clr/1987/1987_3_563.pdf

(1980)3 C L.R 321 and Geo. Pavltdes Ltd ν The Republic

(1980)3 C L R 345 he was not entitledtodeducttheamount of £50,000,butinsistingthathe was entitledto 563 Serghis v. Republic

(1987)deductions for wear and tearallowance in respect of such assets, pursuantto s 12

(2)(a) of the Income Tax Laws Inthis respect applicant referred tothe respondent's Circular No 1983/18 dated 5 583 para 2 of which reads as follows «Claims for wear and tear allowances however have been allowed to continueas usual,such allowances being grantedbyconcession Thispractice hasbeen followed since thecommunaltroubles of December 1963 and also the Turkish invasion of July, 1974» Counsel for the respondent argued that the burden of proof in respect of deductions and losses lies upon fhe applicant, who failed to adduce any evidence as tothealleged figuresrepresenting hislossesand thatinany event though therespondent had,intheabsence of properaccountsprepared bya practising accountantapproved by theMinisterof Finance,discretion toreject applicant s claims in toto nevertheless he concessionally decided to allow a deduction of £15.000 10 15 Finally,counsel for the respondentaccepted thattheapplicantwas entitled to a tax credit of £60 -for each of theyears 1981 and 1982 under paragraph 3 of the Second Schedule tothe IncomeTax Lawsas theapplicant had four children Held annulling in part the sub judice decision

(1)The applicant nghtly conceded thathiscapita!assets within theTurkish occupied area couldnotbe treated as a definite loss for income tax purposes (Tsimon Ltd ν The Republicand Geo PavlidesLtd υ TheRepublic, supracitedwith approval) 20

(2)Inthisstnctapplication of thelaw theapplicantwould notbe entitledto any wear andtearallowance for plant and machinery which were notused in 2 5 his business dunng the years in question The case however, is covered by theaforesaid Circularwhichwas issued, asamatterofpolicy,inorderto allow such deductions in respect of properties situated in the Turkish occupied areas

(3)Although the applicant did not bnng any evidence other than the certificate of the Ministry of Agnculture dated 511 74. itwas not reasonably open to the Commissioner to disallow in toto the claim for wear and tear allowance, because, once the existence of thepig farm was established, he should, if he disputed its value, either request the applicant to produce evidence as to such value or proceed and make his own estimate The Commissioner could not reject applicant's claim as if the property never existed

(4)Inthelight of thematenalbefore theCourtthesubjudice decision was as regards the claim in respect of the loss of applicant's stock in trade, reasonably open tothe Commissioner

(5)Astheapplicant had fourchildren,heisentitledtoataxcreditof£60 -for each of theyears 1981 and 1982 564 30 35 3 C.L.R. 5 Serghis v. Republic SawidesJ.

(6)In the result this recourse succeeds in part to the extent mentioned above Subjudice decisionannulled inpart No orderasto costs Casesreferredto TsimonLtd ν TheRepublic

(1980)3 CLR 321 Geo PavlidesLtd ν TheRepublic

(1980)3 C LR 345 Recourse. Recourse against income tax assessments raised on applicant 10 for theyears 1977-1982 Μ Georghiou,for theapplicant Μ Photiou, for therespondent Cur adv vult 15 SAWIDES J read the following judgment The applicant is a displaced person from Milia village, Famagusta, where he had a livestock breeding business After his displacement in 1974, as a result of the Turkish invasion, he moved to Lamaca where he continued tocarry on thebusiness of animal dealer Asprovided insection 13

