PANAYIOTOU ν. REPUBLIC & ANOTHER
(1989)3A CLR 237 ΠΑΓΚΥΠΡΙΟΣ ΔΙΚΗΓΟΡΙΚΟΣ ΣΥΛΛΟΓΟΣ CyLaw | Αναφορικά μ'εμάς | " target="_top">Επικοινωνία | Όροι χρήσης Έρευνα - Κατάλογος Αποφάσεων - Εμφάνιση Αναφορών (Noteup on) - Αφαίρεση Υπογραμμίσεων
(1989)3A CLR 237 1989 February 23 [KOURRIS, J.] IN THE MATTER OF ARTICLE 146 OF THE CONSTITUTION MAROULLA PANAYIOTOU, Applicant, v. THE REPUBLIC OF CYPRUS, THROUGH THE MINISTRY OF FINANCE AND/OR ANOTHER, Respondents. (Case No. 182/87) Taxation - Fictitious transaction - The Assessment and Collection of Taxes Law, 1978 (Law 4/78) - Whether its provisions are applicable to cases of assessment of taxes other than income tax - In the light of section 3
(2)of the Law, question determined in the affirmative - What is a fictitious transaction - Principles governing interference by Court. In this case the applicant donated immovable property to his daughter. One month later the donee sold half the share of the property and four months thereafter she sold the remaining half share. The donee was, at all material times, resident in London. She acted through a power of attorney to her father. The proceeds of sale were withdrawn by her father together with the interest and were used by him for his own purposes. The respondent decided that the transaction relating to the gift was fictitious. He proceeded and assessed Capital Gains Tax against the donor (applicant).Hence this recourse. Having determined the question whether section 36
(1)of Law 4/78 is applicable to the present case in the affirmative, the Court concluded that in the circumstances the decision was reasonably open to the respondentdirector. Recourse dismissed. No order for costs. Cases referred to: Panayiotou v. Republic
(1986)3 C.L.R. 2311, T.Z. Guarantee Developments Ltd. v. Republic
(1986)3 C.L.R 381, Pissarides v. Republic and Another
(1987)3 C.L.R.
- Recourse. Recourse against the decision of the respondent to impose on applicant capital gains tax following the disposition of a building site at Latsia. Chr. Kitromilides, for the Applicant. Y. Lazarou, Counsel of the Republic B, for the Respondents. Cur.adv. vult. KOURRIS, J. read the following judgment. The recourse is directed against the decision of the respondent, Director of Inland Revenue, to impose capital gains tax on the applicant following the disposition of a building site at Latsia. Applicant was the registered owner of a building site under Registration No.,E841 at Latsia. On 10.11.1984, she transferred the building site to her daughter ChrystallaPanayiotou who is a permanent resident of London, by way of gift, and she is represented in Cyprus by her father by virtue of a. Power of Attorney. On 11.12.1984,Chrystalla, the daughter, sold half share of the said building site for £4,000 and the remaining half share was sold on 19.4.1985 for £4,
- The Proceeds from the first sale were deposited in the daughter's name on 13.12.1984 in the Co-Operative CreditSociety of Latsia and on 24.7.1985 were withdrawn by her father together with the interest and were used by him for his own purposes. The proceeds from the second sale were deposited in the joint account of the daughter and her father and were subsequently withdrawn by her father and were used by him for his own purposes. On 20.1.1987, the respondent charged the applicant capital gains tax the gains accruing from the disposition of the subject property to the amount of £394 for the first sale and to the amount of £5.34 for the second sale, taking the view that the gift to her daughter was a fictitious or an artificial transaction solely designed to reduce her liability to capital gains tax. Applicant challenged the decision of the respondent on the ground that the transfer of the building site to her daughter was not a fictitious or an artificial transaction alleging that in the same period and in point of fact on 15.9.1984, she transferred by way of gift one-third share to each of her three children, of one fIatPallouriotissa under Registration No.B1055 at Arch. Makarios III Street No.13, and also on 5.12:1984 she transferred by way & gift to her daughter Constantia Socratous, a piece of land, plot No. 524, the extent of which was 5 donums, 2 evleks and 1,350 sq. ft at Latsia. The point at issue is whether it was open to the respondent to treat the transfer of the building site by way of gift by the applicant to her daughter as fictitious or artificial and disregard same. Under s. 36
(1)of the Assessment and Collection of Taxes Law (Law 4/78), the responded is empowered to disregard any transaction which is artificial or fictitious and was entered into or done solely for the purpose of reducing or extinguishing one's liability to tax. These provisions, as was cited in TheofanoPanayiotou v. The Republic
(1986)3 C.L.R. 2311, are not limited in scope to assessments raised under the Income Tax laws as the Assessment and Collection of Taxes Law is "an enactment intended to make comprehensive provision for the effective enforcement of tax legislation generally". Thus, s.3
(2)Provides: '3.
