clr/1988/1988_3_1978.pdf

(1988)1988October27 [CHRYSOSTOMIS, AG.J.] INTHEMATTEROFARTICLE146OFTHECONSTITUTION PROCOPISPHILIPPOU, Applicant. v. THEREPUBLICOFCYPRUS,THROUGH THECOMMISSIONEROFINCOMETAX, Respondent. (CaseNo.390/82). Taxation—incomeTax—Tradinginland—A questionofmixedlawandfad— Thefactorsapplicable inordertodetermine thequestion—Review ofthe authorities—Dependingonthecircumstancesevenanisolatedtransaction, maybetreatedasconstitutingtradinginland. Taxation—AssessmentandCollectionofTaxes—TheTaxes (Quantifying and 5 Recovery) Law,1963 (Law53163), section 23

(2)—Assessment raisedout oftime,i.e. thesixyears' period—Invalid. Taxation—AssessmentandCollectionofTaxes^—TheTaxes(Quantifyingand Recovery) Law, 1963,section23

(2)and21

(3)—Additional assessment raisedwithin thetimeperiodofsixyearsannulledbySupreme Courtfor JQ lackofduereasoning—Reconsiderationofmatterundersection21

(3)withinreasonabletimeafterannulment, butafter the lapse ofthesixyears— Suchnewassessmentisnotstatutebarred—CommissionercorrectlydecidedthatthecodeapplicablewascodeoftaxationNoJ andnotNo.l Thefirstissueinthiscasewaswhethertheprofit derivedbytheappli- 15 cant from the salein 1968and 1969of histwopiecesof landatKyrenia which he had purchased on credit, to bepaid by instalments, earlier in 1968,couldbereasonablytreatedasbeingliabletoincometax. Thesecondissuewaswhetheruponannulmentforlackofduereasoningoftheoriginaladditionalassessments,whichhadbeenraisedinrespect 1978 20 Philippou v. Republic 3,C.L.R. of such profit, theCommissioner should have issued new assessment un­ der section 23

(1)of theAssessment andCollection of Taxes Laws 197879,insteadof afreshdeterminationof the old objections. .* ; Λ Having reviewed the authorities and having expounded the factors, which areapplicable inorder todeterminewhether thesale of landconsti­ tutes "trading in land" theCourtconcluded that,in thecircumstances of this case,itwas reasonably opentothe respondenttoconcludethatthesalecon­ stituted "trading" inland. 5 In the opinionof the Courtthe Commissioner,inreconsideringthe matter,correctly used Code of Taxation No.3, instead of No.l as he merely supplied the missing reasons and.no useful purpose would have been served by affording theapplicanta new opportunityof objecting totheas­ sessment. 10 . ; . ,• . , ι • ι ; ,,r - .'. • ; ( ; , , , . 1 I Recoursedismissed. Noorder as tocosts., Jt 15 Casesreferredto:. , a ' *Λ -Ί i1 * • Μ ·. . » ' ,. Sawas, M.Agrotis Ltd. -v. The Commissioner of Income Tax, 22,C.L.R. ' l 27; " ' , - Droussiotis v. TheRepublic

(1967)3 C.L.R. 15; 20 Makridesiy^TheRepublic

(1961)3C.L.R. 147; _, < tf : ; - Vassos Estates Lid. v. The Commissioner of Income Tax

(1969)3 C.L.R. • 58; '.Τ..-....'· 'j Γy . ' '.-' ' " --'"..ι T . Georghiades v. TheRepublic (l?%0) 3 C.L.R. 525; - •>,••",... ~j t -_ r ,. Georghiades v.The Republic

(1982)3C.L.R.659; ,* , ,, CqlifornianCopperSyndicate v.Harris, 5T.C. 159;, -· Ί - _,,< t Tebrau (Johore) Rubber Syndicate v.Farmer,5T.C. 658; , . ;, Commissioners of Inland Revenue v.Livingston, 11rT.C.,538; ' 1979 Philippou v. Republic

(1988)Leeming v. Jones,15 T.C. 333; CommissionersofInlandRevenue v.Reinhold, 34T.C.389; Edwardsv.BairstowandHarrison,36T.C.207; Turnerv.Last[1965]42T.C. 517; Johnston(InspectorofTaxes) v.Heath [1970] 1 W.L.R. 1567; 5 BolsonandSonLtd. v.Farrely[1953]34T.C.

