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J U D G M E N T
DR. DATE-BAH JSC:
Introduction
The central issue in this case
is the meaning to be given to
the expression “educational
institution of a public
character” within the context of
the Income Tax Act 1975 (SMCD 5)
and the Internal Revenue
Act, 2000 (Act 592).
Unfortunately, the Court of
Appeal wrongly characterised
this central issue in terms of
whether the plaintiff school
qualifies as a public school.
It accordingly addressed the
wrong issue when it sought to
establish a dictionary meaning
for “public school” and “private
school”, respectively.
It seems clear that an
educational institution may be
characterised as being of a
public character, although it is
privately owned. This much is
clear from the Privy Council
cases of Dilworth and Ors v
The Commissioner of Stamps;
Dilworth and Ors v The
Commissioner for Land and Income
Tax. [1899] AC 99. These
two consolidated cases were
heard on appeal from the Court
of Appeal of New Zealand. In
these cases, where a wealthy
testator made a gift for the
establishment of an institution
for the maintenance and
education of boys who are
orphans or the sons of parents
in straitened circumstances, the
Privy Council held that the
institute, being an educational
endowment in perpetuity vested
in trustees without personal
interest therein, the whole
beneficial interest belonging
exclusively and inalienably to
the public, was a public
institution within the meaning
of section 2 of the Charitable
Gifts Duties Exemption Act, 1883
of New Zealand. The said
section 2 was in the following
terms:
“In this Act, the term
‘charitable purposes’ includes
devises, bequests, and legacies
of real or personal property
respectively of whatever
description to public
institutions such as libraries,
museums, institutions for the
promotion of science and art,
colleges and schools, or to
hospitals, orphan, lunatic, or
benevolent asylums,
dispensaries.”
While it is not safe to
transport the judicial
interpretation of a specific
statute from a different
jurisdiction into our
jurisdiction, it is nevertheless
instructive to note that a
common law court has not viewed
the expression “public
institution” as limited to an
institution that is publicly
owned.
Lord Watson, delivering the
judgment of the Privy Council,
said (at p. 109):
“Their Lordships have come to
the conclusion, not without
hesitation, owing to the view
taken by the Courts below, that
the Ulster Institute, as
designed by its founder, does
answer the description of a
public institution such as a
school. It appears to them
that, if the testator had
directed his trustees forthwith
to hand over the administration
and management of the Ulster
Institute to a public body in
New Zealand, or if he had made
his bequest directly to such
public body for the same
purposes, the institute would
necessarily have been regarded
as a public and not as a private
institution. What he has
directed to be done is in
substance the same thing. His
trustees, to whom he has
delegated the duty of building
the institute and of
superintending its
administration, are his trustees
in this sense only – that he
appointed them. They have no
personal interest in the
residue, which they hold only
for behoof of those children,
members of the public, whom he
has directed them from time to
time to select as the
beneficiaries under the trust.
The bequest is an educational
endowment in perpetuity, and the
beneficial interest in it is not
vested in any private person,
but belongs inalienably to the
public. Such being the
character of the charity founded
by the testator, their Lordships
do not think that the inmates of
the Dilworth Ulster Institute
could with propriety be
described as the recipients of
private education.”
This case appears to establish
the principle that where an
institution renders services to
the general public and there is
no beneficial interest in it
vested in any private person,
that institution can be regarded
as being public or of a public
character. This principle is
one that is worth exploring for
the purposes of this case. This
is because I think that
construing “educational
institution of a public
character” in the context of the
statutes mentioned above as a
publicly-owned school is too
simplistic and not sufficiently
responsive to the nuanced
complexities of modern Ghanaian
life.
There is some advantage in
borrowing some of the concepts
of English charities law in this
context. The English Charities
Act 2006 defines a charitable
purpose as a purpose which falls
within certain descriptions of
purposes in it and is for the
public benefit. One of the
descriptions of purposes relates
to education. The ‘advancement
of education’ is a description
of purpose in section 2(2)(b) of
the Charities Act 2006. Thus
where there is advancement of
education for public benefit,
this activity qualifies as a
charity. This activity will so
qualify even if it is not
carried out by a public body.
