HIGH COURT, ACCRA
DATE: 30TH JUNE, 1962
BEFORE: OLLENNU, J.
NATURE OF PROCEEDINGS
APPEAL against income tax assessment raised on moneys paid by way of royalties on the sale of interests in a mining concession.
COUNSEL
E. Akuffo-Addo for the appellants.
Quashie-Sam for the respondent (Commissioner of Income Tax).
[p.548] of [1962] 1 GLR 547
JUDGMENT OF OLLENNU, J.
This matter came before the court under section 58 of the Income Tax Ordinance1(1) by way of appeal against assessment for the years 1954-55 to 1959-60 raised by the Commissioner of Income Tax in respect of certain payments made to the appellants by the Bremang Gold Dredging Company Ltd., the commissioner having refused upon application of the appellants to amend the said assessments.
The payments in question were made to the appellants in pursuance of an agreement contained in clause 3B of a deed of assignment between the appellants as vendors and the said Bremang Gold Dredging Company Ltd. as purchasers. The said deed is exhibited to the notice of appeal as exhibit WSD. The reason the commissioner gave for his refund to amend the assessments on the said payments is that the payments were Ghana income (being income derived from land situate in Ghana), and were therefore subject to Ghana tax.
Proceedings in income tax appeals brought under section 58 of the Income Tax Ordinance are regulated by the Income Tax (Appeals to the High Court) Rules2(2) made under section 58(10) of the Ordinance. Rule 7(1) and (2) the said rules read:
“7 (1) The Registrar shall cause a copy of the grounds of appeal to be served upon the Commissioner.
(2) Within fifteen days of the service of the grounds of appeal, the Commissioner shall file in the Court his reply, which shall be signed by him or his advocate and shall set forth in paragraphs consecutively numbered a concise statement of the facts and any points of law upon which he intends to rely in rebuttal of the grounds of appeal.”
It is provided by rule 9 that:
“9 (1) Subject to the express provisions of section 56 of the Ordinance and of these Rules, the practice and procedure of the Court in relation to an appeal under the provisions of these Rules shall be assimilated as nearly as may be to the practice and procedure of the Supreme Court in the exercise of its civil jurisdiction. Without prejudice to the generality of the foregoing provisions of this paragraph, the Rules of the Supreme Court specifically referred to in the Schedule to these Rules shall apply, with such modifications as may be necessary to render them conveniently applicable, to an appeal under the provisions of these Rules.
(2) For the purpose of the application of the provisions of this Rule, the appellant and the Commissioner shall be deemed to be plaintiff and defendant respectively.”
By virtue of those rules, notice and grounds of appeal and the reply to the notice form the pleadings and evidence in the matter, and serve as proceedings upon which the appeal is to be determined, and are governed by the same principles which regulate proceedings in civil cases in the High Court. The hearing of the appeal proceeds entirely on the issues of law and fact raised in those pleadings, i.e. the appellants’ notice and grounds of appeal, and the commissioner’s reply thereto. To the notice and grounds of appeal filed by the appellants, the Commissioner of Income Tax filed a reply and raised three distinct defences or answers:
(i) that the notice of appeal and the grounds of appeal set out therein disclosed no grounds of appeal known to the law;
[p.549] of [1962] 1 GLR 547
(ii) that the relevant payments were income which accrued out of rights over or in relation to land; and
(iii) the said payments were four per cent royalty which emanated from Ghana land; and therefore came within section 7 (e) of the Income Tax Ordinance.
Upon the rules of procedure, the issues raised in the grounds of appeal and those raised by the Commissioner of Income Tax in his reply are the only issues which the court is called upon to determine. Counsel for the commissioner took considerable pains to argue out points which the commissioner never raised, either in his refusal to amend or in his reply to the grounds of appeal, and which are therefore outside the scope of this appeal. In the circumstances the court is bound to disregard those points as irrelevant for the determination of the appeal.
Now to the three issues raised. No arguments were advanced on behalf of the commissioner on his contention that none of the grounds of appeal filed by the appellant is a ground of appeal known to the law. But quite apart from his failure to make any submission on that issue, the submissions he made on the other two issues amount to an admission that the points raised in the grounds of appeal are fundamental legal principles.
The second and the third issues depend largely upon the interpretation of section 7(e) of the Income Tax Ordinance, and upon the interpretation of clause 3B of the deed of assignment referred to above, and exhibited to the notice and grounds of appeal marked exhibit WSD. Clause 3 of the deed of assignment is as follows:
“3A The sum of Ninety One Thousand Six Hundred and Fifty Pounds which shall be paid and satisfied by the allotment and issue to the Vendor or its nominees of Three Hundred and Sixty-six Thousand Six Hundred Shares of five shillings each in the capital of the Purchaser credited as fully paid up; 3B A Royalty equal to four per cent of the gross value of the gold extracted from the lands comprised in the lands demised by the said leases; 3C The annual rent or other sums to be apportioned in the manner provided in Clause 5(C) hereof.”
