clr/1987/1987_3_1920.pdf

(1)of the Assessment and Collection of Taxes Law 1978-1979 was applicable, issued to the applicant a noticeof assessment of Capital Gains Tax. The applicant objected, alleging that the site in question was purchased from applicant's father in 1958 by her husband but it was registered in applicant'sname becauseher husbandcouldnot attendattheDistrictLands OfficeNicosia,ashewas thenanemployee ofthefirmofAccountants,Russel and Co. Nicosia. 1920 20 3C.L.R. '5 Pfesaride· v. Republic Itmust be notedthatifthetaxhadbeen payable by applicant'shusband, he would have been liable to pay only £200 — because he could claim an exemption of £5,000. (Section 5

(1)of the Capital GainsTax Law,) whereas, if ithad been payable by the applicant, she would have had topay £700 in viewof previous disposals made by her. As theobjection of theapplicant was turned down by the respondent, the present recourse was filed 10 Held, dismissing the recourse:

(1)The point at issue is whether in such circumstances it was open tothe respondent Directorto treat the gift of the ar, ' d by the applicant to her husband as fictitious or artificial and disregard same. 15

(2)Undersection36

(1)ofthe AssessmentandCollectionofTaxes Laws 19781979 the respondent Director 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. (See HjiEraklisv. The Commissioner of Income Tax

(1984)3 C.L.R. 604; T.Z. Guarantee Develooments Ltd. ν TheRepublic

(1986)3 C.L.R.381, Panayiotou v. The Republic

(1986)3 C.L.R. 2311. 20

(3)The words «artificial» and «fictitious» in section 36

(1)were judicially considered by this Court in a number of cases. In the light of all the circumstancesofthiscase,thequestion should be answered intheaffirmative . 25

(4)The allegation that applicant's husband purchased the site from her father in 1985 is both unsubstantiated and inconsistent with her own declaration on FormI.R.302. FormI.R.302 isaformal document prescribed by law and the Courts cannotaccept anything inconsistent with itscontents that may render thesame «as notcontainingtrue statements merely because itis useful so todoona given occasion.» Recoursedismissed. No orderas to costs 30 Casesreferredto. HjiEradisv. TheCommissioner of Income Tax

(1984)3 C.L.R.604; T.Z.GuaranteeDevelopment Ltd. v. TheRepublic

(1986)3 C.L.R. 381; Panayiotou v. TheRepublic

(1986)3 C.L.R. 2311; AdisLtd TheRepublic

(1986)3C.LR. 900. 35 Recourse. Recourseagainstthedecision of the respondentswherebythe gift of the land by the applicantto her husband was treatedas fictitious andcapitalgainstaxwas imposedontheapplicant. 1921 PUsaridesv.Republic

(1987)X. Clerides, forthe applicant. Y.Lazarou, forthe respondents. Cur.adv. vult A. LOIZOU J. read the following judgment. The recourse is againsttheCapitalGainsTaxAssessment (Appendix«A»),relating to the disposal on the 28th September 1983,by the applicant of one building site situated at Strovolos under Registration No. G747, Sh/Plan, 30/

1. E.I., Plot 661 of an area of two evleks and five-hundred square feet. 5 The applicant who is a housewife is the owner of several 10 building sites, fields and shops at Strovolos, which were all acquired bygift from herparentsbetween theyears1958to 1970, as declared by her in a return submitted for immovable property taxpurposes (Appendix«B»). On the 19th July, 1983, the applicant obtained from the 15 respondent a certificate (Appendix «C»), stating that the immovable property tax for the building site under Reg. No. G. 747 at Strovolos had been paid. The purpose was to produce same totheLand RegistrationOffice, Nicosiaand effect a transfer of that property. That was done on the 28th July 1983,when the 20 building site in question was transferred in the name of her husband byDeclaration of Gift No.5312/83 of the District Lands Office, Nicosia, details of which appear on the relevant Form N. 313 (Appendix «D»).On the same day and at the same time, her husband Andreas Pissarides, an authorized Accountant by 25 profession, proceeded and transferred the same building site in the name of the purchaser Eva K. Andreou of Strovolos as per Declaration of Sale No. S. 5323/83, as shown on Form N. 313 (Appendix«E»).Thesale price declared was£15,
2. On the23rd April 1985,the respondent issued tothe applicant 30 a Note of Assessment (Appendix F), having decided that in the circumstances of this case Section 36