1. Recourse. Recourseagainsttheadditionalincometaxassessmentsraised onapplicantfor theyears 1966,1969and
2. P.Kyriakidou(Miss)for P.Polyviou, for theapplicant. io A. Evangelou,SeniorCounseloftheRepublic,fortherespondent. Cur. adv.vult. CHRYSOSTOMIS Ag. J. read the following judgment. By thepresentrecourse,theapplicantappliesforthedeclaration that 15 two additional income tax assessments Nos.0212779/4-82and 0212779/4-70/82,raised inrespectof histaxableincomeforthe yearsof assessment 1969and 1970onthegroundthattheapplicant hasallegedlyderived profit from tradinginland,arestatute barred and in any event have beenraised in excess orabuseof 20 power andsothey arewrong inlawandnullandvoid andofno effect whatsoever.Thesetwoadditional incometaxassessments are continuations of assessments Nos. 1.915/AD/74/69 and 1.916/AD/74/70respectively which wereraised by the respondenton20July,
3. 25 Theapplicant alsochallengesthevalidityofanotheradditional 1980 3 C.L.R. 5 10 .- Philippou v. Republic Chrysostbmis Ag.J. income tax assessment No.0212779/4-66/82 for the year of assessment 1966and which concerns a gratuity that the applicant received.Thisadditional assessment isa continuation ofapreviousadditional assessment No. 1.913/AD/74/66which wasraised on 20July, 1974.This subjudice income tax assessment can be annulled without further consideration as it was raised after the expiryof theperiod prescribed by section 23oftheTaxes (Quantifying andRecovery)Law 53/63,asamended, and subsequently replaced bythe Assessment and Collection of Taxes Laws 1978 to
4. Counsel for therespondent conceded to this-course be- ing followed. Alltheaforementioned subjudiceadditional assessmentswere raised, because the previous additional assessments on the same income and for the sameyearsof assessment, formed the subject matter of Recourse No. 382/74, as a result of which they were annulled by the Court on 6.2.82, on the ground that they were; not duly reasoned. Learned counsel for the applicant takes the stand that the respondent Commissioner did not raise new additionalassessments but heonly made afresh determination of the objections of the old assessments following thejudgment in the said recourse.This issue will beconsidered atalater stageofmy judgment. "<> Thefacts of thiscaseareas follows: 2<r 35 Due*tothefact thattheapplicant failed to submitreturns of iftcome for each of the years under recourse, therespondent commissioner raised assessments on him tothebest of hisjudgment, to which assessments the-applicant objected in writing.In order thattherespondentcommissionermayexamineapplicant's objections to the said assessments, by his letter dated 14.8.72, he asked theapplicant inwriting tosubmit astatementof assetsand liabilitiesasat 1.1.65and 31.12.71andhisreturnsof income for a numberof years, including thoseunderrecourse.The applicant submitted therequiredreturns and statements from whichitcame to light that the applicant received an amount fo £4,767.- representingprofit from the salein 1968 and 1969of applicant's,two 1981 Chrysostomis Ag. J. Philippou v. Republic

(1988)pieces oflandatKyrenia. Inordertobring intochargetheabove two receipts,therespondentcommissioner hadraised theafore­ mentionedadditionalassessments towhich theapplicantobjected. No agreement wasreached, the objection of theapplicantwas dismissed andeventually theseadditionalassessments formed the 5 subject matterofthe said RecourseNo.382/74 andwhich were annulledforthereasonsaforesaid. Following thesaid decisionof the Court,therespondentcommissioner reconsidered the matter and made fresh assessments, thetwosub judice additionalas­ sessments, inaccordance with theprovisions of S. 3,13

