clr/1988/1988_3_1125.pdf

(1980), Sections6and9—Whetherretrtospectiveand, therefore,unconstitutional—Questiondeterminedinthenegative. 1125 Pavlou v. Dir. of Inland Revenue

(1988)Wordsandphrases: "Retrospective". Thefactsofthiscasesufficiently appearintheJudgmentoftheCourt. Recoursedismissed. Costsagainstapplicant. Casesreferredto: 5 MasterLadiesTailorsOrganizationv.MinisterofLabourandNationalService[1950]2AllE.R.525; Customs andExciseCommissionersv.Thorn ElectricalIndustriesLtd. [1975J3A11E.R.881; Papaconstantinouandanotherv.DirectoroftheDepartmentofInlandRevenue

(1986)3 C.L.R.1672; 10 AdisLtd. v.TheRepublic

(1986)3C.L.R. 900; Nicouv.TheRepublic

(1983)3C.L.R. 1113; Panayiotou v.TheRepublic

(1984)3C.L.R.857; Markidesv.TheRepublic

(1967)3CX.R. 147; 15 Cliftv.TheRepublic

(1965)3CX.R.285; Christiansv. TheRepublic

(1966)3C.LJ?.732; Coussoumidesv.TheRepublic

(1966)3C.L.R.1; Georghiadesv.TheRepublic

(1980)3CJ-.R.525andonappeal

(1982)3 C.L.R.

1. Recourse. Recourse againstthedecision oftherespondent toimposeon 1126 20 3 C.L.R. Pavlou v. Dir. of Inland Revenue applicantcapitalgains taxamountingto£1,475.- asaresultofthe disposition ofhisproperty. C.Loizou, for theapplicant. Y.Lazarou, for the respondent. Cur. adv. vult. 5 10 SAVVIDES J. readthefollowingjudgment.Bythepresentre­ course applicantchallenges thedecision of therespondent dated 5th November, 1985, imposing upon him capital gains tax amounting to£1,475.- as aresult of thedisposition by himof half a share of theproperty underregistration D198 andof the whole shareinproperty underregistrationD
2. Applicant was theownerof half ashareinafield underregis­ tration D198,sheet/plan 30/36/W1, plot 227, theotheronehalf shareof whichbelonged tohiswife andof thewhole sharein the 15 field under registration D292 sheet/plan 30/36/W1, plot 226 at KatoDeftera village.Thefirstfield was acquired by himin 1970 for £1,500.-andthesecondin 1972 for £450.-. 20 25 Duringtheperiod 1st April, 1975 to31st March1980 the ap­ plicantleased thesaidpropertiestoMintikisFarmLtd.on conditionthatthetenantswould erectshedsattheirownexpensewhich wouldbelongabsolutely totheownersof thefieldsonthetermi­ nationof thelease agreementon 31st March,1980.Accordingto acapital statementsubmitted by applicanton29th March, 1977 through his accountant (copy of which has beenattachedas Appendix Β totheopposition) thefollowing structures,plantand .machinery weretobefoundonapplicant's fields: (a)A water pumpwhich was inexistence at thetimeof the purchaseof thefieldin 1970; 30 (b) Chicken barracks which cost, with the additions up to 1975, £3,600.1127 Savvides J. Pavlou v. Dir. of Inland Revenue