(1)of the Assessment and Collection of Taxes Laws 1978-79 was applicable. The applicant objected againstthisassesmentthrough herhusband'sletterdated 7th May, 1985, (Appendix «G»). The reasons on which the 35 applicant based her objection were the following: (a)Thatshedidnotrealizeanygainfrom thesaleofthatbuilding site. 1922 3 C.L.R. Pissarides v.Republic A.Lolzou J. (b)That thebuildingsitewaspurchased from applicant's father in 1985byher husband but itwasregistered inapplicant's name, because herhusband couldnot attend atthe DistrictLand's Office Nicosia, as he was then an employee of the firm of Accountants, 5 Russel and Co., Nicosia. (c)The circumstances under which the (alleged) purchase was effected were that applicant's husband at the time when they were about toget married, paid certain expenses relating to their marriageand that lateron hepaid bycheque asum of £300 asfar 10 as he could remember. It was also explained that her father needed money to meet the expenses of the applicant's marriage and also to separate a field into four building sites. Instead of sellingthe saidbuildingsiteher father offered ittoher then fiance tobuy itat£500,apricewhichwasoffered tohimbyan interested 15 buyer whom theapplicant's husband had introduced toher father atthat time. (

1. d)That applicant's husband sold the building site in 1983. and the transfer in the name of the purchaser was made on the same dayonwhichtheapplicanttransferred itbywayofgiftinher 20 husband's name. The objection of the applicant was examined and the whole matter was explained to her husband during an interview that he had with a Senior Assessor at the Offices of the Respondent in Nicosia. During that interview applicant's husband gave the 25 following supplementary information: (a)Nocontract ofsale was made with the purchaser. (b)The proceeds of sale amounting to £15,000 were used for the repayment of a loan due bythe applicant and her husband to Strovolos Cooperative Credit Society Ltd and the surplus were 30 deposited in a joint deposit account, that is applicant's and her husband's atthe Bank of Cyprus Ltd., Nicosia. (
2. c)That applicant's and her husband's financial transactions were not separated, stating that «they were keeping a common purse». 35 After the above interview applicant's husband addressed to the respondent a letter dated the 5th August 1985, (Appendix *H»), by which he was giving further reasons for her objections namely that the gifts made between spouses and from parents to 1923 A.LolzouJ. Pisearidc· v.Republic

(1987)children were not liable toCapital GainsTaxunder Section 10(

1. b)ofthatLaw,and thatthere wasnoprovision inthatsection placing anytime limitorrestrictionbetween thetimeofacquiring property bygift and the time of subsequent sale by the donee, in order to obtain the exemption provided bythat section. 5 On the 10thJanuary 1986,the respondent sent tothe applicant a letter explaining the reasons for which her objection was determined (Appendix I). A Notice of Assessment was also forwarded with that letter of determination (Appendix J). The reasons on which the respondent based hisdecision to assess the IQ applicant with the profit realized from the sale of the buildingsite which was sold by her husband on the 28th July 1983,are as set out in paragraph 5.2, of theopposition the following: «(a)The buildingsitewasinfact soldbythe applicant prior tothetime ofmaking thedeclaration ofgiftinthe name ofher 15 husband. The fact that the applicant obtained from the respondent on the 19th ofJuly, 1983,acertificate (Appendix C), to enable herto effect a transfer through L.R.O.as well as the simultaneous deposit of the declaration ofgift and saleon the 28th July, 1983, at L.R.O. Nicosia, indicate that the 20 agreement of sale wasmade prior to the time of effecting the gift. Such a decision was reasonably open to the respondent on the basis of the particulars available to him and the circumstances surrounding the case. (
2. b)Itwas reasonably open tothe respondent not toaccept 25 the argument of the applicant put forward through her husband that thesaidsitewassold bytheapplicant's father in 1958 to her then fiance and that it was not possible for the applicant's husband to go to the L.R.O. Nicosia eversince to accept a transfer inhisname eitherbyhisfather-in-law, prior 30 to the gift made in the applicant's name, or at any time thereafter to accept a gift from his wife. In any case the applicant failed toproduce any evidence atallto substantiate her claim and in the absence of a valid enforceable contract between the registered owner / applicant and her husband 35 and thusher claimcould not be sustained. (
3. c)Inspite of paragraph 5.2(
4. b)above, even ifthere wasa contract of sale between the applicant and her husband or between her husband and the applicant's father, the respondent had no power to accept the existence as at 1st 40 1924 3 C.L.R. 5 10 15 20 25 30 35 Pissarides v. Republic A. Lobcou J. January, 1980, of any contract, as such a contract was not deposited with the respondent on or before the 30th of September, 1980, as provided by section 35 of the Capital Gains Tax Law, 1980. Thusthe respondent could notaccept thatthegiftmadeattheL.R.O.on the27thJuly, 1983,by the applicant to her husband was in consequence of the agreement madein 1958 oranytimethereafter butpriortothe 1stAugust, 1980. Thusthedisposition madeby way ofgifton the27th July, 1983, couldlegally be considered as a disposal attracting capital gains tax, having regard to the provision of section36

