clr/1988/1988_3_1349.pdf

(1988)(a)Suchpaymentsarenotdeductible.OnlyexpresswordsintheStatute couldjustify adifferent conclusion.Suchpayments*couldnotbeconsi­ deredasmade"whollyandexclusively"intheacquisitionofthegain. (b)The applicantandaperson,whoreceivesanunconditionalbequest of property,arenotpersons insimilar circumstances and,therefore,the 5 conclusionunder(a) hereinabovedoesnotviolateArt.28oftheConstitu­ tion. Recoursedismissed. Noorderastocosts. 10 Casesreferredto: Republic v. Arakian

(1972)3 C.L.R. 294; KalisperasandAnotherv. TheRepublic

(1973)3 C.L.R.

1. Recourse. Recourse against thedecision of therespondents toimposeon" applicants thesum of £11,600.=as capital gains tax. . 15 G. TriantafyHides, for theapplicant. Y.Lazarou, for therespondent. Cur. adv. vult. SAVVIDES J.read thefollowingjudgment. Before delivering judgment Iwish to state that thedelay in the delivery of there- 20 servedjudgment in this case was due toanoversight of the Reg­ istry of theCourtwhich misplaced thefile of thepresent case and brought it before meon the 14th June,
2. The applicantby thepresentrecoursechallenges thevalidityof the decision of the respondent Commissioner of IncomeTax by which an assessment imposing capital gains tax was raised and * Section6

(1)(b)" δαπάνηεξολοκλήρου καιαποκλειστικώςγενομένη προςκτήσιντουκέρδους " 1350 25 3 C.L.R. Phylactou v.Republic Savvides J. determined asperexhibit 1 attached totheopposition. According to the saidexhibit capital gains tax on property inherited by the applicant was assessed at £11,600.- less an amount of £241.70 already paid leaving abalanceof£11,358.30.5 10 Thefactsofthecase areas folows: Applicant, aCypriot nowresiding inEngland, wasbythe will of his aunt Julia Phylactou who died in January, 1983, bequeathed immovableproperty comprising of aplotof land under registration No.472 at thecorner of Evagoras Avenue andThemistoclisDervisStreet,Nicosia, r 1 t * The saidbequest wassubject tothecondition thattheapplicant shouldpay: 15 20 (a)£25,00(0.;tothe executor of the will who under the terms of thewill wasbound topaythesaid suminsettlement of various bequests mentionedinthewill for thebenefit of anumberofpersons who were going to receive the bequests free of any charge from estateduty. (

1. b)Any balance from the amount of £25,000.- after the payment of theaforesaid bequests was according tothewill to form part of the movable property of the deceased which was bequeathed toacousin of the applicant, namely,Thrassos Phylac.tou who wastotake suchproperty free of anycharge from estate duty". 25 .(
2. c)The estate duty on the whole of the property of the deceased was,after thedeath of thedeceased, assessed at£31,140.- 30 The saidimmovable property was soldon the22nd May, 1984. totheBank of Cyprus (Holdings) Ltd. for thesumof £150,000.andon the28th May, 1984,theexecutorof theestate submitted a capital gains tax return in which hedeclared that the immovable property bequeathed was sold for £150,000.- and that thecapital 1351 SavvidesJ. Phylactouv. Republic