(2)(b), JQ 21

(3)and 23

(1)of theTaxes (Quantifying and Recovery)Law 53/63 asamendedandsubsequently replacedbythe Assessments and Collection of Taxes Laws 1978 to 1979. Theapplicant,as said earlier, takes the stand thatthese arenotfresh assessments. Therespondentcommissioner by hisletterdated 15.7.82 (Appen­ dix Βtotheopposistion) setoutthefacts andreasons that ledhim totheconclusion thattheprofit realised from thesaleofthesaid landwasliable toincometax,asthedealing constitutedtrading in land oran adventure inthenature,of trade,and therefore, the profit therefrom was chargeable totax undersections 5(l)(a)and 20 6 oftheIncomeTax Laws 1961to 1966.Thefacts pertainingto thepurchaseandsaleofthebuilding sites inquestion,as verified by therespondent commissioner, arestated inhissaid letter of 15.7.82 andareasfollows: "

(1)InSeptember 1968, youpurchased oncredit,tobe 25 paid byinstalments,thesaid building sites from theBank of Cyprus Ltdfor£6,900.(

1. ii)After negotiations which took place between yourself and theEnglishmen Messrs Sanderland andHannan,in No­ vember 1968,youagreed toaccepttheiroffer tosell thesaid 30 building sites for£12,000.-. (iii) On25.11.68, i.e. twomonthslater,you concludedthe contractofsale between yourself andMr.Sanderland,tosell half share of the said building sites for£6,000. Sanderland paid the purchasepriceasfollows: 1982 35 3 C.L.R. Philippou v. Republic Chrysostomis Ag. J. £2,000.-on 25.11.68 £2,000.-on 28.11.68 £2,000.- in 1969. 5 (
2. iv)As Mr. Hannan had no cash money available to conelude theagreement in November 1968,the said contract was delayed and made on 22.3.69 for the other half share of the said building sites,for theoriginally agreed price of £6,000.which waspaid toyou as follows: £2,000.- on 22.3.69 .. £2,000.- on 22.6.69 10 £2,000.- on 22.9.69. .· (v)The said building sites wereregistered in your namein December, 1968 after selling half share to Mr. Sanderland from whom you received £4,000.- in November, 1968, and paidoff yourdebt totheBankof CyprusLtd. 20 25 (
3. vi)For thepurchase of the said building sites,finally you paid to the Bank of Cyrpus Ltd the agreed price of £6,000.plusland transfer fees of £276.- and thesumof £57.283 being interest on the balance of your debt from date of purchase in September, 1968,todateofpaymentinDecember, 1968." The respondent commissioner communicated his decision to theapplicant byhis saidletter andtherelevant notices of assessmentdated23.7.82wereenclosed.Inthesenoticesof assessment it isstated that codeof taxation No.3wasemployed and theapplicantwasinformed of theprovisionsofthelawconcerning objections tothetaxraised. Therelevantinformation inthisrespect is endorsed on the said notices under paras. 5 and 6, which read asfollows: , , . . -· .. "Objections/Appeals. •If, .' I , . 1983 i - l Chrysostomis Ag.J. PhiHppou v.Republic

(1)of the Assessment and Collection of TaxesLaws 1978to 1979andinstead heproceeded with a fresh determination of theoldobjections which formed the subject matterof theTirstrecourse. • As regards the first issue, as to whether-an adventure is or is notinthenatureof atrade,thequestion isof mixed law and fact, which had tobedecided inthelightof theparticular circumstances of each case (Vide Sawas M. Agrotis Ltd v. The Commissioner ofIncome Tax, 22 C.L.R. 27; YiannakisS.Droussiotis v. Republic.(l967)3 C.L.R. 15;Rallis Makrides v. The Republic