(1988)On 14th January, 1930, applicant submitted a second capital statement (Appendix C to theopposition) in which he declared that further additional costs of £902.- were incurred for barracks bringing thecapital cost of all thebarracks for theperiod 1970 to 31st October, 1979 to£4,502.On 1stDecember, 1980 applicantsold his share intheproperty under registration D198 as well as the share of his wife in such property andalso his property underregistration D292toGeorge E. Paraskevaides of Nicosia acting on account of New Lapatsa Co. Ltd and also to one Andreas Sawa Liassi for the sum of JQ £50,000.During theexamination of applicant'sincometax liability inre­ spect of the years 1970-1980 the applicant maintained that the price which heobtained from thesaleof thefields representedthe value of the land only as the barracks had no value being of no 15 use tothepurchasers and were thusdemolished on theacquisition of the fields by the new owners. Such contentionwas accepted by the respondent in computing applicant's income tax liability and so thevalue of thebarracks was fixed atnil andconsequently no tax was levied ontheapplicantinrespect thereof. -n On 17thOctober, 1983,therespondentissued toapplicantas­ sessments imposing capital gains tax inrespect of the disposition of his fields, to which he objected on the ground that theproceeeds of £50,000.- which he andhis wife received from thedis­ position in question represented in addition to theland which he ~ς computed tobe worth £25,000.-, thebarracks, plantandmachin­ ery thereof valued at £20,00.- as well as goodwill valued at £5,000.-. The respondenton numerousoccasions according tocopies of the letterattachedtotheopposition(Appendices ΗandI)request- ™ ed applicant to call at his office and produce documentary evi­ dence in support of his objection against theassessments raised, including thesale agreement as wellas avaluation reportsupport­ ing his valuations butalthough hecalled anddiscussed his liabili1128 5 3C.L.R. Pavlou v.Dir.of Inland Revenue Savvides J. tytocapitalgainstaxwiththerespondenthefailed topresentany documentaryevidenceinsupportofhisclaims. 5 10 15 20 25 Asaresultrespondenton5thNovember, 1985proceededand determined applicant'sobjectionsmaintaininghisoriginalassessments. His reasoned decision was communicated to applicant (AppendixJtotheopposition)togetherwiththerelevantnotices ofcapitalgainstaxpayable.Thereasonsgivenbytherespondent inthesaidletterareasfollows: "After acareful examination of the market valueof your properties underregistration D198andD292both onthe1st December, 1980,thedateoftheirdisposal,aswell asonthe 27th June, 1978,1havereached theconclusion that theassessmentof theirmarketvaluewhichyouhavedeclareddoes notcorrespondwiththeirmarketvalueontheaforesaiddates'. Onthebasisofthematerial before meconcerning salesof othersimilarpropertiesinthesameareaaboutthe'sameperiod, -.thevaluationoftheLands&SurveysDepartmentfor.thepurpose of collection of registration fees as well as all factors .. whichinmymindaffect*themarketvalueofimmovableproperty I have reached the conclusion that the market valueof your property under registration D198 and D292 on the 1st December, 1980was£20,000,-(D198)and'£10,000.-(D292) and on the 27th June, 1978£11,250.- (D198) and£6,375.(D292)." . · -Theapplicantfiledthepresentrecoursechallenging thesaidassessments. • Thegroundsoflawraisedinsupportthereofare: 30 Thatthesubjudicedecision wastakeninexcessand/orabuse ofpowers,underamisconceptionoflawandfactandinviolation oftheConstitution;thatitiscontrarytotheacceptedprinciplesof lawand/ornaturaljustice,anditisnotdulyreasoned.1 1129 SavvidesJ. Pavlou v.Dir.ofInland Revenue

(1988)Counselfortheapplicantneitherbyhiswrittenaddressnorby anyevidencewhatsoeverdisputedthefacts setoutintheopposition of the respondent. In expounding on his legal grounds he contendedthat: (a)TheCapitalGainsTaxLaw, 1980andinparticulars.6(

1. l)5 isunconstitutional inthatbyallowingtheimpositionoftaxonthe increaseofthemarketvalueofthepropertybetween27thJune, 1978andthedatethatthelawcameintooperationviolatesArticle 24.3oftheConstitution whichprovidesthat "notax,dutyorrate of any kind whatsoever shall beimposed withretrospectiveef- JQ feet". (b)Subject tohisaforesaid objection hesubmittedthattheassessmentswereexcessiveandthatthecapitalvalueofhisproperty wasnotmorethan whatisstatedinhisdeclaration totherespondent. 15 (
2. c)Therespondent wrongly applied the lawin reaching his conclusion abouttherealizedprofit ashehadnottakenintoconsiderationthefactorofinflation whichifithadbeentakenintoaccountit wouldhaveledtotheconclusionthatnogainhadinfact beenrealized. 20 Counsel for therespondent, insupport of hisopposition,annexed theretoappendix "K",avaluationreportprepared byMr. Mateas,theAssistantCommissionerofEstateDutyastothevalueof therelevantproperties ason27thJune, 1978.Suchvaluationis basedoncomparable salesofpropertieseffected in 1978 and 1979andaftermakingacomparisonbetweenthesaidproper- 25 tiesandthesubject-matter onesandmakingallnecessary adjustments both properties were assessed, ason 27th June, 1978,at £29,000.Ishalldealfirstwiththecontentionofcounselforapplicantas tothe unconstitutionality ofs.6ands.9oftheCapitalGainsTax 30 Law, 1980(Law52of 1980). 1130 3 C.L.R. Pavlou v. Dir. of Inland Revenue Savvides J. Sections 6and9of thelaw read as follows: "6.

