This was an appeal from a Court of Magistrates sentence delivered on 30 May 2006. By virtue of an official letter served on AC in April 2005, the Commissioner of Inland Revenue (CIR) demanded the payment of Lm1,885 which was allegedly due as income tax payments for 1987-1990.

AC had contested this payment stating that such demand was unfounded since he had always paid what was demanded of him and in any case, the action for the amount claimed was prescribed by virtue of Article 47(2) of the Income Tax Management Act:

(2) Save as otherwise expressly provided in the Income Tax Acts… action for the payment of tax, additional tax, interest or any penalty may be taken during any time from the date on which it becomes due and payable up to eight years from that date or, where an assessment in respect thereof has been made, from the date on which that assessment becomes final and conclusive.

The CIR claimed that the amount was never paid by AC and was hence due. In any case, he added that the above-mentioned prescriptive period could not apply in this case due to Article 47(4):

(4) Where the action referred to in subarticles (2) and (3) has not been taken within the time specified therein, and such time expires on or before the 31 December 2003, then, notwithstanding the provisions of the said subarticles, action for the payment of the said tax, additional tax, interest or penalty may be taken until the 31 December 2005.

The Court of Magistrates ruled in favour of the CIR in terms of Article 47(4).

The Court of Appeal

The Court stated that this case was a perfect manifestation of the effects of the legislator’s competence to promulgate laws having a retroactive effect.

The CIR claimed that he had a right to claim the amount due since the law, as amended, provided him with this faculty. He also stated that the enactment of such laws having retroactive effects were in conformity with and permitted by the Constitution and hence, it was the duty of the Courts to interpret and apply such laws reasonably and in the manner intended by the legislator.

The Constitution does not prohibit laws having retroactive effects except in relation to substantive criminal law. Since Parliament has the competence to enact such laws which are not in breach of the Constitution, Article 47(4) introduced by Act II of 2004 was valid and had to be observed. A 1957 judgement – Neg. John Coliero nomine vs Onor. Dr Giorgio Borg Olivier nomine et – in fact ruled that the legislator may not be deprived of such powers and the legislation enacted must be applied and enforced so long as such laws derive from the competent organs of the state and the necessary formalities are followed.

Many foreign jurisdictions follow the same principle. Italian cases were quoted and a particular 1997 judgement stated: “il legislatore ordinario può, nel rispetto di tale limite, emanare norme retroattive, purché trovino adeguata giustificazione sul piano della ragionevolezza e non si pongono in contrasto con altri valori ed interessi costituzionalmente protetti, cosi da non incidere arbitrariamente sulle situazioni sostanziali poste in essere dalle leggi precedenti. Se questi condizioni sono osservate, la retroattività, di per se da sola, non puo ritenersi elemento idoneo ad integrare un vizio della legge.” Hence despite the legislature having the competence to enact retroactive laws, this is a limited power in that other constitutional principles must be respected such as the “principio generale di ragionevolezza”, (the principle of reasonableness) and the Rule of Law.

The fact that the law was retroactive and this was allowed by the Constitution did not automatically render such law unconstitutional.

Prescription is considered as a procedural instrument for the extinction of the right to make an action which is in essence the means of exercising one’s rights. Prescription does not extinguish the rights and obligations involved in the case but merely creates an obstacle for the exercise of the action in that the action itself is extinguished.

The Court stated that it was unacceptable that the Legislator without just cause, invented a statutory mechanism temporarily extending the prescriptive period to circumvent prescription.

The CIR stated that such a law was necessary particularly due to the obstacles caused by the tax payers themselves who failed to pay their dues or failed to furnish the department with the relevant documents such as their income tax returns. The Court however, stated that the Income Tax Management Act contained many sanctions which were formulated specifically to regulate such omissions. The Court hence stated that it had good grounds to believe that the reason for the introduction of Article 47(4) was none other than to cater for the inertia of the CIR. The inertia and deficiencies of a Government department could not be covered by legislative provisions.

The law was most definitely not enacted in favour and in the interest of the taxpayer. The Court hence upheld the appeal and overturned the judgement of the Court of Magistrates stating that the action was time-barred by virtue of Article 47(2).