(1988)gain made,after deductingfrom thesaid saleproceedsitsvalueat thedateof death,was £65,000.On the7th September, 1984, therespondentraised acapital gains tax assessment on the amount declared by deducting £2,000.- as commissions toestate agents and £5,000.-, the al- 5 lowed exception,thusleavingabalanceof £58,000.-onwhicha capital gains taxof £11,600.-was assessed. On the 14th September, 1984, applicantthroughhis advocate objected totheabove mentioned assessment claimingthatoutof theproceeds of thesaletheamountof £25,000.-which was paid 10 totheexecutor for theaccountof theotherlegatees andthe sum of £31,140.- paid for estate duty should be deductedfromthe saleproceeds. Respondent2having consideredtheobjectionraisedon behalf of theapplicantdecidedtoreject samefor thereasons statedinhis 15 letterdated 12thNovember, 1984,addressed toapplicant's coun­ sel andwhichreads as follows: "Αναφέρομαι στην ένσταση σας με ημερομ. 10.9.1984 και στις επιστολές σας μεημερ.24.5.84 και 10.9.1984 εκ μέρους τουπιοπάνω πελάτησαςκαισαςπληροφορώτα 20 πιοκάτω:Εχω μελετήσει προσεκτικάτασημείατηςένστασης σας σύμφωνα μεταοποία απαιτείτε αφαίρεσηαπότοκέρδος των £63,000,ποσόαπό £31,140πουαντιπροσωπεύει φόρο κληρονομιάςκαιποσόαπό £25,000πουπληρώθηκεστον 25 εκτελεστήτηςδιαθήκηςκοΝίκοΜ.Φιερόκαισας πληρο­ φορώότιηαπαίτησησαςαυτήδενμπορείναγίνει αποδε­ κτήγιατουςακολούθουςλόγους(α) Οι πιοπάνωπληρωμέςδενθεωρούνται σαδαπάνη που έχειγίνει εξολοκλήρουκαι αποκλειστικάπροςκτήση 30 τουκέρδους. 1352 3 C.L.R. Phylactouv.Republic SavvidesJ. ,„,(β)Οι πληρωμέςαυτέςδεν έχουν καμμιά σχέση μετην αγοραία αξία τουκτήματος κατάτηνημέρατηςκτήσεως αυτούαπότονπελάτησαςήσε"οποιαδήποτεμεταγενέστε­ ρηημερομηνία! . 10 15 j (γ) Οι πληρωμέςαυτέςαποτελούνμέροςτουκόστους κτήσεως από τον πελάτησαςτηςακίνητης*ίδιοκτησίας.Ό •πελάτηςσαςεπλήρωσε £56,140 (31,140+25,000) καιαπέ"κτησετηνακίνητηαυτήιδιοκτησία τηςοποίαςηαξία εξετιμήθηστοποσότων£85,000. *': '* : Σαςεσωκλείω ειδοποίηση-επιβολής φορολογίας κεφα­ λαιουχικώνκερδώνκαιπαρακαλώναπροσέξετειδιαίτερα την παράγραφο 7 στην οποία σας δίνεται τοδικαίωμα προσφυγής στο Ανώτατο Δικαστήριο τηςΔημοκρατίας μέομ σε 75 μέρες απότην ημερομηνία της ειδοποίησης αυτήςανθεωρείτετονεαυτόσας.αδικημένοιαπόιτην,πιο πάνωαπόφασημου." . · ^Μ . > 4 -* * TheEnglish translationreadsasfollows: 20 25 —ι ("Irefer toyour objection dated-10.9.1984 andyour letters dated 24.5.84 and 10.9.1984 on behalf of your aforemen­ tionedclientandinform youasfollows: ^ •-* ^ . .Γ , n . ^ 4 : L , . ; . ^ ,, , -.Ihaveconsideredcarefully thepointsof yourobjectionac­ cording^ which you claim,deduction from -the;gain of, x £63,000, of a sum of £31,140 which,represents,estate duty andasumof £25,000 which has beenpaidjto theexecutor of the will.Mr. Nicos^M.Fieros andinform you that,your,said claimcannotbeacceptedfor thefollowingreasons-,(a)Theabovepayments arenotconsidered as an expense which hasbeenwhollyandexclusivelyincurredfor theacquismonofthegain. - 30 ' (b)The saidpayments have norelation with thepurchase ..value of the property on the date of its acquisition by your ' clientoronany subsequent date.u .1i~ ~.r· '·· *.* • ι(c)These.paymentsform pan-ofthecost of acquisition by 1353 Savvides J. Phylactou v. Republic

