Supreme Court Judgement: Medianet v Maldives Inland Revenue Authority

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Summary

A case in which the Supreme Court held that a taxpayer may challenge the MIRA’s assessment even at the Civil Court, and that “other property” stated in Section 6(a)(1) of the BPT Act must be construed to include only tangible property.1

 
Factual Background

  1. The MIRA carried out a non-resident withholding tax (“WHT”) audit of Medianet for the taxable periods from 18 July 2011 to 31 December 2011.
  2. After the audit, the MIRA, vide their Notice of Tax Assessment, imposed additional WHT of MVR 2,182,882 on these payments pursuant to Section 6(a)(1) of the Business Profit Tax Act2 (“BPT Act”) and civil penalties of MVR 250,000. The assessment was based on the MIRA’s opinion that channel licensing fees and broadcasting rights fee payments made by Medianet to non-resident enterprises are considered as royalty payments under Section 6(a)(1) of the BPT Act.
  3. Medianet filed an objection with the MIRA contending that MIRA erred in its application of the law and channel licensing fees and broadcasting rights fees paid to non-residents do not fall within the ambit of Section 6(a)(1) of the BPT Act. The MIRA, in its Objection Review Report (“ORR”), upheld their decision in the NOTA and Audit Report. Following the receipt of the ORR, Medianet did not file an appeal with the Tax Appeal Tribunal pursuant to Section 44 of the Tax Administration Act3 (“TAA”).

 
Procedural History

  1. MIRA sued Medianet in the Civil Court for unpaid dues to the state pursuant to Section 49(a) of the TAA. In the MIRA’s prayer for relief, they requested the Court to grant the outstanding additional WHT and fines stipulated in the Commissioner General’s statement submitted with the court filings.
  2. Medianet contended that the MIRA had no grounds to seek recovery of the claim amount as the amount was levied in violation of Section 6(a)(1) of the BPT Act.
  3. The Civil Court ruled in favour of Medianet, holding that the amount sought by the MIRA does not fall within the ambit of Section 6(a)(1). The Civil Court opined that channel licensing fees and broadcasting rights fees are not paid for the use of plant, machinery, equipment or other property as stipulated in Section 6(a)(1).
  4. On appeal, the High Court ruled in favour of the MIRA and struck down the Civil Court’s decision. The High Court opined that an appeal must be filed with the Tax Appeal Tribunal (“TAT”) within the 30 day period stipulated in Section 44 of the TAA if a taxpayer contends the MIRA’s decision with respect to an objection.
  5. The High Court further opined that Medianet had forgone their right of appeal to the TAT and as such, the MIRA’s decision in the ORR was the final decision.

 
Legal Issue

  1. Does the TAT have the power to interpret law even though the power to interpret law is given only to courts under the Constitution?
  2. Does intangible property fall within the ambit of Section 6(a)(1) of the BPT Act?

 
Holding(s)

Unanimously allowing the appeal, the justices of the Supreme Court held that:

  1. Though the TAT does not have the power to interpret the Constitution, the TAT has the power to interpret laws in its narrower sense (i.e., determine whether or not an act is permissible under the law). The dispute before the Court is whether channel licensing fees and broadcasting rights fees are subject to WHT under Section 6(a)(1) of the BPT Act and is not one of interpretation of the Constitution.
  2. Although Medianet has not filed an appeal with the TAT, Medianet is allowed to raise defences at the Civil Court as provided under Section 49(b) of the TAA, and dispute the legal basis on which the amount in dispute is computed or levied by the MIRA.
  3. The term ‘other property’ found in the text of Section 6(a)(1) of the BPT Act must be construed to refer to tangible property.

Reasoning(s)

  1. Section 49(a) of the TAA provides that the MIRA may pursue legal action against delinquent taxpayers for the recovery of dues to the State and that a statement signed by the Commissioner General will be sufficient proof of the amount owed by the person to the State. Section 49(b), however, provides that the lower court’s decision may be appealed to the High Court under three circumstances:

    • The amount of tax is incorrect; or
    • There is an objection to the amount of tax; or
    • The taxpayer wishes to appeal the matter in dispute.
  2. It is the MIRA’s argument that an appeal under Section 49(b) may be filed only with respect to the amount in dispute. In scrutinising this argument, the Supreme Court observed that the second circumstance of appeal under Section 49(b) of the TAA (i.e., there is an objection to the amount of tax)is subjective. The Court expounded and observed that in the case before the Court, Medianet objected to the amount sought by the MIRA on the grounds that the amount did not fall within the ambit of Section 6(a)(1) of the BPT Act. Hence, one application of Section 49(b) of the TAA is disputing the entire assessment of the MIRA.
  3. The Supreme Court also observed that the courts of Maldives operate in accordance with the Judicature Act4 which provides that the High Court must consider defences and evidence submitted in the lower court. The third circumstance of appeal provided under Section 49(b) of the TAA (i.e, the taxpayer wishes to appeal the matter in dispute) gives the understanding that, in addition to the amount claimed by the MIRA, all other matters raised in the lower court can also be appealed.
  4. The Supreme Court opined that the ordinary meaning rule must be used when interpreting Section 49(b) as it provides for specific actions that may be pursued by the taxpayer and such a provision may not be narrowed unless the law is so amended. The Court noted that as Article 97(b) of the Constitution provides that no tax may be levied unless specifically as stipulated by an Act of Parliament, provisions in the tax law must be interpreted to promote public interest and must be construed to uphold the ordinary meaning of the construction of the sentence.
  5. The Court observed that royalty payments are, in some instances, made in conjunction with the use of plant, machinery or equipment. The Court recognised this in the form of patent rights with respect to a piece of machinery, where the patent holder and legal owner of the machinery may be two distinct entities.
  6. Considering the same, the Court opined that royalty payments for ‘other property’ under Section 6(a)(1) are made for tangible property. As the term, ‘other property’ is preceded by plant, machinery and equipment’, application of the ejusdem generis rule as per Section 8 of the Interpretation Act5 provides the understanding that the general term – other property – shares the same properties as the specific terms – plant, machinery, equipment – and as such, the general term refers to tangible property
References

1 2016/SC-A/23.
2 Law Number 5/2011.
3 Law Number 3/2010.
4 Law Number 22/2010.
5 Law Number 4/2011.