(3)oftheAssessment andCollectionof TaxesLaws 1978-1979, therespondentraisedassessments onthe applicant's incomeat vanous dates in respect of theyears 19771982 The first assessment so raised was in respect of the year 1979 (yearof income1978) which was raised on29thNovember, 1980 at£2 500 - accordingtowhich thetaxpayable was £222 75 25 On4 5 1981 anassessment was raisedinrespectoftheyear 1980 on £3000, according to which the tax payable was £340 75 On 3 4 82 theapplicantfiled an out-of-timeobjection ontheground thattheassessments for thesaid twoyears were excessiveandthat no child allowances were granted in respect of hisdaughter who 30 was a student abroad The applicant's out-of-time objection was acceptedon21st Apnl, 1982, inview of thefact thathewas a new taxpayer andontheunderstandingthatacapitalstatement would be submitted by him for examining his objection On 2nd December, 1983 the applicantsubmitted a declaration,, showing 35 hisassets and liabilities as on31st December, 1982 20 Dunng the year 1983, the respondent raised estimated assessments in respect of the years 1977 (year of income 1976), 1978 (year of income 1977), 1979 (year of income 1978), 1979, 565 S a w i d e s J. Serghia v.Republic

(1987)1981 and 1982. In view of the new assessment for 1979 the previousoneforthe sameyearraised on29.11.80wascancelled. Applicant failed to file an objection against any of the said assessments,neitherdidhefileanyreturnsofincomeinrespectof any of theyearssubject matter ofthisrecourse. 5 Byletterdated 26thJune, 1984,theapplicantwasrequested to callatthe income taxoffice on 6th July, 1984inconnection with his income tax affairs, but he failed to do so without giving any explanations. Sometime in 1984 the applicant's tax affairs were reviewed in respect of the period 1st January, 1976 to 31st December, 1982. During thisperiod, the applicant's income was estimated by way of capital statement at £23,925.- but as no objections were made on the assessments already raised and amounting in all to £32,800.- the respondent did not revise the assessments. 10 15 Following certain legal proceedings initiated bythe Collection Branch for the collection of tax and special contribution for the yearssubjectmatterofthisrecourse,theapplicantwrotealetteron 10.10.1984 by which he claimed, for the first time, that losses incurred by him as a result of the Turkish invasion in July, 1974 20 should be set off against hisincome, thus leaving no chargeable income for the years subject matter of this recourse. The losses claimed, asset out inthe letterof the 10th October, 1984,were(

1. a)Stockintrade(pigs,goats,sheep, animalfoodstuffs, animalwool,etc.). £28,075.- (
2. b)Plant,machinery,sheds,etc £50,000.Total 25 £78,075.- Insupportofhisclaimtheapplicantsubmittedacertificateofthe Ministry of Agriculture dated 5th November, 1974, that he had 500 pigs as at December, 1973 in accordance with a Ministry 30 Censusofpigsandthathispigfarm wasofacapacityof800pigs. The respondent bearing inmind the applicant'ssaid letterand the certificate of the MinistryofAgriculture and havingtaken into consideration the fact that the applicant was a displaced person, decided to accept his out-of-time objections and settle his tax 35 liabilities for the years in question, upon the basis of the capital statement allowing a maximum loss of £15,000.- to be carried 566 3 C.L.R. Serghis v. Republic SawidesJ. forward asat 1stJanuary, 1975. The assessable income ascertained by the capital statement method at£23,925 against which no objection was made,wasas a result reduced by the allowance of £15,000.- and fresh 5 assesments were raised on 26.3.1985 demanding tax only in respect of the years 1981 (£348.75) and 1982 (£402.50), i.e. a total sum of £751.25. Particulars as to how the income of £23,925.- was ascertained, appear in a detailed statement annexed to the opposition as appendix «C». Such assessments 10 were communicated tothe applicant who, having felt aggrieved, filed the present recourse, challenging them as null and void contending that the sub judice decision was not duly reasoned, waswronginlawandinfact,thatthecomputationsacteduponby the respondent are wrongin fact and inlaw,that the respondents 15 acted upon onamaterialmisconception oflawand factand finally thattheassessmentscomplainedofarearbitraryandlegallyaswell asfactually, unfounded. Byhiswritten address counsel for applicant in expounding on the facts of the case, described the applicant as a person whose 20 trade was devastated as a result of the Turkish invasion and who lostmovable propertytothetotalvalue of£28,075.- consistingof the following: 25 560pigsat£20.-each 230goatsand sheep at£30.-each 10tonsofwoolat£400.-each 13000okesofwheatat75centper oke Amimal foodstuff approx £10,200.-. £6,900.£4,000.£975.£6,000.Total £28,075.- He further contended that the applicant lostfixed assets and in 30 particularplant and machinery tothevalue of£50,000.Inexpoundingonhisgroundsoflaw,counselcontentedthatthe respondent failed to explain and to duly reason the assessments arrivedat,afterthedetermination oftheobjectionoftheapplicant, and in particular he failed to explain how he arrived at the sum 35 of£15,000.-asbeingthelosswhichtheapplicantwasallowedto carryforward tofuture years. 567 S a w i d e s J. Scrghis v. Republic