(1988)your client of the immovable property. Your client haspaid £56, 140(31,140+25,000)andacquiredthesaidimmovable propertywhosevaluewasassessedat£85,000. I enclose a notice of assessment of capital gains taxand pleasenoteespecially paragraph 7underwhichyou havethe 5 rightofrecoursetotheSupremeCourtoftheRepublicwithin 75daysfrom thedateof thisnoticeifyouconsideryourself displeasedfrom myabovedecision.") Asaresultapplicantfiled thepresentrecoursechallengingthe abovedecision. Thesolequestionwhichposesforconsiderationinthepresent case is whether the sumsof (a)£31,140.-paid by applicant in settlementof theestatedutyand (b)£25,000.-paid byapplicant totheexecutorof thewillofthedeceased shouldhavebeendeductedbytherespondentsoutofthegainrealized. 10 15 Counselfor applicant submittedthatthepresentcasedoesnot concern a sale of property but anaquisition of property onaccountofdeathandundertheprovisionsofthelawacquisitionof propertyonaccountofdeathisnotsale.Furthermorehecontendedthattheabovetwoamountsmustbeconsideredasanexpendi- 20 turewhich wasmadefor thepurpose of acquiringtheproperty and as such itmust beadded totheamountof £85,000.- which wasthemarketvalueof thepropertyatthetimeofdeath andbe deductedfrom theproceedsofthesale.Hemadeextensivereference totheprovisionsof thelawandconcluded thatbearingin 25 mindthedefinition oftheword"property"ins.2ofthelawinorder to arrive at the proper figure one must deduct the amount which waspaidasaconditionforacquiringtheproperty. Counsel further argued that thedecision of the respondents leadstoadiscriminationagainsttheapplicantcontrarytoArticle 30 28of the Constitution ifacomparison ismadebetween thecase oftheapplicantwhoreceivedthepropertysubjecttopaymentofa sumofmoneyandtheestatedutyonthewholeestateandthecase 1354 3 C.L.R. Phylactou v.Republic Savvides J. of a taxpayer whoreceived property by virtueof a will without havingtopaytheamountspaidinthepresentcase. 5 If such taxpayer, counsel added, sellstheproperty left tohim bythewillof thedeceased hewillgetasaprofit thewhole difference between the market value at the time of death and the sale pricewhereas theapplicanthasnotactuallyreceived sucha profit becausehehaspaidoutofhisownpockettheamountsmentioned aboveasaconditionfor acquiring theproperty. . Counselfor the.respondents,ontheotherhand, submitted that the subjudicedecision iscorrect aridthat thereisnoprovision in the law enabling the deduction claimed. Under the provisions of thelaw,he submitted, thegain accruedto anindividual from the disposition of property is computed by comparing the disposal l(consideration with thecost of acquisition, that is,themarket val15 ue of the property as at 27th June, 1978,·or as at the date of the deathinthecaseofatransfer incontemplation ofdeath, accruing after 27thJune, 1978,andanyexpenditure wholly andexclusivelyincurredafter suchdateinacquiringthe gain.;: 10 IndealingwiththeallegedviolationofArticle28he submitted that the principle of equality, safeguarded by Article 28, is to safeguard against arbitrary discrimination .between persons in similarcircumstancesandthattheexampleofthetwocasesgiven by counsel for applicant in support of his argument.cannot be considered asamounting toanexampleof persons in similarcir25 .cumstances. The position of the applicant„counsel submitted, whoreceived theproperty subjecttopaymentofcertain bequests and estate.duty on.the whole?property cannot be assimilated to thatof aperson whoisbequeathed property free from theconditionsattachedintheapplicant'scase. 20 OQ The assessment of capital gains.wasjntroducedin Cyprusby ..the,Capital Gains'Tax Law, Law 52 of 1980 which under s.4 providesthat "gains.taxisimposedonanygainrealizedby disposition of property at the rate of 20% on such gain".The exemptions tothetax areprovidedby s.5.andthecalculation of profit is 1355 Savvides J. Phylactou v. Republic