(1)Κατάτονυπολογισμόν τουκέρδους- 5 (α) οιαδήποτε προ της 27.6.1978, ήκατ' επιλογήν του ιδιοκτήτουπροτης 14.7.1974, αύξησιςτης ιδιοκτησίας δεν θαλαμβάνηταιυπ' όψιν: Νοείται ότι αναφορικώς προς ιδιοκτησίαν ευρισκομένην εντός απροσπέλαστου,λόγω τηςΤουρκικής εισβολής, περιοχής ουδεμία αύξησις της αξίας της ιδιοκτησίας θα λαμβάνηταιυπ' όψιν. 10 (β) θα εκπίπτηται οιαδήποτε δαπάνηεξ ολοκλήρου ή καιαποκλειστικώς γενομένη προκτήσιν τουκέρδους μετά την 27.6.1978 και η οποία δεν εκπίπτεται δυνάμει των εκάστοτε εν ισχύϊ περί Φορολογίας του Εισοδήματος Νόμων. 15 , 9.

(1)Το προϊόν της διαθέσεως ιδιοκτησίας είναι το ποσόν όπερ η τοιαύτη ιδιοκτησία, κατά την γνώμην του Διευθυντού, θα απέφερεν εάν επωλείτο εν τη ελευθέρα αγοράκατάτονχρόνον καθ1ον ηιδιοκτησίαδιετέθη. 20 25

(2)Εάνδεν έχηλάβει χώραναγοράή πώλησις, θαλογίζηταιως πληρωθέν ή ληφθέν,αναλόγωςτης περιπτώσεως, ποσόν ίσον προςτοποσόν όπερητοιαύτηιδιοκτησία,κατά τηνγνώμην τουΔιευθυντού θααπέφερενεάνηγοράζετο ή επωλείτο, αναλόγως της περιπτώσεως, εν τη ελευθέρα αγοράκαθ'ονχρόνον επιουνέβητο γεγονός." InEnglishtheyread: "6.

(1)Incomputing thegains- J (a) any appreciation in the value of the property before 1131 SavvidesJ. Pavlou v.Dir.ofInland Revenue

(1988)27.6.1978oriftheownersochooses,before 14.7.1974,shall notbetakenintoaccount: Provided thatnoappreciation in thevalueof theproperty shallbetakenintoaccountinrespectofpropertysituatedwithinanareathatbecameinaccessiblebyreasonoftheTurkishin- 5 vasion; (b)allowanceshallbemadeforanyexpenditurewhollyand exclusivelyincurredafter27.6.1978inrelationtotheacquisition ofsuchgains,whichisnotanallowablededuction under theIncomeTaxLawsinforceforthetimebeing. 10 9.

(1)Theproceedsfrom thedispositionofpropertyshallbe theamountwhich,intheopinionoftheDirector,suchpropertymightbeexpectedtorealizeifsoldintheopenmarketatthe time ofthedispositionof suchproperty. 15