(2)Οιαιδήποτε αρμοδιότητες, αι οποίαι δυνάμει των διατάξεων του παθόντος Νόμου, δύνανται να ασκηθώσιν υπό του Διευθυντού και οιαιδήποτε αρμοδιότητες αι οποίαι, δυνάμει των διατάξεων οιουδήποτε ετέρου νόμου επιβάλλοντος οιονδήποτε φόρον, δύνανται να ασκηθώσιν υπ' αυτού είτε υπό την ιδιότητα του ως Διευθυντού είτε υπό την ιδιότητα του ως Εφόρου του τοιούτου φόρου δύνανται να ασκηθώσι παραλλήλως ή ταυτοχρόνως δυνάμει των διατάξεων του συνδεδυασμένως δυνάμει των διατάξεων αμφοτέρων, πάσα δε σχετική ειδοποίησις. κοινοποίησις ή κατάστασιν η οποία απαιτείται ή δύναται να δοθή ή γενή υπ' αυτού δυνάμει οιασδήποτε των προαναφερθεισών διατάξεων δύναται να γενή ως συνδεδυασμένον έγγραφο και να υπογραφή υπ' αυτού είτε υπό την ιδιότητα του ως Διευθυντού είτε υπό την ιδιότητα του ως Εφόρου είτε υπ' αμφοτέρας τας ιδιότητας ταύτας.' In English it reads:- "Any functions which, under the provisions of this Law, may be exercised by the Director and any functions which, under the provisions of any other Law imposing any tax, may be exercised by him whether in his capacity as Director or in his capacity as Commissioner of such tax. may be exercised concurrently or simultaneously under the provisions of this Law and of such other Law or in a combined manner under the provisions of both, and any relative notice, communication or statement which is required or may be given or made by him under any of the aforesaid provisions, may be made as a combined document in his capacity as Commissioner or in both such capacities." Thus, it appears from the above provision that the respondent may, in administering or applying the Capital Gains Tax Law, exercise the functions entrusted to him by the Assessment and Collection of Taxes Laws. The word "functions" is defined in s.3
(3)as meaning "powers vested in and duties imposed upon the Director or the Commissioner under the provisions of this law or any other law imposing any tax respectively." Section 31
(1)vests in the respondent the power to disregard a transaction which, in his opinion, is artificial or fictitious. This power, therefore, is part of the "functions" whichby virtue of the provisions of s.3
(2)of the Assessment and Collection of Taxes Laws are exercisable by the respondent concurrently or simultaneously or in a combined manner with the functions exercisable by him under the provisions of other taxing enactments. The words "artificial" and "fictitious" have no definition but hardly anyone is needed. It is for the respondent to determine from his findings of primary fact the further fact whether there was an act without any commercial or business purpose apart from a tax advantage." In the case of T.Z. Guarantee Developments Ltd. v. The Republic
(1986)3 C.L.R. 381, it was held that it was not necessary for the transaction to be unlawful or illegal in order to be disregarded as artificial or fictitious but that it is sufficient, if it was entered into or done only for the purpose of evading income tax. Another case on this topic is the case of Pissarides v. The Republic and Another
(1987)3 C.L.R. 1920. Counsel for the respondent contended that the transaction whereby the applicant gifted her land to her daughter was exclusively designed for the purpose of tax evasion rather than the enrichment of the daughter by the property gifted to her. He argued that this was obvious by the short period that the property remained in the daughter's ownership - for one month only - as well as by the subsequent use of the proceeds from the sale which were used by her father for his own purposes. He submitted that in reality the applicant remained the true owner of the land and the gift of the land to the daughter was merely to reduce the applicants taxable liability by enabling the daughter to claim the exemption of £5,000 granted by s.5
(1)of the Capital Gains Tax Law, something which the applicant was unable to do having already exercised her right to such allowance on a previous disposal. Counsel for the applicant, on the other hand, contended that at the same period when applicant transferred the building site by way of gift to her daughter Chrystalla, she also transferred one third share to each of her three children of a flat atPallouriotissa and she also transferred by way of gift to her daughter ConstantinaSocratous, a piece of land at Latsia, thus, maintaining that the applicant, during that period disposed to her children by way of gift, the greater pan of her property. He submitted that in these circumstances it could not be held that the transfer of the building site to her daughter Chrystaila was made in order to reduce her taxable liability. The question which falls for determination is whether in the light of the above facts it was reasonably open to the respondent to reach the conclusion that the gift of the land was fictitious or artificial and disregard same. I am inclined to accept the argument of learned counsel for the respondents that it was reasonably open to the Director the Inland Revenue Department to reach the conelusion that the gift of the building site by the applicant to her daughter ChrystallaPanaviotou was fictitious or artificial and disregard same, in view of the fact that the transaction was execlusively designed for the purpose of tax evasion rather that he enrichment of her daughter by the property gifted to her. And this, was obvious by the short period that the property remained in the daughtersownership as well as by the subsequent use of theproceeds from the two sales which were used by the father for his own purposes. It is further obvious from the fact that the gift of the building site to the daughter was merely to reduce the applicant's taxable liability by enabling the daughter to claim the exemption of £5,000 granted by s.5
(1)of the Capital Gains Tax Law, something which the applicant was unable to do having already exercised her right to such allowance of a previous disposal. For these reasons the recourse is dismissed with no order for costs. Recourse dismissed. No order as to costs. cylaw.org: Από το ΚΙΝOΠ/CyLii για τον Παγκύπριο Δικηγορικό Σύλλογο