Whilst this Court is, of course,
not bound by these statutory
provisions, they provide food
for its thought. In the
Ghanaian context, the ideas
underlying the English charities
regime suggest that there could
be advancement of education for
the public benefit, even if the
provider of it is a private
body. For us, the crucial
elements would be public benefit
and the absence of private
benefit for the providers of
this “charity.”
The Facts
The facts of the case which have
given rise to the issue
highlighted above are as
follows: the appellant in this
case was originally established
as the Takoradi Chapel Hill
Preparatory School in December
1962 by fourteen people who
subscribed its Instrument of
Establishment and Government as
founders. The Instrument of
Incorporation purported to
establish it as a corporation
sole. The learned High Court
judge in this case, also found,
and this has not been challenged
by the appellant, that it was
originally limited by
guarantee. Indeed, in the
Commissioner’s Reply to the
Appellant’s Notice of Appeal to
the High Court under Order 54
rule 7, he admitted that the
appellant was governed by its
instrument of incorporation and
limited by guarantee. (See
para. 3 at p. 5 of the Record of
Appeal.) However, in 2001 the
appellant was incorporated as a
company limited by shares under
the Companies Act, 1963 (Act
179). The learned trial judge
further found that (p. 29 of the
Record):
“The appellant is an educational
institution that serves the
people of Takoradi and its
environs. In other words it is
a school for the use and benefit
of the public but I venture to
state that this alone does not
make it a school of public
character.”
The Internal Revenue Service
(hereafter the Second
Respondent) assessed the
appellant to tax for the years
1994 to 2004 in the sum of
39,864.40 ghana cedis. When the
appellant’s objection to this
assessment was turned down by
the Commissioner of Internal
Revenue, it appealed to the High
Court, Sekondi, in July 2005,
seeking a declaration that the
appellant is an educational
institution of a public
character and thus its income is
exempt from tax. It also sought
an order for the annulment of
the tax assessments for the
years 1994 to 2004. The learned
High Court judge dismissed the
appeal. Upon a further appeal
to the Court of Appeal, that
court also dismissed the
appeal. Being aggrieved by the
dismissal of its appeal by the
two lower courts, the appellant
has appealed to this court.
Its grounds of appeal are as
follows:
i.
“The Court of Appeal erred in
affirming the trial Court’s
holding that the Appellant
School is not an “educational
institution of a public
character” within the meaning of
s. 3(1)(d) of the Income Tax
Decree, 1975, SMCD 5 and ss
10(1)(d) and 94 of Internal
Revenue Act, 2000, Act 592.
ii.
The Court failed to hold that
the Appellant School’s income
derived from functioning solely
as an educational institution is
exempt income.
iii.
The Court erred in relying on
dictionary definitions of
“public school” in defining
“educational institution of a
public character” as it appears
in the statutes.
iv.
The Court failed to consider the
fact of a letter dated 9th
February, 2001, by the Chief
Inspector of Taxes confirming
the tax exempt status of the
Appellant School; and which
formed part of the record.
v.
The Court, by reason of its
judgment, ought to have upheld
the appeal in part, to the
extent that the Appellant’s
income for the period dating
from 1994 to 2001 is exempt from
tax.
vi.
There was no evidence on record
to support the holding by the
Court that the Appellant School
“deals in stationary (sic)
and acts as local
representatives of foreign
companies which deals in
stationary (sic).”
vii.
The Court erred in dismissing
the appeal.”
Section 10(d) of the Internal
Revenue Act, 2000 (Act 592)
exempts from tax “income
accruing to or derived by an
exempt organisation other than
income from a business”, whilst
section 94 of the same Act
defines “exempt organisation” as
including a person:
“who or that is and functions as
(i)
a religious, charitable or
educational institution of a
public character;
(ii)
…;
(iii)
…;
(iv)
…
(v)
….; and
(b) who or that has been
issued with a written ruling by
the Commissioner currently in
force stating that it is an
exempt organisation; and
(c) none of whose income
or assets confers, or may
confer, a private benefit, other
than in pursuit of the
organisation’s function referred
to in paragraph (a).”