(1987)Counsel by making reference tothecontentsof theletterofthe respondent dated 25th November 19S5 which was filed in response toan application onthepartof theapplicantfor further and better particulars as to how the respondent arnved at the figure of £15,000, submittedthatthereasoning containedtherein isdefective andthatthedecision of therespondenttoacceptaloss of £15,000 - by way of concession orex gratia isanarbitrary one In his submission, the respondentshould have taken into account theactuallossofmovable assets amountingto£28,075 -andfixed assets at£50,000 - 5 10 Bearing inmind counsel submitted thedecision in Tsimon Ltd ν TheRepublic

(1980)3C LR 321 and Geo PavhdesLtd ν The Republic

(1980)3 CL R 345, though the applicant might have not been entitled to deduct the amount of £50,000 - as a permanent loss, nevertheless, he was entitled to deductions for 15 wear and tear allowance in respect of such assets, pursuant to section 12

(2)(a) of the Income Tax Laws In support of his argument, in this respect, he made reference to a circular of the Commissioner of Income Tax dated 5 5 83, copy of which he produced, according to which deduction of wear and tear 20 allowance in respect of such capital assets is allowed concessionally Inconclusion counsel submitted thatthe revised assessments should be annulled Counsel for therespondentby his wntten address argued that the burden of proof in respect of deductionsand losses lies upon 25 the applicantand he failed todischarge same as noevidence was adduced by himastoalleged figure of £78,075 -,representing his losses as a result of the Turkish invasion The only evidence produced by him was the certificate from the Ministry of Agnculture in which it was stated that in accordance with the 30 Ministry's census of pigs as at December, 1973,theapplicanthad 500 pigsand thathis pig farm was of a capacity of 800 pigs Furthermore,counseladded,theCommissionerof IncomeTax has a discretion to refuse to allow deductions unless proper accounts to his satisfaction and a computation showing the 35 assessable object of the tax is prepared by an independent practising accountant approved,by the Minister of Finance Though the respondent could reject the applicant's claim for lossesintoto,nevertheless, takingintoaccountthefactthathe was a refugee, concessionally decided to allow a deduction of 40 £15,000 - As totheclaimof theapplicantfor entitlementto yearly 568 3 C.L.R. Serghis v. Republic S a w i d e s J. wear and tear allowance, counsel explained that this was not granted in the present case because of the applicant's failure to substantiate hisclaim before the Commissioner. Inconcluding counsel affirmed hisprevious statement that the 5 applicant was entitled to a tax credit of £60.- for each year in respect of the years 1981 and 1982 under paragraph 3 of the Second Schedule totheIncomeTaxLawsashehad four children and statedthattherespondent isprepared toallowthesaidcredits and reduce theapplicant's taxliabilityaccordingly. 10 Originally the claim of the applicant, according to the facts endorsed in the application, was in respect of deduction of the lossesreferred toinhislettertothe Commissioner ofIncomeTax. According to the particulars set out therein, such losses were: £28,075.- in respect of stock intrade and £50,000.-in respectof 15 capitalassets,such as plant, machinery, etc. Counsel for applicant inthecourse oftheseproceedings andin particular by hiswritten address,rightlyconceded that inviewof the decision in Tsimon Ltd. and Geo. Pavlides Ltd. (supra) the applicant could not claim that hiscapital assetswithinthe Turkish 20 occupied area could be treated as a definite loss for income tax purposes.Thisquestionhasbeenconsideredbymeinthesaidtwo cases in which Ifound that the mere temporary inaccessibility of suchpropertytotheapplicantsandtheirtemporaryinabilitytouse same for the purpose of their trade or business, due to enemy 25 occupation and for so long as such occupation lasts, does not amount to a definite ceasure of the use or a definite loss of their property which, as admitted by the applicants still stands registered in their names as absolute owners and it isnot alleged that theyhave been lost permanently. 30 Inthestrictapplication ofthelaw,asitnowstands,theapplicant wouldnotbeentitledtoanywearandtearallowanceforplantand machinerywhichwere notused inhisbusinessduringtheyearsin question.However,therespondent, asamatterofpolicy,decided to allow such deductions in respect of properties situated in the 35 Turkish occupied areas, in view of the prevailling circumstances and the fact that such properties cannot be considered as permanently lost. To this effect, he issued Circular No. 1983/18 dated 5th May, 1983,para. 2of which readsas follows: 40 «Claimsforwearandtearallowances,however, have been allowed tocontinue asusual, such allowances being granted 569 S a w i d e s J. Scrghis v. Republic

