clr/1988/1988_3_2075.pdf

(1988)Casesreferredto: Papaco'nstantinouandAnotherv. TheRepublic

(1986)3C.L.R. 1672; Panayiotouv.TheRepublic

(1986)3CLA.2311; Lagou.v.TheRepublic

(1986)3CX.R.

1. Recourse. 5 Recourseagainst thedecisionof therespondenttoimposeon applicantscapitalgainstaxasaresultofthedisposalofimmovablepropertyatPaphos. L. Kythreotis, for theapplicants. A. Evangelou,SeniorCounseloftheRepublic,fortherespon- 10 dents. Cur. adv. vult. CHRYSOSTOMIS Ag.J. read the following judgment. By thepresentrecourse thethreeapplicantschallengethevalidityof theassessmentsof theRespondentDirectoroftheDepartmentof 15 InlandRevenuefor thepaymentofcapitalgainstaxonthecapital gainedbythemandarisingfrom thedisposalofimmovablepropertyinPaphosandtheyseek: (a)Adeclaration thattheactand/ordecisionoftherespondent toassesstheapplicantsforcapitalgainstaxisnullandvoid 20 andofnoeffect whatsoever. (b)Adeclaration thatanexchangebywayofgift made from parent tochildor between husband andwifeorrelations withintheseconddegreeofkindredisnotsubjecttotax. (c)Adeclaration thattheprovisionsofsection6ofLaw52/80 25 in so far as they purport to tax gains accruing before 2076 3 CX.R. Vorka &Others v.Republic Chrysostomis Ag.J. 1.8.80arenullandvoidandofnoeffect whatsoeverasbeing contrary to or inconsistent with Article 24.3 of the Constitution. 5 Alsotheapplicants raisedobjections tothe said assessments onthegroundthattherespondentfailedtocarryoutthenecessary inquiry toascertain thepriceof thelandasat27.6.78 andasat 8.1.
2. Thefactsofthiscase,whicharenotindispute,areasfollows: The three applicants aresistersandatthematerial timethey 10 were co-owners of the immovable property under Reg. No. 3072, Sheet/Plan 51/10 + 18,plot 218,at KatoPaphos.ApplicantEvdokia Vorka owned 10/32undivided shares, Chrystalla Vorka owned 11/32 undivided shares and Anthoulla Vorka owned 11/32undividedshares.. 15 During 1981/82this.pieceoflandwasdevelopedandwasdividedinto21building sites.On5.5.84theapplicantsexchanged theirsharesincertainfortheseplotsoflandasfollows: Evdokia Vorka: 20 (i)Disposed toChrystalla Vorka her 10/32sharesineachof theplotsdescribed in thenoticeof assessment of capital gainstax,AppendixA(l) totheopposition. (ii)Disposed toAnthoullaVorkaher 10/32sharesineachof theplotsdescribed in thenoticeof assessment of capital gainstax,AppendixA

(2)totheopposition. 25 Chrystalla Vorka: (i)DisposedtoEvdokiaVorkaher 11/32sharesineachofthe plotsdescribedinthenoticeofassessmentofcapitalgains tax,AppendixB(l)totheopposition. 2077 Chrysostomis Ag. J. Vorka & Others v. Republic

(1988)(ii)Disposed toChrystalla Vorkaher 11/32sharesineachof the plots described in thenotice of assessment of capital gainstax,AppendixB(l)totheopposition. Anthoulla Vorka: (i)DisposedtoEvdokiaVorkaher 11/32sharesineachofthe 5 plotsdescribed inthenoticeofassessmentofcapitalgains tax,AppendixC

(2)totheopposition. (ii)Disposed toChrystalla Vorkaher 11/32sharesineachof theplotsdescribed in thenoticeof assessment of capital gainstax,AppendixC

(2)totheopposition. 10 · Theapplicantsintheirrespectivedeclarationsoftransfertothe LandRegistryOffice, declaredthisdisposition asanexchangeof properties andnotasagift. On 26.11.84 theapplicants appliedinwritting totherespondentrequesting him not toimposecapital gains tax onthem,as 15 thedispositionof thesaid shareswasmadebywayofgift,without consideration, not for the purpose of exchange but for the purposeofdistribution ofthelandwhichwasdividedintobuildingsites. On7.10.85therespondentraisedthecapitalgainstaxassess- 20 ments referred to in the aforementioned notices of assessment which areappendedtotheopposition.Theapplicantsobjectedto theseasessmentsthroughtheirauditorMr.G.Avraamidesonthe groundthat: (i)ThevalueofNthe landdisposedof, asat27.6.78,washigh- 25 erthantheamountestimatedbytherespondent; :. . • (ii)Thedisposal betweenthethreesisterswasbywayof gift andhotbywayofsale(videAppendicesE(l)E