(1988)covered by s.6 which provides as follows: "6.-

(1)Κατάτονυπολογισμόντουκέρδους (α) Οιαδήποτεπροτης27.6.1978,ήκατ'επιλογήν του ιδιοκτήτουπροτης 14.7.1974,αύξησιςτηςαξίας τηςιδιο­ κτησίαςδένθα λαμβάνηταιυπ*όψιν: 5 Νοείται ότι αναφορικώςπρος ιδιοκτησίαν ευρισκομένην εντός απροσπέλαστου,λόγω τηςΤουρκικής εισβολής, περιοχής ουδεμία αύξησις της αξίαςτης ιδιοκτησίαςθα λαμβάνηταιυπ' όψιν (β)Θάεκπίπτηται οιαδήποτεδαπάνηεξ ολοκλήρου και 10 αποκλειστικώς γενομένη προς κτήσιν του κέρδους μετά την 27.6.1978 καί η οποία δέν εκπίπτεται δυνάμει των εκάστοτε εν ισχύι περί Φορολογίας τουΕισοδήματος Νόμων." The translation inEnglish readsas follows: 15 ("Incomputingthegains (a)any appreciation of thevalueof theproperty before the 27.6.1978 or, if the owner so elects, before the 14.7.1974, shall notbetakenintoaccount Provided that noappreciation in thevalueof theproperty shall betakenintoaccountinrespect ofproperty situated with­ inanareathatbecameinaccessible byreasonof theTurkishin­ vasion; «n (b)allowance shall bemadefor anyexpenditure whollyand exclusively incurred after the27.6.1978inrelation totheac- ~quisition of such gains, which is notanallowable deduction undertheIncomeTax Lawsinforce for thetimebeing)". Ihave carefully considered thearguments advanced by counsel 1356 \ » '• 3C.L.R. Phylactou v.Republic SavvidesJ. onboth sidesandtherelevantprovisions of thelawbut Icould mot trace anything in the law^allowing the exemption from the gainsrealizedbythesaleofimmovablepropertyofanybequests ofadeceasedbyvirtueofawill,orofanyamountpayableases5 tateduty.Inthepresentcasethe-bequestoftheimmovablepropertyofthedeceasedtotheapplicantwasnotanunconditionalone butitwassubject tobequeststootherpersonsaswell.The'other bequestsamountingto£25,000.-weremadefree'ofpaymentof anyestatedutywhichwasunderthetermsofthewilltheabsolute liability of theapplicant.Ifind myself unabletoaccept thesub10 : : missionofcounselforapplicantthattheamountspaidshouldbe deductedfrom thecapitalgainrealizedasexpenditurewhollyand exclusivelyincurred'for thepurposeofacquiringtheproperty.If suchcontentionisacceptedifinevitablyleadstoasituationwhere theacquisitionbywillofproperty'of extensivevalueandsubject topaymentofconsiderablecapitalgainstaxshouldnotbesubject tothepaymentof taxorsubject topaymentof considerablyreducedtaxifitisbequeathedsubjecttopaymentoflegacieswhich mayconsiderablyreduceorexhaustcapitalgains:Ifsuchserious 20 situation wasintended thenexpressprovision should havebeen includedinthelawtothateffect alongsidewiththeotherexemptionsprovidedtherein. 25 '·' Thesameappliestotheclaim'fordeductionfrom theprofitsof theamountof theestatedutypaid/There isribprbvision'in the lawthatsuchamountisdeductible. < Undersections6and 10oftheCapitalGainsTaxLaw, 1980 themethodofassessingcapitalgainsisexpressly setouttherein. Accordingto suchprovisionsthegainaccruing toanindividual fromadisposalofpropertyiscomputedbycomparingthecostof acquisition i.e.themarketvalueof theproperty asat27thJune, 30 1978orasatthedateofthedeathincaseofatransferincontemplationofdeathaccruingafterthe27thJune, 1978andthemarket valueofthepropertyatthetimeofitsdisposition.The difference betweenthetwoisthechargeablegain.Fromsuchcalculationthe .35 onlyamountswhichcanbedeductedareexpenseswhollyandexclusivelyincurredafterthe27thJune,1978inacquiringthegain. 1357 Savvides J. Phylactou v.Republic

(1988)It is for this reason that the respondents deducted an amount of £2,000.-asestateagents feesforrealizing thesaleof theproperty though there is no claim by the executor for such deduction. I find that, inthecircumstances ofthepresentcaseandbearingin mind theprovisions of the law,itwasreasonably open tothe re- 5 spondent toreach the conclusion that thedeductions claimed by the applicant were not expenditure wholly and exclusively incurred inacquiring the gain. Icome next toconsider whether Article 28hasbeen violated. It is well settled that the principle of equality is to safeguard IQ against arbitrary discrimination between persons in similar circumstances (TheRepublic v.Arakian

(1972)3C.L.R. 294; Kalisperas and Another v.TheRepublic

(1973)3C.L.R. 109).The example on which counsel for applicant sought tobase his argument, that is,a comparison between a person to whom property ,c is bequeathed subject tocertain conditions andaperson towhom property has been bequeathed uncoditionally is notpersuasive as the twoexamples do not represent similar situations, which may lead to violation of Article 28.In my view Article 28 does not come intopayinthepresentcase. For all the above reasons I have come to theconclusion that the recourse is bound to fail and is hereby dismissed but in the circumstances Imakenoorderforcosts. Recourse dismissed. No orderas tocosts. 1358 oc