(1)of theAssessment andCollectionofTaxes Laws, 1978-1979. (d)Itwas also reasonably open totherespondentto invoke the provisions of section 36

(1)of the Assessment and Collection of Taxes Laws 1978-1979 and consider the gift madetoherhusbandasafictitious and/orartificial transaction. Inviewof the close relationshipbetween thespouses andthe professional knowledge of the applicant's husband, in his capacityas anaccountant-auditor,thewhole schemeandacts of the spouses were considered as preordained wholly and exclusively for the purpose of tax avoidance and for noother purpose. The simultaneous deposit at L.R.O. of the declaration of gift andsale by the applicant and her husba d and thesubsequent use of themoney for thecommonbene'ΐ of both spouses, as well as the applicant's claim thatthe La\ * does not provide for any time limits for thesale of a prop* ty for which section 10(b) applies (an argument confessing *he intention of making those transactions for the purpose of avoiding tax)leave noroomforanyotherconclusionthanthat reached by therespondent. (e)Theattemptoftheapplicantwas toavoid paymentof the tax assessed amounting to £700 -and the payment of £200 only by herhusband,whocouldclaimanexemptionof £5000 under s. 5

(1)of the Law, instead of the exemption of £2500 which was available to the applicant, in view of a previous disposal made by her by which the balance of £2500 was utilized, thehusband's liability would have been computedas follows: 1925 A.LotzouJ.

(1987)Pissaridesv. Republic ProceedsofSale Less:Marketvalueasat27.6.78 £15000 £ 9000 6000 5000 Capitalgain Less:Amountexempt £ 1000 Chargeablegain 200 700 Capitalgainstax20% Payablebyapplicant £ 500 Taxavoidance (0 The respondent's decision is legally founded for not agreeing withtheapplicantthattheprovisionsofsection 10(b) 10 oftheCapital GainsTaxLaw 1980arealwaysapplicabletoall and everyparticularcaseingeneralandwithoutanylimitation and that section 36

(1)of the Assessment and Collection of TaxesLaws, 1978-79could notbeappliedonanytransaction covered bysection 10(b)oftheCapitalGainsTaxLaw, 1980». 15 Learned coun^l for the app,:c;ant has submitted that the respondent decided toimposethecapitalgainstaxonher, having formed the viewthattheactsofthe applicant werepreordained in order to avoid taxation. The respondent it was argued, relied on certain facts which, although they might create some suspicion, 20 they were however, capable of being taken in another perspective. He disagreed with the viewthat inthe circumstances itwas reasonably open tothe respondent thatthetransaction was a fabricated one, as it was open to the respondent to treat the transaction asagenuineone andherespectfully submitted thatthe 25 respondent in hiszealtoprotect the best interests ofthe Revenue acted in an oversuspicious manner. Thiswasa transaction within thefamily and theabsence ofacontractinwritingshouldnothave been treated as yet another mattertoincrease the suspicion. It was alternatively urged that irrespective of whether the 30 respondent's suspicions werejustified or not, under the Law, the respondent isnotgiven adiscretion.There isnothing inthelawto theeffect thatcertaintimeshouldelapsefromthegiftotherwisethe donor stepsintothe shoes ofthesellingdonee and hastopay the tax of the selling donee. Moreover, there isnothing in the Lawto 35 the effect that every giftof immovable property must be recorded 1926 3C.L.R. Puwaridesv.Republic A.LoizouJ. at the Lands Office otherwise it isnot a disposition exempted by section 10. The point atissueiswhether insuch circumstances itwas open to the respondent Director to treat the gift of the land by the applicant to her husband as fictitious or artificial and disregard 5 same. Under section 36

(1)oftheAssessment and Collection ofTaxes Laws 1978-1979, the respondent Director is empowered to disregard any transaction which is artificial or fictitious and was entered into or done solely for the purpose of reducing or 10 extinguishing one's liability totax. The words «artificial· and «fictitious» in section 36

(1)were judicially considered by this Court in a number of cases. In GeorghiosHjiEraclisv.TheCommissioner ofIncome Tax

