clr/1986/1986_3_2311.pdf

(2)and 36

(1)-—Section 36f I) loiild die iinoked in 'pre­ sent case—It may he invoked in raising an assessment tir()er any tax legislation. •Taxation—'Fictitious transaction —i! he 'Tax Assessment and Collection of Taxes 'Law 4/78, •section 36(})—Classification of transaction as fictitious—•Depends on :it\ Objective mi plications. 15 ^.Constitutional Law—Taxation—Cmistituiicn Λιtick· '24.-J—.7 he. Capital Gains Tax .Law .12/80, ••Seition ή'7 ι—'!ho\penivj in scope and effect and. therefore -fun η-ρΐιχηαηι 'to .Ar­ ticle 243. (Construction 20 of Statutes—-!Ketiospe<.tivuy- -lest of 'The 'applicant J^reeil Ό soil .:i .plot ol l.nul -!oi it'-26 0QQ •2311 Panayiotou v. Republic

(1986)On the day fixed for the relevant transfer, the applicant transferred by way of gift one half share in the plot ίο her husband. Later on the same day her husband joined her in transferring the property to the purchasers. In exercise of the powers vested in him under s. 36

(1)of Law 4/78 respondent 2 treated the gift as a fictitious transaction and charged the applicant under Law 52/80 to capital gains tax for the whole amount. 5 Hence the present recourse. Counsel for the applicant argued that section 6

(1)of Law 52/80 is retrospective tn 10 character, in that the assessment of the value of the pro­ perty is made with reference to an antecedent date, that is 27.6.78, and, therefore, repugnant to Article 24.3 of the Constitution and that section 36

(1)of Law 4/78 is not applicable to the raising of an assessment of capital 15 gains tax. Held, dismissing the recourse:

(1)The classification of u transaction, whether or not of a contractual character, depends on its objective implications and the person charged by s. 36

(1)of Law 4/78 to judge such implication 20 is the Director of Inland Revenue. In this case it is diffi­ cult to escape the conclusion that the gift was fictitious, that is, it had an object other than the one declared, name­ ly the enrichment of applicant's husband.

(2)The test of retrospectivity of a statute is whether the 25 statute in question impairs existing rights and obligations. If it has that effect it is re'rospective (Yew Bon Tew v. Kenderaan Bar Maw f1982] 3 All E.R. 833 adopted). Law 52/80 did not alter the tax obligations of the ap­ plicant prior to the date of its enactment. It is prospective 30 in scope and effect.

(3)Section 3

(2)of Law 4/78 expressly empowers the Director to invoke s. 36

(1)in raising an assessment under any tax legislation. Law 4/78 is not limited in scope to assessments under the Income Tax Laws, but it is a com- 35 prehensive enactment for the effective enforcement of tax legislation generally. Recourse dismissed. No order as to costs. 2312 3 C.L.R. Panayiotou v. Republic Cases referred to: Newstead v. Frost [1978] 2 All E.R. 241; Furniss v. Frost [1984] 1 All E.R. 530; Santis and Others v. The Republic

(1983)3 C.L.R. 419; 5 Yew Bon Tew v. Kenderaan Bar Mara [1982] 3 All E.R. 833; Papaconstantinou and Another v. The Director of Inland Revenue

(1986)3 C.L.R.

1. Recourse. 10 Recourse against the decision of the Director of Inland Revenue whereby the applicant was charged to capital gains tax for the whole amount she agreed to sell her property i.e. £26,000.- disregarding the gift of one half share lo her husband who joined her later on the same day in 15 transferring the property to the purchasers. D. Papachrysostomou, for the applicant. Y. Laiarou, for the respondents. Cur. adv. vult. 20 PIKIS J. read the following judgment. The applicant was the owner of a plot of immovable property. She agreed to sell it for £26,000.-. On the day set for transfer bui before effecting it, she conveyed by way of gift one half share to her husband who joined her later that day in transferring the property to the purchasers. 25 In exercise of the powers vested him by s.36(l) of the Assessment and Collection of Taxes Law (4/78) the Director charged the applicant to capita! ga;ns tax for th-: whole amount, disregarding the gift as a fictitious Iran saction. solely designed to reduce her liability to tax under 30 the Capital Gains Tax Law 1980—Law 52/
2. In her address applicant acknowledges that the gift had a tax objective intended, in the words of counsel, to mal.e it possible for the husband to share in the tax liabilities of his wife. Whatever gloss one may put upon the facts sur2313 Pikis J .