(1967)3 C.L.R. 147;.Vassos Estates Limited v. The Commissioner ofIncome Tax

(1969)3C.L.R. 58). · Inthecaseof Lilian Georghiadesv.Republic

(1980)3 C.L.R. 525,A;Loizou J. ashethen was,hadthis tosay,atpage544: 25 30 "The conclusion to be reached is that each case must be considered according to its facts and the question to be answered iswhether theprofit that hasbeen'made isamereenhancement of value by realising a security or is it gain made' from an operation or business for carrying out a scheme for profit making.The wholeissueisamixed question offact and •lawand itis'well settled that itisfor therespondent Commissioner todeduce the conclusion from the facts proved or admittedbefore himandtheseareconclusionsoffact andthatthe ' question whether-there was evidence tojustify those conclu• sionsisoneoflawon which theaggrieved party canappeal to 1985 Chrysostomis Ag. J. Philippou v. Republic

(1988)theCourt.InthecaseofRallisMakrides (supra)andby refer­ encetothecaseof Cliftv. TheRepublic

(1965)3C.L.R.732, itwas statedatp. 153 that '... in a recourse against an assessment under Article 146 of the Constitution,the Courtwill notinterfere with 5 thesubjudice decisionof theIncomeTax authoritiesif itis of theopinion thatsuchdecision was reasonably and pro­ perly open tothemonthebasis of thecorrectfacts and in thelightof thecorrectapplicationoftherelevant legislation and principles of law; furthermore, the initial burden of ^Q proof,tosatisfy theCourtthatitshouldinterfere with asub judice decision, lies onan applicant (see Coussoumides v. TheRepublic

(1966)3C.L.R. 1)'". InGeorghiades v.TheRepublic

(1982)3C.L.R.659, which is aFullBenchdecision of theSupremeCourt thefollowing was jg saidatpages668 and669: "... the Supreme Court had no jurisdiction to go intothe meritsof thetaxation andsubstitute,where necessary, itsown decision.Thepower of theSupremeCourtis limited,asindi­ cated,tothescrutiny of thelegalityof theaction,andtoascer- 20 tainwhethertheadministrationhadexceeded theouterlimitsof -its powers. Provided theyconfine theiractionwithing the am­ bit of theirpower, anorgan of public administrationremains thearbiter of thedecision necessary togiveeffect tothe law; and so long as they make acorrectassessment of thefactual 2 ς back-ground andactin accordancewith thenotionsof sound • administration,theirdecision will notbe faulted. Intheend, thecourtsmustsustain theirdecision if itwas reasonablyopen to them." Apart from theaforementioned cases, theSupremeCourthad theopportunity,inanumberofothercases,todeal with thevari­ ousfactors which arerelevant indecidingthenatureof the trans­ action.Triantafyllides, P.,inhisjudgment inthefirstrecourseof the applicant No. 382/74involving thesame issues,referred ex1986 ™ 3 C.L.R. Philippou v. Republic tensivelytotherelevantcaselawonthematter. Chrysostomis Ag. J. . . Learned counsel for theapplicantrelied on thecasescitedin thejudgment,andinparticularonthecases,CalifornianCopper Syndicatev.Harris, 5T.C.p. 159;Tebrau(Johore)RubberSyn5 dicate v.Farmer, 5T.C.p.658;CommissionersofInlandRevenuev.Livingston, 11T.C.p.538;Leeming v.Jones, 15T.C.p. 333;Commissioners ofInlandRevenue v.Reinhold, 34T.C.p. . 389,andsupportedthestandthattheprofitmadebytheapplicant isaprofitofcapitalnaturenotliabletoincometax. 10 15 20 2c Learnedcounsel for therespondent commissioner, supported the opposite and pointed out that, although there is no single overridingcriterion,nevertheless,thesubject matteroftherealisation,the:length of theperiod.of ownership,themannerof the finance of the transaction,.and the frequency or the.number of similartransactions,arerelevantfactors indeciding whethercertain-activitiesconstitutetrading.Forthispurposehecitedanumberof authorities. Among thosereference-may bemade tothe caseofEdwards v.BairstowandHarrison, 36.T.C.207,where theviewwasexpressedthatwhenthesubjectmattercannotyield toitsowneranincomeorpersonalenjoyment merelybyvirtueof ownership,acommercial transaction isindicated.Fromthecase ofTurnery. Last[1965]42T.C.517,hereferred toadictumof CrossJ., which supports theview that ashort period of ownershipisanindicationoftrading.Itreadsasfollows atpage523: "Ofcourse,the mere fact that when you buy property,as well,asintending to use andenjoy it, you have also in your mindthepossibility thatitwill appreciateinvalue,andthata time maycomewhenyoumaywanttosellitandmakeaprofit 11onit,doesnotofitselfmakeyouatrader,butifthepositionis thatyouintendtosellitassoonasyoucantorecoverthecost of thepurchase,thepositionisobviouslyvery different..." /Learned Counsel,for therespondent alsocitedJohnston (InspectorofTaxes) v.Heath[\970] 1 W.L.R. 1567,in supportof thepropositionthattheinabilityofataxpayertofinancethepur1987 Chrysostomis Ag. J. Philippou v. Republic