The Internal Revenue Act, 2000
repealed the Income Tax Decree,
1975 (SMCD 5), which had
similarly provided in its
section 3(1)(d) that “the income
of an ecclesiastical, charitable
or educational institution of a
public character in so far as
such income is not derived from
a trade or business carried on
by such institution” was
exempted from tax.
The Arguments of the Parties
The appellant contends in its
Statement of Case that from the
statements filed in the High
Court the following matters were
not disputed:
i.
“Chapel Hill School is an
educational institution opened
to members of the public
ii.
It does not carry on any other
business or trade apart from
functioning as an educational
institution
iii.
None of its income or assets
confers a private benefit to any
person
iv.
It is financed by fees and
endowments.
v.
It was under a trusteeship from
its inception and later
incorporated on 21/9/2001.”
The appellant highlights the use
of the phrase “of a public
character” in the relevant
provision of the Internal
Revenue Act 2000 and the Income
Tax Decree, 1975. It notes that
this phrase is not defined in
either of these tax statutes and
argues that since there is no
guidance in the statute itself
to the interpretation of the
phrase, there has to be resort
to extrinsic aids to the
interpretation of the phrase.
It prays in aid the rule of
interpretation embodied in the
latin maxim: noscitur a
sociis. Its argument runs
as follows:
“My Lords, it is not for nothing
that educational institutions
were placed together with
religious or ecclesiastical and
charitable organizations in one
and the same paragraph in the
Income Tax Decree of 1975, SMCD
5, and its successor
legislation, the Internal
Revenue Act, 2000, Act 592.
I wish to submit therefore that
on the basis of noscitur a
sociis rule, educational
institution as appears in the
statutes must take its colour
and character from the preceding
words that is, “the religious or
ecclesiastical and charitable”.
These 2 other institutions are
not controlled by the state.
They are privately formed or
owned organizations and do not
pay tax unless perhaps their
income confers a private benefit
on some person or persons.
Regrettably, and with due
deference to His (sic)
Lordships of the Court of
Appeal, the Court rather than
define the phrase “of a public
character” dwelt extensively on
the definition of “public
school” and slipped into
palpable error as a result.”
The appellant points out that
the tax statutes in question do
not mention “public school” and
that the phrase “of a public
character” is not coterminous
with public school. It
therefore urges on this court
its view that the phrase “of a
public character”, as used in
the two tax statutes, does not
connote State or government
ownership or management. It
endeavours to persuade this
Court that although paragraph
3(1)(d) of SMCD 5 and paragraph
10(1)(d) and s.94 of Act 592
recognise that the provision of
training and instruction to
children is an economic activity
or business, they exempt the
income accruing from this
activity or business, in so far
as that income does not confer
any private benefit. It
contends that the essential
element of public character is
that the management and control
are not in the hands of
individuals for personal
benefit.
The Second Respondent filed a
Statement of Case opposing the
Appellant’s appeal. It contends
that there is an onus on the
Appellant to demonstrate that
the core function of the school
does not constitute a business.
In support of this argument, it
quotes section 5 of Act 592
which provides that:
“Subject to this Act, the
chargeable income of a person
for a year of assessment is the
total of that person’s
assessable income for the year
from each business, employment,
and investment less the total
amount of deductions allowed to
that person for the year under
sections 13 to 22 (relating to
general and specific
deductions), 39 (relating to
personal reliefs), 57 (relating
to life insurance) , and 60
(relating to contributions to
retirement funds).”
The Second Respondent argues
that what the Appellant does,
namely offering tuition for
fees, out of which activity it
makes a gain or loss,
constitutes a business.
