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(2)—Interest on bankdeposits ofminors derivedfrom theproceeds of saleofimmovableproperty, whichhadbeendonatedtosuchminorsby the applicant (theirgrandfather}—!η virtue of the saidsection theincome is deemedtobelong to thetransferorfor alltheperiodduringwhichthetrans­ fereeisaminor. 10 Taxation—Income tax—Due inquiry—Failure toprecede assessment by the correct ascertainment of material facts after appropriate inquiry— Notwithstandingapplicant'sfailure tosubmit returns, theexercise ofthe discretionwasdefective. 15 On3.9.76theapplicanttransferred his field atYeroskipou tohischildrenand his two minorgrandchildren.On 19.4.79thefield was soldand 15 Savva v. Republic

(1988)theproceedscorrespondingtothesharesofthetwominorgrandchildren weredepositedwithaBank. Byletterdated 10.4.86theCommissionerofIncomeTaxrequestedcertaininformation relatedtoapplicant'scapitalsituationasat31.12.83,butas theapplicant failed toreply,theCommissioner finally determinedapplicant'sincometaxliabilitiesforeachoftheyears1979-

1. TheCommissioner estimated, interalia, that for each of theyearsin questiontheapplicanthadanincomeof£300p.a.from farming.He,also, added toapplicant's incometheinterestaccrued ontheBankdepositsof theapplicant'stwominorgrandchildren. Theapplicantcontended thaton17.10.76hehadtransferred allhisimmovablepropertytohischildrenandhasstoppedworking.Therespondent didnotdisputethiscontention,buthesubmittedthatthedecisionwasreasonably open to him in the light of the material before him and applicant's failure toreply totheletterof 10.4.
2. 10 15 Held,annullinginpartthesubjudicedecision:(A)

(1)Theeffect ofthe failure of a tax-payer tosubmitattheappropriate timehisreturn ofincomehasbeendealtinthecaseofNicouv.TheRepublic

(1983)3CL.R. 1113atp.1118.

(2)Once theapplicant wasalleging not tobeengaged in farming as the Court isinclined toassume from thecontentsof theapplication and oftheopposition andonceby theletterof 10.4.86themindof theapplicant wasnotalerted togive information abouthisincomefrom farming the respondent Commissioner could notproceed totax hisincome from farming withoutattempting toascertain thetruefacts on thisissueafter theappropriateinquiryforthepurpose.

(3)Itfollows thattheaforesaid partof thesubjudicedecision wasnot precededbythecorrectascertainmentofallmaterialfactsaftertheappropriate inquiry. Thus, the Commissioner exercised hispower ina defective manner. (B)

(1)Asfarasthequestionoftaxingtheminors'interestaspartofthe applicant'sincomeisconcernedandoncesuchinterestderivedfromcapital emanatedfrom thesaleofpropertytransferred totheminorsbywayof gift thequestionisgovernedbysection30

(2)oftheAssessmentandCollection ofTaxesLaws 1978-1979. 16 20 25 30 35 3 C.L.R. 5 Savva v.Republic

(2)Theproperconstruction isthis,thatanobjectofataxonceitis transferred inthenameofaminorwhoisunmarried,continuestobelong tothetransferor untiltheminorbecomesofageandthetransferor isliable tobetaxedthereonforalltheyearsduringwhichthetransferee isaminor andnotonlyfortheyearofthetransfer ascontendedbylearnedcounsel for theapplicant.Anyotherconstruction wouldleadtounreasonableand absurdresults. Subjudice decision annulledin partandconfirmedinpart. 10 Casesreferredto: Nicouv.Republic

