgeMr. Justice Costello
Judgment Date01 January 1996
Date01 January 1996
Docket Number[1994 No. 367 J.R.]
CourtHigh Court
D (M) v. REVENUE COMMISSIONERS
Judicial Review

BETWEEN

M.D.
Applicant

AND

THE REVENUE COMMISSIONERS, IRELAND AND THE ATTORNEY GENERAL
Respondents

1995 WJSC-HC 4225

367JR/1994

THE HIGH COURT

Synopsis:

CONSTITUTION

Personal rights

Property - Protection - Unjust attack - Tax - Collection - Method - Injustice - Unjust attack on right to property of provider of professional services - Absence of proportionality in permanent legislative amendment designed to remedy transitional problem - (1994/367 JR - Costello P. - 27/7/95) [1996] 1 ILRM 122 1995 ITR 1441

|D. v. The Revenue Commissioners|

CONSTITUTION

Statute

Validity - Tax - Collection - Method - Injustice - Personal rights - Infringement - Unjust attack on right to property of provider of professional services - Absence of proportionality in permanent legislative amendment designed to remedy transitional problem - (1994/367 JR - Costello P. - 27/7/95) - [1996] 1 ILRM 122

|D. v. The Revenue Commissioners|

REVENUE

Income tax

Collection - Method - Alteration - Effect - Injustice - Tax formerly assessed on taxable income received in year preceding year of assessment - Change to assessment of taxable income for year of assessment - Tax on gross income payable to taxpayer as fees for professional services in year of assessment - Such tax deducted by payer from fees and paid to Collector General during year of assessment - Credit for tax so paid not allowed until succeeding tax year - Taxpayer's income for year of assessment only partially available to meet assessment to tax for that year - Necessity for providers of professional services to borrow money for the payment of tax - Invalid enactment - Unjust attack on right to private property - Absence of proportionality in permanent legislative amendment designed to remedy transitional problem - Income Tax Act, 1967, s. 58 - Finance Act, 1987, s. 13- 15, 17–19 - Finance Act, 1990, ss. 14, 26 - (1994/367 JR - Costello P. - 27/7/95) - [1996] 1 ILRM 122 - [1995] ITR 1441

|D. v. The Revenue Commissioners|

STATUTE

Validity

Challenge - Test - Proportionality - Tax - Collection - Method - Effect - Injustice - Enactment amended statute to solve particular problem - Amendment effected injustice to taxpayer - Amendment disproportionate to legislative objective - Hardship caused by tax deductions made from income of taxpayers who provided professional services - (1994/367 JR - Costello P. - 27/7/95) - 1995 ITR 1441

|D. v. The Revenue Commissioners|

Citations:

FINANCE ACT 1987 PART III

FINANCE ACT 1990 S14

FINANCE ACT 1987 S14

FINANCE ACT 1987 S15

FINANCE ACT 1987 S17

FINANCE ACT 1987 S15(2)

FINANCE ACT 1987 S18(2)

FINANCE ACT 1987 S13(1)

FINANCE ACT 1987 S19

FINANCE ACT 1987 S19(2)

FINANCE ACT 1987 S19(3)

FINANCE ACT 1987 S19(5)

INCOME TAX ACT 1967 S58

FINANCE ACT 1987 S18

FINANCE ACT 1990 S26(1)

CONSTITUTION ART 40.3.2

HEANEY V IRELAND 1994 2 ILRM 420

IARNROD EIREANN V IRELAND 1995 2 ILRM 161

CHAULK V R 1990 3 SCR 1335

FINANCE ACT 1990 S15

FINANCE ACT 1990 S18

FINANCE ACT 1987 S18

FINANCE ACT 1990 S26

1

Mr. Justice Costello Delivered the 27th day of July, 1995.

2

Dr. M.D., the applicant herein, is a medical doctor who since 1985 has been a member of the General Medical Services Scheme providing medical services to eligible patients under a contract entered into with the Mid-Western Health Board. The fees to which he is entitled for the services he gives are paid by the General Medical Services (Payments) Board.

3

In Part III of the Finance Act, 1987provision was made for the deduction of income tax from payment for professional services by government departments, local authorities, health boards and certain statutory bodies. This deduction is usually referred to as a withholding tax. This can be a slightly misleading term because the scheme introduced in 1987 did not involve the imposition of a new tax but was in reality a scheme for the collection of income tax payable by certain self-employed professional persons. Like everyone else I am sure that Dr. D does not like paying income tax. It is however important to remember that his challenge in this case is not to the payment of the tax referred to in the Act, nor to the principle of collecting tax at source, nor does he raise any constitutional challenge to the method of collection as introduced originally in the 1987 Act. His challenge is to an amendment to the method of collection effected by the Finance Act, 1990which he says has caused him very great hardship and has resulted in an infringement of his constitutionally protected rights.