Our comment on this argument by
the Second Respondent would be
that the mere fact that what the
Appellant does constitutes a
business does not inevitably
lead to the conclusion that the
activity cannot be exempt from
tax. If the business concerned
is one that falls within the
purview of the educational
business carried out by an
educational institution of a
public character, then the
income from that business will
qualify for exemption from tax.
The South African case of
Chancellor, Master and Scholars
of the University of Oxford v
Commissioner for Inland Revenue,
Republic of South Africa
(1996) 58 SATC 45; [1996] (3) I
All SA 257 illustrates this. In
this case, the South African tax
authorities sought to assess the
South African branch of the
Oxford University Press to tax
on its business in South
Africa. The South African tax
code has a provision on
exemption which is substantially
in pari materia with the
language which this Court has to
construe in this case. Section
10(1)(f) of the Income Tax Act
58 of 1962 of South Africa
provides as follows:
“Exemptions
10(1) There shall be exempt
from tax –
(f)
the receipts and accruals of all
religious, charitable and
educational institutions of a
public character, whether or not
supported wholly or partly by
grants from public revenue…”
The South African Appellate
Court held that Oxford
University Press was part of
Oxford University and had no
independent legal personality.
The person whose liability to
tax was being assessed was thus
Oxford University, which the
court held to be indubitably an
educational institution of a
public character. The fact that
the activities of Oxford
University Press South Africa
appeared commercial did not
deprive Oxford University of its
exemption from tax in respect of
the proceeds from the business
from South Africa. Corbett CJ
explained the Court’s decision
thus:
“In order to apply sec. 10(1)(f)
it is necessary in each case to
categorize the person (i e
taxable entity) who has received
gross income or to whom gross
income has accrued, i e to
determine whether or not such
person is a religious,
charitable or educational
institution of a public
character. In the present case
such categorization presents no
difficulty. The appellant is
manifestly an educational
institution of a public
character. This is not
disputed. And that, one would
imagine, is the end of the
matter.”
What was important was that the
income derived by Oxford
University from its business in
South Africa was fed into its
educational purposes and was not
for the private gain of
individuals.
In its Statement of Case, the
Second Respondent also denies
that the Appellant is of a
public character. It contends
as follows:
“That appellant school is opened
to members of the public by
simply admitting children from
far and near is what is expected
of all schools.
Therefore, the fact that
Appellant school is open to the
public cannot under any stretch
of imagination cloth (sic)
it with public character status.
My lords, it is Respondent’s
submission that Appellant has
not led any evidence to show
that what it does is neither
trade nor business.
Appellant school indeed is
engaged in the business of
educating children for fees
which fees constitute its income
and is subject to tax.”
This argument of the Second
Respondent is effectively
answered in the Appellant’s
Reply to the Second Respondent’s
Statement of Case as follows:
“It is not and has never been
the case of the Appellant that
its core function does not
constitute business and
therefore is not liable to tax.
If what the Appellant does
cannot be termed as business, or
that it does not earn income
therefrom, then the whole issue
of tax will not arise in the
first place. The Appellant
admits that what it is engaged
in is business and derives
income from it, but contends
that the law specifically has
exempted this income from tax.
Ecumenical work may involve
generation of revenue or
income. This income, the law
has exempted from tax only if it
does not confer a private
benefit on any person, otherwise
it will be subject to tax.”
Without citing the South African
case of Chancellor, Master
and Scholars of the University
of Oxford v Commissioner for
Inland Revenue, Republic of
South Africa referred to
supra, the Appellant in
effect makes the same point.
In further elaborating on its
contention that the Appellant is
not “of a public character”,
the Second Respondent contends
that “public character” within
the meaning of the statutes in
issue is, in relation to the
Appellant, “coterminous with
public institution or public
school”. The Second Respondent
distinguishes the private
ownership of churches on the
ground that their core function
of evangelism cannot be
classified as business or trade
and also because their public
character flows from the fact
that they are administered by
trustees elected by the
congregation or its
representatives. It continues
as follows:
“Again, these institutions have
constitutions which have been so
crafted that no one individual
can claim ownership of their
assets or derive any special
benefit save emoluments,
salaries or allowances paid them
for performing specific
assignments in those
institutions.