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

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

(1968)3C.L.R.444; Kyriakides v.Republic

(1979)3C.L.R. 86. 15 R e c o u r s e . Recourse against thedecision of the respondents toimposeon applicant income taxfortheyears 1979-1985 andinterest onthe amount soimposed. M. Vassiliades, forthe applicant. 20 Y-Lazarou, fortherespondents. Cur. adv. vult. A.LOIZOU J.readthefollowing judgment.By thepresentrecoursetheapplicant seeks "adeclaration of theCourt that thedecision and/or decisions and/or actsof the Director of the Depart25 ment of Inland Revenue set out in his letter dated the 23rd September, 1986, and which relate to the imposition of income taxfor theyears 1979-1985 ascontained inForm 104/85,Appendix "A",andinterestontheamountoftaxsoimposed,isnulland void with nolegal effect" 17 A. Loizou J. Savva v. Republic

(1988)The applicant who comes from Yeroskipou village and isa pensioner,tranferred onthe3rdSeptember 1976,bywayof gift (D.1854/86),afieldinYeroskipouunderRegistration No.7668 sheet/planLI/27 1/5/3/2ofanextentofsixtydonumsandtwoevleks to his children Petros, Georghios, Yiannakis, Constantia, .5 and Georghia Varnava, 1/6 share each, and to his granddaughtersMarinaandGavriliaSawa Sawidou -thechildrenof his sonSawas - 1/12 shareeach.The saidfield wasdividedon the7thFebruary 1979intofields underRegistration Nos.8258 and8259byD.L.R.DivisionDeclarationDD207/79. 10 Onthe 19thApril 1979,thefieldunderRegistrationNo.8259 wassoldtoAstartiDevelopmentLimited,andtheamountsofthe proceedscorresponding tothesharesofthetwogrand-daughters of theapplicant were deposited with the Cyprus Popular Bank Limited. Therespondent Director of Inland Revenueobviously inhis capacityasCommissionerofIncome-tax,byletterdatedthe10th April 1986,askedcertainmaterialrelatingtohiscapitalsituation ason31stDecember 1983,whichhadbeensubmittedsothatthe examinationofthetaxobligationsoftheapplicantwouldbepos- 20 sible.Tothisletter(AppendixB),theapplicantdidnotreplyand soonthe23rdSeptember 1986,therespondentDirectorafter an examination ofthecasedeterminedtheobjectionsthathadbeen madefor theyears 1979- 1983andsenttotheapplicant notices of assessment of income-taxof evendatetogether with an ac- 25 companyinglettrer (Appendix "C").Thesefinalassessments for theyearsinquestionweremadeonthebasisofthestatementsof the applicant, the only difference being theaddition of income from farming whichtherespondentDirectorestimated atthreehundredpoundsperyearandtheadditionoftheinterestaccrued 30 totheminorgrand-childrenoftheapplicant.Fortheyears19841985theapplicant hadnotaxliability. Itisthecasefor therespondentsthatwithregardtotheincome from farming the applicant always had such income and more concretely for theyears 1975,1976,and 1977thetaxableinco- 35 me from farming was estimated at two-hundred and three18 15 3 C.L.R. Savva v.Republic A. Loizou J. hundred pounds respectively, amounts which were agreed upon by the applicant. In any event thedecision of therespondent Directortoimposetaxontheapplicantfor thisincomewasreasonablebearinginmindtheomissionof theapplicanttoproducevari5 ous elements which were asked of him by the letter of the 10th April 1986andtocooperatewith theincome-taxoffice for theascertainmentsofhiscorrecttaxableincome. Alsothedecision of therespondent Director toimposeon the applicant tax for the interest which was collected by his minor 10 grand-children Gavrilia and Marina from the Cyprus Popular Bankiscorrect andinaccordancewith theLawhavinginmindthe provisionsof section 30

(2)and

(3)of theAssessment andCollectionofTaxesLaw 1978/79.Asithadalready beenmentionedthe capital on which theinterest accrued tothe grand-children came 15 from thesaleof theproperty which theapplicanthadtransferred to them,on the 3rd September, 1976.The position of theinterestin question peryearanalytically appearsinAppendix "D"anditisof about£1,200to£2,100,varyingfromyeartoyear. I shall deal first with that part of the subjudice decision by 20 means of which income-tax was imposed on the applicant with regard toincome from farming. It is thecontention of the applicant that hehas since the 27th October, 1976,transferred all hisimmovablepropertytohischildren and that for reasons of health and age, he has not been 25 working. Learned counsel for therespondent did not dispute the above contention.Hesubmitted,however,thattheapplicantalwayshad an income from farming and referred to the years 1975

