Renege of Income Tax Authority on a Compromise embodies in a Final Judgment (November 4th, 2009)
1.1During the course of 1995, a dispute concerning the years
1990-1995 was submitted to arbitration.
1.2The dispute concerned claims of "A” and counter
claims of "B”.
1.3In its 1994 financial reports "A” provided for "B”’s
1.4During the course of the appeal of "A”’s tax
liability for 1991-1994 a compromise agreement was reached ("Agreement”),
which was sanctioned as a judgment.
1.5The auditor of "A” confirmed that the dispute with
"B” was part of the discussions with the Tax Authorities, prior to the
1.6Section 3 of the Agreement provided that it "constituted
a final, full and absolute payment of the tax due with respect to the
activities of… ("A”) of any kind and nature whatsoever in these
1.7In 2005 a final arbitration award was handed down
pursuant to which "B” was ordered to pay a handsome sum to "A”, a
part of which was paid in 2005 and a part of which was paid in 2006.
accountant believes that the sums received pursuant to the arbitration award
relate to 1994 and not to 2005-2006.
Assuming the sums awarded relate to
the years covered by the agreement, can the assessing officer renege on the
Agreement and tax the award?
The opinion sets off from the premise
that the award was derived in 1994. On that basis the opinion concluded that
the Agreement was valid and despite the fact that one party to it was the
government, it could not be reopened. Both parties took a risk in entering into
the agreement and were aware of its consequences. The opinion further points
out that in any event the assessing officer was barred under the provisions of
the Ordinance from assessing the award to tax due to the time that elapsed from
the filing of the returns by "A”.