(1988)chase,isanimportantfactorindecidingthenatureofthetransaction. Asregardsthefactor offrequencyornumberofsimilartransactions,reference wasmadetothecaseofBolson &SonLtdv. Farrely [1953]34T.C. 161,whereitwassaidatpage 167: 5 "Adealdoneonceisprobably not,thoughitmaybe.Done threeorfour timesitusually is.Eachcasemustdependonits own facts." In thecase ofLilianGeorghiades v.Republic (supra) it was held that thetest asregardstheconsiderations thatshould guide 10 theauthoritiesresponsiblefortaxationindeterminingwhethera singletransaction istradingactivityoradventureinthenatureof trade,iswhetherthetransactionexhibitsfeatures whichgiveitthe character of a business deal and that intention to trade may be gatheredfrom agreatvarietyoffactsandcircumstancesincluding 15 thecharacterof landpurchased, itsstateofdevelopment and futurepotential, aswell astheincomeit yields atthetimeofpurchaseorislikelytoyieldinfuture. Alsoatpages670and671 the following wassaid: "...Aninvestor whohasfunds immediately availablemay 20 beassumed tosubstituteapieceoflandforanenhancedbank account asamoredurableasset.Thiscannot besaidtobethe case where the element of speculation in the transaction is present,whereupon onemaypresumethattheinvestorintends tomeetfinancialcommitmentsincurredforthepurchasebythe 25 saleof theassetin future." Mr.Evangelou,inreferring tothesaidconsiderations,alsorelatedthemtothefactsofthepresentcase. LearnedCounselfor theapplicant,arguedthatthefactsofthe cases cited by counsel for the respondent commissioner, were 30 very different from the facts of the present case, and hemade brief comments.Healsodescribed thereasoningin respondent's 1988 3 C.L.R. Philippou v. Republic Chrysostomis Ag! J. letterdated 15.7.82asdefective andhecriticised same. Having considered all relevant factors, Ifindmyself in agree­ ment with thecontentions of learned Counsel for the respondent commissioner,andIhave arrived attheconclusionthattheappli­ cant has notdischarged theburdenof satisfying me,thatI should interfere with thesubjudice decision which Ifind was reasonably open totherespondentcommissioner. • Thefacts before therespondentcommissioner are stated earlier in myjudgment:Thelegal grounds uponwhich thecommissioner based his decision toassess theprofit realised from thesaleof the said land are also stated in his said letter of 15.7.82 and are as follows: •"(i)I cannot accept your claim that the said building sites were purchased for investment purposes since they were puchased oncredit payable by instalments andhow could aper­ son incur debts to invest in investments which did not yield πany incomefromwhich thepurchasemoneycould be payable. You foresaw that the said building sites would be sold at-a shorttimeand ataprofit thusenabling you torecover thepur':. chase money and realising aprofit. >• 1 '. . -.' ·.'.. v. .•.'*·• •. *~ ' . • (ii) The building,sites were purchased in a developed and highly then speculative,area of Ayios Georghios, Kyrenia, foreseeing that you could sell them at a short time and at a handsomeprofit. ' . ·•, . . _·'>·(iii) Yourintention that the building sites were purchased with amotive torealise aprofit isproved by thefact thatthey .were sold atavery shorttimeafter theirpurchase. . ^(iv) Although immovable property in Cyprus is a recognised meansof investment, yetitis anestablished factbeyond doubt thatin Cyprus where great speculation in land has be.* come,an incidentof common occurrence,dealings in immova..Jt ,ble·property are means of quick and easy way of making a x Jt 1989 Chrysostomis Ag.J. Philippou v. Republic