(1984)3 C.L.R. 604, the applicant's mother contracted to purchase some 15 land inParalimni.The purchase wasnegotiated bythe applicants who also paid the down payment. The land was transferred by a declarationofsaleinthenameofthemotherwho,instantlyandon thesameday,transferredsamebywayofgifttotheapplicantswho in a short period resold it at considerable profit. The Court held 20 that it was reasonably open to the respondent Commissioner to conclude that the transaction of the purchase by the mother an ' thegifttotheapplicantswasafictitiousoneandthatthe applicant· actually purchased the landdirectlyfrom theseller.Stylianides J., stated: 25 «'Artificial' and 'fictitious' have no definition but hardly, anyone isneeded. Itisfor the respondent todetermine from hisfindings of primary fact the further fact whether there was . anactwithoutanycommercialorbusinesspurposeapart from a tax advantage.» 30 The same conclusion was reached in T.Z. Guarantee Developments Ltd. v. The Republic

(1986)3 C.L.R. 381, where the Court held that itwas not necessary for the transaction to be unlawful orillegalinordertobedisregardedasartificialor fictitious but «it is sufficient if it was entered into or done only for the 35 purpose of evading thepayment of incometax». In Theofano Panayiotou v. TheRepublic

(1986)3C.L.R.2311, theapplicant wastheownerofaplotofimmovable property. She agreed to sell it for £26,000-. On the day set for the transfer but 1927 A. Lolzou J. Pissarides v. Republic

(1987)before effecting it,she conveyed by way of gift one half shareto herhusbandwhojoinedherlaterthatdayintransferring thewhole propertytothepurchasers. TheCourtheld thattheconclusionof the respondent Director of Inland Revenue that thetransaction wasfictitiouswas reasonably opentohimifnotunavoidable. Pikis 5 J.,stated: «Whatever gloss one may put upon the facts surrounding the gift, it is difficult to escape the conclusion that the transactionwasfictitious,thatis,ithadanobject otherthanthe apparent or declared one, namely the enrichment of the JQ husband by the property gifted to him... The property was sold by theapplicant before thegift. Thegift toher husband as subsequent events showed did not cause any embarrassment in the discharge of her contractual obligations. On the contrary the husband did as she had 15 contracted to do. The inescapable inference is that the property was gifted tothe husband with sure knowledge he would be a party to the implementation of her contractual obligations. The only effect of the gift was to reduce the liabilitytotaxof theapplicant.» ^" Likewise, in the present case, the transaction whereby the applicantgiftedherlandtoherhusbandhad,assubsequent events showed an object other than the apparent or declared one, namely the enrichment of the husband by theproperty gifted to him.Theproperty was soldby theapplicantpriortothegift.The 25 applicant remained thetrueowner with thehusband playingthe role of an agent who promptly complied with the wishes of the principal, implementing her wishes by doing what she had bargained to do,thatis, transfer theproperty inthe name of the purchasers. Moreover by the gift, the husband was enabled to claim the £5,000exemptionallowedundersection5

(1)oftheCapitalGains Tax Law, 1980, instead of the £2,500 exemption which was availabletotheapplicantandastheapplicant'sliabilitytotax was reduced. Theallegation advanced by theapplicantthattheactualowner ofthelandwas herhusbandashehadpurchasedthesitefromher father in 1958 who transferred same to the applicant as her husband was unable toattendtheLandRegistry Office inNicosia on theday thetransfer was effected, isboth unsubstantiated and 40 1928 3 ϋ 35 3 C.L.R. Pissarides v.Republic A. LoizouJ . inconsistent with her own declaration on Form I.R. 302. (AppendixB),onwhichshedeclaredthattheimmovableproperty wasgifted to her. Form I.R.302 isa formal document prescribed by law and as was stated in Adis Ltd. v. The Republic

(1986)3 5 C.L.R. 900, the Court cannot accept anything inconsistent with thecontentsofsuch documents thatmayrender tKesame«Asnot containing true statements merely because it is useful so to do onagivenoccasion».If,astheapplicantcla'ims,theland belonged toher husband, whydid she waittwenty-five years totransfer the JO property to him. The obvious answer is that the property in question wasgifted toher by her father. But even ifone assumes that the property was,asalleged, purchased bythehusband, the registration of such property in the name of the applicant is concreteproof thathegaveupinfavour oftheapplicantanyclaim 15 which he mayhave had on that land. Foralltheabove reasonsIhave cometotheconclusionthatthe sub judice decision was reasonably open to the respondent Director and that itwastaken inaccordance with the Law. In the result the recourse is dismissed and the sub judice 20 decision is confirmed in whole under Article 146

(4)(a) of the Constitution. In the circumstances, however, there will be no order astocosts. Recoursedismissed. No order asto costs. 1929