(1) THE WITHHOLDING TAX REGIME.
(a) The collection of tax.
4

"Accountable persons" as defined by section 14 of the Finance Act, 1987(and the Board is an "accountable person") are required since the 6th June 1987 to deduct from payments made for professional services given by "specified persons" (and Dr. D is a "specified person") a sum equal to income tax at the standard rate in force at the date of payment. The sum deducted must be remitted on a monthly basis to the Collector (sections 15 and 17).

5

It will be noted that the sum representing tax is deducted from the gross amount of the fees payable to the specified person and as income tax is payable on profits (that is, gross fees less expenses) it is obvious that the tax collected during the year (called in the statute "the appropriate tax") and forwarded to the Collector will be greater than the tax which these fees will ultimately attract and may, depending on the existence of other income which the taxpayer may have, be greater than the total tax which the taxpayer may have to pay when his tax liability for the period in which deductions were made is finally determined.

(b) Credit for tax collected.
6

When the tax payable by a "specified person" comes to be assessed for any year of assessment he is required to include in his returns the full amount of the fee which he was entitled to receive from the Board without taking into account the deductions made from it and paid over to the Collector (section 15(2)). He is then assessed to tax and when the assessment is finalised he is bound to pay over the sum due, like all other taxpayers. To avoid double-payment however provision was made in section 18(2) for giving the "specified person" credit for the sum collected at source. This provision had to take into account the fact that a self-employed person like Dr. D was, in 1987, subject to income tax under Schedule D Case II and tax was charged on profits and gains of the year preceding the year of assessment. This year was treated for the purposes of the 1987 Act as the "basis year" for the year of assessment (section 13(1)). Section 18(2) provided that when in relation to a year of assessment an individual bore withholding tax referable to the basis period he could claim to have the amount of this withholding set against his income tax liability for the same accounting period and when the amount of the withholding tax exceeded his income tax liability for that period he was entitled to have the excess refunded to him.

7

There is no complaint about section 18(2) as originally drafted; the double-payment effect was nullified because the amount of tax deducted during one accounting period could be set against the income tax payable for the same accounting period.

(c) Interim refunds of tax collected.
8

It was recognised that the scheme which I have just described could cause hardship not only because the amount deducted during any accounting period might be greater than the actual tax liability for that period but also because a delay could arise in finalising the tax liability for that accounting period. And so section 19 contained provisions for the payment of an interim refund of the tax deducted in certain circumstances. This section has relevance to the issues in this case and I should briefly refer to it.

9

Before any refund can be claimed a statutory requirement must be satisfied; it must be shown that the profits of the "basis period" immediately preceding that which is the subject to the claim have been finalised and the tax payable in respect of that period paid (Section 19(2)). The amount of interim refund, is a limited one. It is the excess of the total of the withholding tax deducted over the amount of the taxation paid in the previous accounting period (less certain other possible deductions which it is unnecessary to detail) (section 19(3)).

10

In addition in a case of "particular hardship" the Revenue Commissioners are empowered to waive compliance with the requirement and make an interim refund of such amount as they think is "just and reasonable" (section 19(5)).

(d) The 1990 Amendments
11

A decision was taken relating to the assessment of self-employed persons which had consequences for the withholding tax regime which I have just described and which resulted in the amendments to it which have given rise to these proceedings. The decision was to amend section 58 of the 1967 Income Tax Act so that from the year 1990/91 and subsequent years of assessment tax became chargeable under Case I and II of Schedule D on the profits and gains of the year of assessment, instead of on the profits and gains for the year preceding the year of assessment (section 14 of the Finance Act, 1990).

12

I will explain in a moment why it was considered necessary to amend the withholding tax regime consequent on this decision. The amendment with which we are concerned is to be found in section 26 (1) of the Finance Act, 1990.This amended section 18 of the 1987 Act (which, it will be recalled, allowed a credit for withholding tax against income tax liability) and added a new subsection. The result was that withholding tax deducted in any year of assessment is not available for credit against a taxpayers ultimate liability to income tax, pay related social insurance,...

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