The same can not be said of
Appellant school. Indeed the
instrument of Establishment and
Government of Chapel Hill School
reserved membership of the Board
of Governors of the school to
only the Founders, the customary
successors or heirs of
unavailable founders. (Page 13
of record). Lately when the
school was converted into a
Limited Liability Company, it
was the same Founders who hold
shares in the company and have
been appointed as directors as
well. Their control over the
company thus becomes absolute.”
The Law
The appellant makes a persuasive
case for its interpretation of
the phrase “of a public
character”. For the appellant
to succeed in showing that it is
an institution of a public
character, it must, in our view,
establish that its educational
business was of public benefit
and did not confer any private
benefit on individuals. The
fact that it is privately owned
is not necessarily a bar to the
appellant’s ability to
demonstrate this, as we have
shown in our earlier discussion
of the Privy Council case of
Dilworth and Ors v The
Commissioner of Stamps;
Dilworth and Ors v The
Commissioner for Land and Income
Tax. [1899] AC 99. .
Unfortunately, the appellant’s
case is destroyed, in part, by
its conversion in form from a
company limited by guarantee
into a company limited by
shares. By this conversion,
whether or not profits are
actually distributed, the
members of the company are
entitled to profit from the
business run by the company.
The potential for there to be
benefit to private individuals
implies that, from 2001 onwards,
the appellant school was no
longer of a public character.
However, before then the
appellant’s case that it was of
a public character is cogent and
persuasive and, in our view,
should be accepted. Section 10
of the Companies Act, 1963 (Act
179) provides that a company
limited by guarantee shall not
be incorporated with the object
of carrying on business for the
purpose of making profits. It
spells out a sanction for
officers and members of a
company limited by guarantee who
breach this prohibition against
making profit. Accordingly, for
as long as the appellant was a
company limited by guarantee,
there was a legal assurance that
its business was not conferring
any private benefit on
individuals. Indeed, the company
limited by guarantee, which was
introduced into Ghanaian law by
the Companies Act 1963, can be
said to be functionally
equivalent to a trust. It is
functionally a trust in
corporate form. By this we are
not asserting that the technical
equitable rules on trusts apply
to it. However, we do say that
the function of the two
institutions is identical in
this context. This connotes that
the members of the company, like
a trustee, cannot benefit from
the revenue from the trust,
which should be used exclusively
for the purposes of the
guarantee company. Thus any
excess revenue remaining after
all the expenditures of the
company in any year has to be
retained and applied in the
future to the company’s
purposes. This assurance was
removed by appellant’s
conversion into a limited
liability company. We therefore
consider that from the date of
the conversion of the appellant
from a company limited by
guarantee into a company limited
by shares, it ceased to be of a
public character.
Conclusion
We are therefore willing to, and
do hereby, grant a declaration
that the appellant was an
educational institution of a
public character until it was
converted into a limited
liability company in 2001. The
Court of Appeal was thus partly
in error in affirming the trial
Court’s holding that the
appellant is not an “educational
institution of a public
character” within the meaning of
section 3(1)(d) of the Income
Tax Decree, 1975 (SMCD 5) and
sections 10(1)(d) and 94 of the
Internal Revenue Act, 2000 (Act
592). The appeal is thus upheld
in part.
DATE-BAH (DR.)
(JUSTICE OF THE SUPREME COURT)
W. A. ATUGUBA
(JUSTICE OF THE SUPREME COURT)
S. A. B. AKUFFO (MS)
(JUSTICE OF THE SUPREME COURT)
R. C. OWUSU (MS)
(JUSTICE OF THE SUPREME COURT)
P. BAFFOE-BONNIE
(JUSTICE OF THE SUPREME COURT)
COUNSEL
JOHN MERCER FOR THE APPELLANT
JONATHAN ANTWI FOR THE 2ND
RESPONDENT
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