(1987)by concession. This practice has been followed since the communal troublesofDecember. 1963,andalsotheTurkish invasion ofJuly, 1974.» In support of his claim for yearly wear and tear allowance in respect of his capital assets situated in the occupied areas, the 5 applicant produced the certificate of the Ministry of Agriculture dated 5th November, 1974, to the effect that his pigsty was of a capacity of 800 pigsand stated that the value of hiscapital assets comprising plant, machinery, sheds etc. was £50.000.- Although hedid not bringany otherevidence establishingtheallegedvalue 10 of his aforesaid property, it was not reasonably open to the respondent, in the circumstances, to reject his claim for such allowance completely. Once the existence of such property was established, if the respondent disputed itsvalue, he should have requested the applicant to produce any further evidence 15 concerning itsvalue or proceed to make hisown estimate of the value of the property in question instead of rejecting theclaimof the applicant as ifthe property never existed. InthisrespectIfindthattherespondentfailed tocarryoutadue 20 inquiry into the actual value of the property and the sub judice assessments have to be annulled tothis extent. What remains to be considered is the alleged loss of stock in trade in lespect of which the applicant claimsasbeing£28,075.and inrespect of which respondent allowed £15,000.- 25 Ina disputed case like the present one, the onus to support a claim for exemption or deduction allowance ison the applicant. The only material which he placed before the respondent Commissioner was the certificate from Ministry of Agriculture dated 5th November, 1984,tothe effect thatinDecember, 1973 30 he had 500 pigsaccording toaMinistry's census.Such certificate referred to a time prior to the Turkish invasion and the applicant never disclosed his stock in trade as at the end of 1974 in any declaration of his income. Furthermore, the applicant has not adduced any evidence before the court to substantiate his claim 35 that his movable assets which he lost as a result of the Turkish invasion exceeded theamountof£15,000.-whichthe respondent concessionally allowed. Even if the certificate of the Ministry of Agriculture on which theappellant soughttorelyisconsidered as disclosing the situation as at the time of the Turkish invasion as 40 570 3 CX.R. Serghls v. Republic S a w i d e s J. well, the value of 500 pigs at £20 each, according to the value given by the applicant in his letter, amounts to £10,000.- The respondent, inaddition tothat amount, conceded toa deduction of afurther sum of£5,000.-,thusmakingatotal of£15,000.-. 5 Inthe light of allthe above, Ihave come tothe conclusion that itwasreasonablyopentotherespondenttodecideashedidinthis respect, and allowthe deduction of the£15,000.-. Lastly,inview oftheadmissionmadebycounsel forrespondent, theapplicantis also entitled to a tax credit of £60- for each of the years 1981, 10 1982,ashehad four children. In the result this recourse succeeds partly, to the extent mentioned above, but in the circumstances Iwill not make any orderastocosts. Recourse succeeds in part.No orderastocosts. 15 571