(1988)profit, thus constituting trading in land oran adventure in the natureof trade." Theseviewsof therespondent commissioner aresupported by authority, among which are thecases cited byMr.Evangelou. It ismyview that factually and legallyandalthough therespondent 5 was dealing with a single transaction, yet it wasreasonably open tohim toarrive atthedecision that thegain theapplicantrealised from the said sales is taxable income, and, inexercising hisdiscretion, he did not exceed the outer limits of his powers. The proposition of learned Counsel for theapplicant that land in Cy- JQ prus was at the time the sole means of investment as it was portrayed inAgrotis case, 22 C.L.R.27 and that everybody here is buying immovable property, building sitesorflats on credit and that such purchase of capital assetsoncreditmust, therefore, not lead to the conclusion that thepurchasers of such property em- 1<bark upon aventure in thenatureof trade,isnot altogether accurate. Such factor although relevant,yetcannot beisolatedfromall other relevant factors that must be taken into consideration in evaluating thefacts andcircumstancesfromwhichtheintention to trade may be gathered. It may also be added by way of a useful reference that thereisa subsequent development, inthat theproposition portrayed inAgrotis case(supra) wasmodified bytheFull Bench of the Supreme Court in Georghiades v. The Republic

(1982)(supra), to the effect that in Cyprus, speculation in land has become anincident of common occurrence. 25 Therespondent commissioner asaresultofthejudgment inrecourse No. 382/74 and pursuant to s. 21

(3)of the Assessment and Collection ofTaxesLaws 1978to 1979reconsidered thematter and madeinhis saidletterasufficient statementof hisreasons thatledhim tohisdecision, andwithin aperiod of six mofiths he 30 raised the fresh assessments. Therefore these fresh assessments are not statute barred and they have not been raised in excess or abuse of power. In view of thenatureof thesenewassessments which only involved reconsideration and statement of missing reasons, there 1990 35 3 C.L.R. 5 10 15 Philippou v. Republic Chrysostomis Ag. J. was noneed for therespondent torelyon codeof taxation No.1 andinmyview,inthecircumstances herighdyreliedoncodeof taxation No.3, and a fresh objection by the applicant to the respondent would have added nothing new. Furthermore, such a course cannot be said that it affected the rights of the applicant. For thesereasons thevalidity of the subjudice decisions cannot beaffected. * In theresult thesubjudice decision concerning the additional income tax assessment No.0212779/4-66/82 for the yearof assessment 1966 is declared null and void and of no effect whatsoever. As regards the other two additional assessments Nos. 0212779/4-69/82 and 0212779/4-70/82 raised inrespect ofapplicants' taxable income for theyearsof assessment 1969and 1970, thedecision of theCommissioner is affirmed. There willbenoorder astocosts. Subjudice decisionpartly annulled. No orderas tocosts. 1991