(1986)Panayiotou v. Republic rounding the gift, it is difficult ίο escape the conclusion "that the transaction was fictitious, that is, it had an object other than the apparent or declared one, namely the enilchinent of the husband by the property gifted to him. On the authority of Newstead v. Frost* and the cases reviewed therein, the classification of a transaction as fictitious de­ pends on its objective implications; not the subjective mo­ tives of the parties associated therewith. And this is equally true, as explained in Furniss v. DawsanZ, whether the tran­ saction has a contractual or non contractual character. The one charged by s. 36

(1)to judge within the framework of his administrative duties the implications of the transaction is the Director of Inland Revenue. The conclusion of the Director that the transaction was fictitious was reasonably open to "him, if not unavoidable. The property was sold by the applicant before the ;gift. The gift to her husband, as subsequent -events showed, 'did -not cause any embarrassment in the discharge of her con­ tractual obligations. On the contrary, the husband 'did as •she had contracted to do. The inescapable inference is that the-property was gifted to the husband with sure know'ledge he would be a party to the implementation of her contractual 6bl:gations. The only effect *of the gift was to 'reduce the liability ·ΐο tax *of the applicant. 5 10 15 20 'Notwithstanding the amenity of the Director to classify 25 the transaction as fictitious, given the 'facts of 'the case. applicant contended this course'was'not'open to'him be­ cause "of(

1. a)the inapplicability of s. 36(
2. d)to the raising assessment to capital gains tax and of an 30 (
3. b)the-retrospective character of *ihe tax imposed by-Law 52/80 arising from the-assessment »of 'the value *of •the property by reference to an antecedent -date, that is 27.6.78. The argument is that the relevant prov-sion 'of 'the law, 'notably -s. -6(.10. 'was 'enacted 'in vbreacrnof 'the iprovisions <of > "Γ1*978] 2 All ~E.~R. "241. •2 Ϊ 1 9 8 4 7 1 All E.R. 530 (H.L>. 2314 35 3 C.L.R. Panayiotou v. Republic Plkis J- Article 24.3 of the Constitution, prohibiting retrospective taxation. The Constitutionality of Law 52/80: 5 10 As I had occasion to explain in Santis & Others v. The Republic*, "Retrospectivity, in the context of legislation, pri­ marily signifies alteration of rights and the imposition of obligations ex post facto. It is a course regarded as repugnant to fairness and justice, destructive of eertainty in the law and the legal process." Later on it was observed: 15 20 25 30 "It >s imperative to keep in perspective that a Statute is not repugnant in character merely because the rights accruing thereunder are determinable by reference to past events. Events of the past and expe­ rience gained in times gone is the underlying theme of most Statutes. A statute retains its prospective cha­ racter so long as rights conferred thereunder, or obli­ gations created thereby, arise from the date of its enactment or from a future date." The test of retrospectivity, as indicated by the Privy Council in Yew Bon Tew v. Kenteraan Bar Mara2 is whether the statute impairs existing rights and obligations. If it has that effect it is retrospective; but not otherwise. The law here under consideration is, in my judgment, pro­ spective in scope and effect. It does not alter the tax obli­ gations of the applicant prior to the date of its enactment. In fact, the obligation to pay tax under the statute arose years after its enactment on 29.3.84. coincident with the sale of immovable property. Similar submissions of unconstitutionality of Law 52/80 found no favour with A. Loizou. J., in Papaconstantinou and Another v. The Director of the Department of Inland Revenue^. He dismissed them as untenable, ruling ι

(1983)3 C.L.R.

2. 2 Π 9 8 2 ] 3 All E.R1
3. ' Se* Cases Nos. 1005/85 and 1006/86, {Reported in 11986) 3 C L.R. 1672). 2315 decided on 239.86 - - Pikis J Panayiotou ν Republic {1986) that rht 'aw is prospective in character, leaving unaffected Mghts and obligations that uystallized p^ior to the ena*.'ment of the law I am ot tho same opin on and for much t^e same reasons 1 hold likewise App!tcabtlit\ of the Pro\tstons of Ό Assessment of Capital Gams Tax 36(f)—Law 4/78— *> The applicability ot s 36

(1)to the raising ot an assess­ ment to capital gams tax turns on the interpretation and r cope of s 3

(2)and s 3

(3)of Law 4/78 In agreement with counsel foi the respondents. 1 find that s 3

(2)ex- 10 pressly empowers the Director to mvoke s 36

(1)in raising an assessment under any tax legislation The submission ol counsel for the applicant that the existence of mach nery undei Law *2, 80 to rj>ss an assessment jndcr the specfic statute t^ not conclusive and u;nr.of be leconcili-d I *> w,'h the piovisions cf s 3

(2)The Assessment and O l 'cct on of 7a\es Law—4/78—is not united in scope to assessments raised under the Income Tax Laws Η s <in enactment intended »o make comprehensive piovisjon for the effective enforcement of tax legislation general'y Con- 20 ^cqucntl\, the D rector could legit'matciy mvoke the powers under s 36(P and disregard the gift to 'he husband as fictitious The recourse foils The dec sion of the Dnector is af­ firmed under Article 146 4(a) of the Constitution I e' rhere be no ordei as to costs Recourse dismissed No ordei as to rosrs 2316 25