(1974), 1976

(1975), and 1977

(1976), and in any event he further sub30 mitted thedecision of therespondent totaxtheapplicant wasreasonableand wastakenonthebasisof thematerialbefore himgiven thattheapplicant failed toproduce thematerial whichhewas asked toproduce by therespondent by means of the letter dated the 10thApril, 1978,andtocooperate withtheincome-tax office 19 A. Loizou J. Savva v. Republic

(1988)fortheascertainmentofhispropertaxableincome. Itmustbestatedthatinthesaidlettertheapplicantwasasked: (a)Toproducecertificatesfrom banksregardingthebalanceof hisdepositsattheendofeachyearfrom 1979until 1983inclusive,andtheinterestthereon.Acertificatefromthebankthatbe- 5 · sidestheaboveaccountshehadnootheraccountinhisnameor inthenameofhiswifeorinthenameofhisminorchildren. (b)Acertificate fromAstartiDevelopmentCompanyLtd.,regardingthe saleof afieldof anextent of fourteen donumsand twoevleksatPaphos(Yeroskipou),regardinganyinterestpaidto 10 thesellersfromthedateofsaleuntilsettlement It istherefore clearthattheapplicant wasnotatallaskedby meansofthesaidlettertogiveanyinformation regardinghisincomefromfarming. Theeffect ofthefailureofataxpayer tosubmitattheappro- 15 priatetimehisreturnofincomehasbeendealtbymeinthecase ofNicouv.TheRepublic

(1983)3C.L.R.1113atp.1118: "Needless to saythatoneshould not losesightof the fact that theapplicant himself failed tosumbitattheappropriate time his returns of income which would inevitably contain 20 mattersthatwouldhavebeenwithinhisexclusiveknowledge andwhichcouldbedulyinvestigatedbytherespondentCommissioner. A taxpayer that fails orneglectstosubmit theincome-taxreturns,takesuponhimselftheriskofhavinghisassessableincomearrived atbyaninquirywhichinthepresent 25 casecouldnotbuthavebeenthebestpossible. Moreover undersection 13

(3)of theAssessment andCollectionofTaxesLaw,1978-1979,incaseswhereapersonhas not delivered areturn and thedirector isof the opinion that suchpersonisliabletopaytaxtothebestofhisjudgment,the 30 x Director maydeterminetheobjectof thetaxandassesssuch 20 3 C.L.R. Savva v. Republic A. Loizou J. personaccording tothenatureandextentof his business". AlsointheNicou case (supra), Idealt with theprinciples gov­ erning thejudicial controlof decision imposing income-tax andI said thefollowing atpages 1119-1120: 5 10 15 20 25 30 "The burdenof proof to satisfy theCourtthat it should in­ terfere with such adecision lying always onanapplicant.(See Rallis Makrides v. The Republic

(1967)3 C.L.R. 47; Clift v. TheRepublic

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

(1966)3.C.IΑ*732; Coussoumidesy. The Republic

(1966). 3 C.L.R. 1, adopted and followed in Lilian Georghiades v. TheRepublic

(1980)3 C.L.R. 525 at pp.544-545, which lat­ ter case was approved on appeal by the Full Bench of this Court,itsjudgment reported underthesame namein

