The Court of Appeal has recently clarified that tax liabilities arising before the commencement of the Inland Revenue Act, No. 24 of 2017, may lawfully be recovered under the provisions of the repealed Inland Revenue Act, No. 10 of 2006. The judgment examines the transitional application of tax laws, emphasizing the continued effect of the …
Tax Recovery Under Repealed Law Still Valid for Pre-2018 Liabilities – CA
The Court of Appeal has recently clarified that tax liabilities arising before the commencement of the Inland Revenue Act, No. 24 of 2017, may lawfully be recovered under the provisions of the repealed Inland Revenue Act, No. 10 of 2006. The judgment examines the transitional application of tax laws, emphasizing the continued effect of the repealed Act for events occurring prior to April 1, 2018.
The case involved a corporate taxpayer who challenged recovery proceedings instituted in the Magistrate’s Court under the old Act. The petitioner argued that, since the new Inland Revenue Act had come into effect by the time proceedings began in 2024, recovery should have been initiated under the new law and not the repealed one. The petitioner also sought writs of certiorari, mandamus, and prohibition, claiming procedural impropriety and that the entire process was bad in law.
However, the Court rejected the petitioner’s argument, after a detailed examination of the savings and transitional provisions of the 2017 Act. The Court found that under Section 202(2) and Section 203(1) of the new Act, tax liabilities incurred prior to its commencement could continue to be governed and recovered under the old Act. The Court further noted that Section 202(6) provides discretion to the tax authority to either proceed under the old Act or commence fresh proceedings under the new one.
In addition to the legal interpretation, the Court criticized the petitioner for suppressing material facts, particularly the failure to disclose their late submission of tax returns and non-compliance with mandatory statutory obligations. The Court also found that the petitioner was guilty of laches, having waited nearly five years to challenge the recovery action without justification, and had failed to exhaust alternative remedies provided under the tax law.
“…The Petitioner’s contention is that under section 202(6) of the new Act, tax liabilities that arose before the commencement date of Act, No. 24 of 2017 should be recovered by recovery proceedings resorting to Act, No. 24 of 2017. However, this Court observes that section 202(6) does not impose a condition that all new recovery proceedings pertaining to tax liabilities under Act, No. 10 of 2006 should be subjected to Act, No. 24 of 2017. What is contemplated by the Legislature is clear by the words used. The words used are “may be recovered” which allows the Inland Revenue Department to use the mechanism stated under Act, No. 10 of 2006 or Act, No. 24 of 2017 to commence recovery proceedings. In our view subsection (6) does not prevent the institution of recovery proceedings under the provisions of Act, No. 10 of 2006, if the tax liability had arisen before the commencement of Act, No. 24 of 2017. As stated above the tax liability in this case is for a period before Act, No. 24 of 2017 coming into operation…” – Justice Mayadunne Corea
Case No: CA/WRIT/820/2024 [Decided on 30.04.2025]
Before: Mayadunne Corea, J and Mahen Gopallawa, J