(2)If no purchase or sale hastaken place, there shall be deemed tohavebeenpaidorreceivedanamountequaltothe amount which in the opinion of the Director such property would realize,if bought orsold,asthecasemaybe,inopen marketatthetimeoftheoccurrenceoftheevent." 20 In Halsbury's Lawsof England,4thed.,vol.44,p.570,paragraph921,themeaningof "retrospective"isgivenasfollows: "921.Meaningof 'retrospective'.Ithasbeen said that'retrospective' is somewhat ambiguous and that a gooddealof confusion hasbeen caused bythefact thatit is used in more 25 sensesthanone.Ingeneral,however,thecourtsregardas retrospectiveanystatutewhichoperatesoncasesorfactscoming intoexistencebeforeitscommencementinthesensethatit affects,evenifforthefuture only,thecharacterorconsequences of transactions previously entered into or of other past con- 30 duct. Thusastatuteisnotretrospectivemerelybecauseit af1132 3 C.L.R. Pavlou v. Dir.of Inland Revenue Savvides J. fects existingrights;noris itretrospective merely because a partof therequisites for itsactionisdrawnfromatime antece­ denttoits passing." ι 5 10 15 ReferenceinrespectthereofismadetothecaseofMasterLadiesTailorsOrganizationv. MinisterofLabourandNationalSer­ vice [1950]2 All E.R.525,whereit was pointedoutby Somer­ vellL.J.that"the fact that aprospective benefit isincertaincases tobemeasuredby ordependsonantecedentfacts doesnot neces­ sarily make theprovision retrospective". FurthermoreinCustoms andExcise Commissioners v. Thorn ElectricalIndustries Ltd.[1975]3 All E.R.881 atp.890 it was saidbyLordMorrisof Borth-Y-Gestthat: "Thefact thatasfrom afuturedatetaxischargedonasourceofincomewhichhasbeen arrangedorprovided for before thedateof theimpositionof the taxdoesnot meanthat ataxisretrospectively imposed." Theabove authoritieswere considered by A.Loizou, J.,ashe thenwas,inthecaseof PapacostantinouandAnotherv. TheDi­ rector of the Departmentofjnland Revenue

(1986)3 C.L.R. 1672whereatp. 1678heconcludedasfollows: 20 25 30 "ItisclearthereforethatthesectionsofourLaw challenged donotimposetaxretrospectively merely because theprofit is calculatedby reference totimepriortoitsenactment.Norare theyretrospective merely becauseapartof therequisitesfor its actionisdrawnfrom atimeantecedenttotheenactmentofthe Law. Itwould have beenretrospective only if thesectionim­ posed tax ontransactionsprior tothedateof its cominginto force,namely the1stAugust 1980." Ifully agreewiththeopinionexpressed intheabovecasesand Iconcludethattherelevantprovision's of Law 52/80challenged as.unconstitutionalonthegroundof retrospectivity are constitu­ tional andvalid andconsequently theobjections based on this ground fails. 1133 SavvidesJ. Pavlou v.Dir.ofInland Revenue

(1988)Icomenext toconsider thesecond ground of law argued by counselfortheapplicant. Itiscommongroundthatthepropertiesinquestionweresold in 1980for the sum of £50,000.- including any boreholes and fixtures standingthereon.Onthedeclarationofsalesignedbythe 5 applicant, hiswife and thepurchaser,thevalueof thelandwas declared at£50,000.-and transfer fees werepaidontheamount of£50,000.-Leavingasidethequestionthatanystructures,wells andboreholes existingonthesaidproperty areunderthedefinitionoftheImmovableProperty(Tenure,Registration andValua- JQ tion Law) Cap.224 "immovable property", thereis nomention eitherinthecontractof saleorinthedeclarationof transfer that the actual value of the immovable property was less than £50,000.-asdeclared at thetimeofeffecting thetransfer. Asto the effect of a declaration of transfer useful reference may be 1 5 madetothefollowingdictainAdisLtd. v.TheRepublic

(1986)3 C.L.R,900atp.907: "ImustsayatthisstagethataDeclaration ofTransfer isa formal document prescribed by Law and one cannot accept anythinginconsistentwithitscontentsthatmayrenderthesaid 20 Declarationasnotcontainingtruestatementsmerelybecauseit isuseful sotodoonagivenoccassion." Applicant though repeatedly asked toproducetotherespondent anydocuments orotherrelevantmaterialin supportofhis contentions,failed and/orrefusedtodoso.Itisexpresslyprovid- ~« ed by law and it is well settled that in tax cases the burdenof proof that an assessment is excessiverestson the person challengingthedecision. Theeffect offailure byanapplicant tosubmit totherespondenttherelevantinformation despiterepeatedreminderstothatef- «n feet hasbeencommentedinanumberofcases(see,interalia,Nicou v. TheRepublic