(1982)3 C.L.R.659 andwhere atpp. 667-669 itis interalia stated: 'Unlikethepowers vested in theDistrict Courtsbefore In­ dependence to adjudicate upon a taxation assessment by sec­ tion43 of Cap.233,andearlier by virtue of section39 of Cap. 297, (of the Old Edition of the Statute Laws of Cyprus) the Supreme Courthas nojurisdiction togo intothemeritsof the taxation and substitute where necessary its own decision.The power of theSupremeCourtis limited as indicatedtothescru­ tiny of thelegality of the action,and to ascertain whether the administration has exceeded the outer limits of its powers. Provided they confine their action within the ambit of their power, anorgan of public administrationremainsthearbiterof thedecision necessary togiveeffect totheLaw; andsolong as they makeacorrectassessment of thefactual background and act in accordance with the notions of sound administration their decision will not be faulted. Intheend,theCourtsmust sustain theirdecision if it was reasonably opento them'". TheNicou casewas followecd by MalachtosJ.,in Panayiotou v. TheRepublic

(1984)3 C.L.R. 857 at pp. 862-863. 21 A. Loizou J. Savva v. Republic

(1988)In this case we have it that the applicant has as from 1976 transferred all his immovable property and ceased doing any work. We have it also that this state of affairs was within the knowledge of therespondent Commissioner since the assertion about the alienation of the immovable property is a fact relied 5 uponbytheapplicantintherecourseandisnotdeniedbytherespondentintheopposition.Neithertheobjection oftheapplicant hasbeenproduced, noristherebefore meanyrecordoftherespondentCommissionercontainingthematerialuponwhichsuch objection asregards his assessmentregardingfarming hasbeen 10 determined,northereasonsthereof,noristhereanythingtosuggest that aproper inquiry hasbeen madein thecircumstances, particulary soinviewof hishavingretiredandafter the transfer of the property in question by him to hischildren and grandchildren and indeed the saleof the shareof the grand-children. 15 Oncetherefore the applicant wasalleging not tobeengaged in farming asIaminclinedtoassumefrom thecontentsoftheapplication andof theopposition andonceby theletterof theCommissioner,Exhibit "B",themindoftheapplicant wasnotalerted to thisfact, namely to give information about hisincomefrom 20 farming therespondent Commissioner could notproceed totax hisincomefromfarming withoutattemptingtoascertainthetrue facts on thisissueafter theappropriateinquiry for thepurpose. Thustherespondent Commissionerhasexercisedhisdiscretionarypowerinadefective mannerbecausethesubjudicedecision 25 hadnotbeenprecededbythecorrectascertainmentofallmaterial facts after aproper inquiry. SeeDemetriou andSonv.TheRepublic

(1968)3C.L.R.444.Intheresult thatpartofthesubjudicedecisionwhichrelatedtotheimpositionofincome-taxonincomefromfarming mustbeannulled. 30 Coming now to the second part of the subjudice decision, namelytheimpositionofincome-taxoninterestpaidtohisgrandchildrenIhavethistosay.Sincethecapitalfrom whichtheinterest wasderived emanated from thesaleof immovableproperty which wastransferred by theapplicanttohisgrand-children by 35 wayofgift,questionisgovernedbysection30

(2)oftheAssessmentandCollection ofTaxesLaws 1978-1979.Thepropercon22 3 C.L.R. Savva v. Republic A. Loizou J. struction thatcan begiven tothissection isthis.Anobject ofa tax once transferred in the nameof a minor who is unmarried suchobjectcontinuestobelongtothetransferor untiltheminor becomesofageandthetransferor isliabletobetaxedthereof for 5 alltheyearsduringwhichthetransferee isaminorandnotonly fortheyearofthetransferascontestedbylearnedcounselforthe applicant.Anyotherconstructionwouldleadtounreasonableand absurdresults,which suchresultsshould beavoidedifitispossibleasinthiscasetoconstrueaprovisioninamannerleadingto 10 areasonable and workable application of it. (SeeKyriakides v. TheRepublic

(1979)3C.L.R.86. Inviewofalltheabovethesecondlegofthesubjudicedecision wastaken inamannerconsonant with section 30

(2)ofthe Law andwas thusreasonably open totherespondentCommis15 sioneronthematerialbeforehim. Foralltheabovereasonsthesubjudicedecisionisannulledin partandconfirmedinpart. Subjudicedecisionpartlyannulled. 23