The parties to that deed namely the appellants and the Bremang Gold Dredging Co. Ltd. are companies domiciled in England, but the Bremang Gold Dredging Co. Ltd. have permanent business premises in Ghana.
It was contended for the appellants that the provision in clause 3B of the deed exhibit WSD being part of the consideration for the conveyance of the lease, is capital payment not profit, even though payable in perpetuity, and is therefore not taxable.
In reply to that submission it was submitted for the commissioner, that though the payment provided in the said clause 3B is clearly shown on the face of the deed to be part of the consideration for the conveyance, yet it operated to create an interest in land situate in Ghana, to make the lex situs, i.e. the law of Ghana, and not the lex loci contractus, the law of England, applicable and that being the case the word “royalty” should be interpreted in its general legal meaning.
The assignment was made in England, its validity as a binding contract should be determined by the law of England, i.e. the lex loci contractus, but its effect, consequence, and incidents, so far as creating a proprietary
[p.550] of [1962] 1 GLR 547
right in lands situate in Ghana is concerned, must be regulated by Ghana law. The law is stated in Cheshire, Private International Law (3rd ed.) page 724 as follows: “The universal recognition that the lex situs is paramount in this respect does not, however, conclude all difficulties. The generality of the rule and the sweeping manner in which it is usually stated are apt to lead to error unless we notice the distinction between an actual transfer of land and a contract to transfer.”
And at page 725 it is said that: “A contract is binding, so far as relates to form, if it satisfies the requirements of the lex loci contractus, or, as is probably more accurate, its proper law. If A and B, two domiciled Englishmen, make a contract in London in such terms that its proper law is that of England, there is no doubt that it is exclusively subject to English law. The mere fact that it relates to foreign land ought not to affect the contractual rights and liabilities of the parties.”
Thus if clause 3B of the deed of assignment reserved to the appellants any right title or interest in land to make the payment of four per cent royalty reserved therein, referable to such right title and interest, the royalty will be payment as consideration for the use of the land, and will therefore be income which, in the language of section 7 (e) of the Income Tax Ordinance, would be “profits arising out of property”.
By the deed of transfer the appellants divested themselves of all proprietary interest in the lands subject-matter of the assignment. By the same deed, however, they acquired shares in the business of the purchasers, that right did not arise out of land although the acquisition of the right was obtained with capital realised from the sale of an interest in the land; the right to receive dividends from the said share arose from the contract for the purchase of shares in the purchasers’ business, a contractual right of a shareholder in the profits of the company, but certainly not from any proprietary interests they retained in the land.
Similarly the royalty of four per cent of gross value of gold extracted is part of the capital, i.e. proceeds realised from the absolute sale of the lands; it is not payment made for use of any land belonging to the appellants; it could not be, because no portion of the lands or interest in the lands sold and conveyed by the deed or in any mineral therein or thereon was retained or reserved for the appellant. The “royalty” is purely an entitlement, interest or right which the appellants acquired from the purchasers, and which the purchasers agreed to give them, as it were, in consideration for the appellants’ willingness to sell.
In those circumstances it is my view that the term “royalty” as used in clause 3B of the deed exhibit WSD is not a term of art as known in legal language meaning payment made to an owner of land for use by another person of mineral rights contained in his land, payment made to an owner of a patent for the use of his patent by another person, or payment made to an owner of copyright for the use of his copyright by another person, that is payment made by virtue of the payee’s ownership of land or interest in land. Rather it is my view that the term “royalty” in the context is used in the sense of a right and an obligation arising out of personal covenants unconnected with proprietary interests in land, and that it is so even though the covenant in that behalf is contained in an agreement part of which conveys land; it is a right and an obligation independent of any proprietary interest in the land.
[p.551] of [1962] 1 GLR 547
It follows that the payments made to the appellants by Bremang Gold Dredging Co. Ltd. are not, in the language of section 7 (e) of the Income Tax Ordinance, “profits from property” situate in Ghana as contended by the Commissioner of Income Tax, and therefore are not subject to the law of Ghana, and are not taxable in Ghana. Consequently I hold that the payments under clause 3B of the deed of assignment, exhibit WSD are not subject to Ghana income tax, and the assessments raised on the said payments are invalid.
The appeal is allowed. It is directed that: (1) the payments made to the appellants under clause 3B of the assignment, exhibit WSD are not subject to Ghana income tax; and (2) the assessments raised are unlawful and therefore invalid. I award the appellants costs of 200 guineas inclusive.
DECISION
Appeal allowed.