(1983)3C.L.R. 1113and Panayiotouv. The Republic

(1984)3C.L.R. 857).Relevant in thisrespect is thefollowingpassageintheNicoucaseatp.1118; 1134 3 C.L.R. 5 ΙΟ 1 - 2Q 2 5 PaνΙοuv. Dir. of Inland Revenue Savvides J. "Needless tosay thatoneshould notlosesightof thefact that theapplicant himself failed tosubmit attheappropriate timehis returns of income which would inevitably contain mattersthatwould have beenwithin hisexclusive knowledge andwhichcouldbeduly investigated by therespondent Com­ missioner. A tax-payer thatfails orneglects tosubmit the in­ cometaxreturnstakesuponhimself theriskof having hisas­ sessableincomearrived atby aninquiry,whichinthe present casecouldnot buthavebeenthebest possible. Moreover undersection 13

(3)of theAssessmentand Col­ lectionofTaxesLaw, 1978-1979, incases where apersonhas notdelivered areturnandtheDirectoris of theopinionthat suchpersonisliable topaytaxtothe bestof hisjudgment, the Directormaydeterminetheobject of thetax andassesssuch personaccordingtothenatureandextentof his business.". As tothevalueof thepropertyon27thJune, 1978 the respon­ dentbased hisfinding as tothemarketvalue of thepropertyon such date on an expert's valuation report which has beenpro­ ducedbefore theCourt.According tosuchvaluationreportwhich is based oncomparable salesthevalue of thewhole of thesub­ ject-matterpropertieson27thJune,1978 was £29,000.-. Noval­ uation has been carried outby anexpert onbehalf of theappli­ cant.Applicant's allegation inthewritten address of hiscounsel is thatthemarketvalue of theproperty was on27th June, 1978, £26,000.Inthe lightof theabove Ihavecometotheconclusionthat the contention of theapplicant thatoutof theamountof thesalea sumof £20,000.- should be deductedinrespect of installations existingonthesaidpropertyisuntenableandtheapplicant failed todischarge the burdencastonhimtoprovesuchclaim.As to the amountof £5,000.-claimed by himasrepresenting goodwillof the land in question such claim has not been established and, therefore,therespondentrightlyrefused toacceptsame. Icomenowtothelastgroundraised by counselforapplicant 1135 Savvides J. Pavlou v. Dir. of Inland Revenue

(1988)thatanyactualgain inthiscaseismerelyanappreciationofthe valueofthepropertyduetotheinflation. Nosoundargumenthas beenadvancedinthisrespectandnoauthorityinsupportthereof. I,therefore,findthatsuchgroundshould fail. It iswellsettled that inrecoursesagainstassessment of taxes 5 thisCourtwillnotinterfere withthedecisionoftheInlandRevenue authorities,when itcomes totheconclusion that suchdecision was reasonably and properly open tothemon thebasisof therelevantfactsandinthelightoftheapplicationofthe relevant legislation andprinciplesoflaw.Theburden ofproof tosatisfy JQ theCourtthatitshouldinterfere withsuchadecisionliesalways on anapplicant. (SeeMarkidesv.TheRepublic

(1967)3 C.L.R. 147; Cliffv. TheRepublic

(1965)3C.L.R. 285;Christides v. The Republic

(1966)3 C.L.R. 732;Coussoumides v. The Republic

(1966)3 C.L.R. 1, adopted and followed in Lillian 1 Georghiadesv.TheRepublic

(1980)3C.L.R.p.525atpp.544545 which was approved on appeal by the Full Bench of this Court in

(1982)3C.L.R.p.659. FromthematerialbeforemeIhavecometotheconclusionthat itwasreasonablyopentotherespondentDirectorofInlandReve- ^n nueatthetimeandinthelightoftherelevantlegislationandthe material beforehimtoreachthesubjudicedecisionandthatthe assessmentscomplainedofwereneitherarbitrarynorcontraryto thelaw.Theapplicanthasfailed todischargetheburdenofsatisfying thisCourtthatthecaseunderconsideration isaproperone 2 ^ tointerfere withthesubjudicedecisioncomplained of. Therefore, this recourse fails and is hereby dismissed with costsinfavour oftherespondent. Recoursedismissedwithcosts infavourofrespondent. 1136 «n