(2),E

(3)). On8.11.85therespondent,wrotetoeachapplicantexplaining 2078 3 C.L.R. Vorka & Others v. Republic Chrysostomis Ag. J. the basisonwhich theassessments had been raised andrequested a valuation of theproperty as at 27.6.78 by an independent pro­ fessional valuer (vide Appendices F(l), F

(2),F

(3)). 5 10 15 Such a valuation as at 27.6.78 was eventually submitted and thevalue of theland was valued at£96,000.-, i.e. at£4,614.- for each one of the 21'building sites into which the land was sub­ divided. The comparative estimate of the respondent had been £66,700 for the whole land, i.e. £3,176 for each one of the 21 building sites. Therespondentthenconsidered theapplicants'objections as well as thevaluations as at27.6.78andhedetermined the objections by maintaining his original decision. As a result, on 11.3.86, reserved upontheapplicants therelevant notices of assessment together with acovering letterof the same dateindi­ cating hisduly reasoneddecision.Incomputingthegains tax,the respondentdirector relied on sections 6

(1)and 9

(2)of Law 52/ 80. Sections 6and9of theLaw read as follows: "6.

(1)Incomputingthegains - 20 (a) any appreciation in thevalue of theproperty before the 27.6.1978 or if the owner so chooses, before, the , 4 • *. j :14.7:1974,'shall notbe takenintoaccount. ' . ν · . . Provided thatnoappreciationin thevalue of theproper. » ' . rty shall betaken irito;accountinrcspect'ofproperty situi •' i :atewithin anarea thatbecame inaccessible by rea'son of theTurkish invasion; ,< ' -,(b)allowance·shall be madefor any expenditurewholly and exclusivelynncurred after the:27^6.78-in'relation tothe acquisition of such gains, which is notanallowable dev. . „Tiductionunder.theIncomeTax Laws in'force1for the time ,r i'i' -being,ηVjj: J :,i •*«£. -•" : * "it*' ι οι ;•iu'- >•: ;?'."X-' -ii^r >x ,.:...-'/. J J ; , : v ·' "Wii/i '• '• -'Γ-1 w**'/ *> • -ΊΓΌ'Μ *\ o9.(ili);The proceeds from the oUsposal^of-prbpeity'-snairbe· inU '.tl.: .J.the"»amount which,iihithe opinion of*the'Director, ••:n_\.-»n>7:-vsuch3property.rnight be expected:'to realise"if soldun7 ; ••j. 2*079*^ Chrysostomis Ag.J. Vorka & Others v.Republic

(1988)the open market at thetimeof thedisposal of such property.

(2)If no purchase or sale has taken place, there shall be deemedtohavebeenpaidorreceivedanamountequal totheamountwhichintheopinionoftheDirectorsuch 5 property would realise,if bought or sold, as the case maybe,inopenmarkeiatthetimeoftheoccurrenceof theevent." At this stage I find it pertinent to say that the applicants throughtheircounselrefrainedfrommakinganyargumentwhat- 10 soever, and they failed to substantiate in anyway theircontention, thattherespondentfailed tocarryoutthenecessaryinquiry toascertain thevalueof thelandasat27.6.78andasat8.1.

1. Asregardsthelastmentionedvaluation,itmustalsobestatedthat theapplicantsintroduceditfor thefirsttimewhentheyfiledtheir jg recourseandnotwhentheyobjectedtotherespondent. Consequently theremainingissueswhich fall for determinationinthepresentcaseareasfollows: (a)Whether theprovisions of section 6of theCapital Gains TaxLaw52/80,providingforthevaluationoftheproperty 20 asat27.6.78,adatepriortotheenactmentoftheLaw,are unconstitutional asinvolvingtheimpositionofretrospectivetaxation,contrarytoArticle24.3oftheConstitution; (b)Whethertheexchangeofpropertymadebytheapplicants canproperly betreatedasa"disposal"withinthemeaning 25 oftheaforesaid CapitalGainsTaxLaw52/
2. Learnedcounsel for theapplicants in hiswritten addressreferred inextensotothefirst issueandhecited anumberof authoritiestowhich I neednotrefer, asthissubmission,as rightly pointedoutbylearnedcounselfortherespondent,found nofa- 30 vourinanumberofcasesdecidedbytheSupremeCourt.Inthis respect,referencemaybemadetothecasesofPapaconstantinou 2080 3 CX.R. Vorka &Others v.Republic Chrysostomis Ag.J. andAnotherv. TheRepublic

(1986)3C.L.R. 1672,Panayiotou v. TheRepublic

(1986)3 C.L.R.,2311,andLagouv. The Republic

(1986)3C.L.R.

1. InthosecasestheSupremeCourtdismissedthecontentionthat 5 Sections6and9oftheLaw,oreventheLawasawhole,areunconstitutionalinthattheyimposetaxretrospectivelyandthatconsequentlytheyoffend againstArticle24.3oftheConstitution.On thecontrary,itwasheldthatthesaid sectionsdonotirnposetax retrospectivelymerelybecausetheprofitiscalculatedbyreference jO totimepriortoitsenactmentnoraretheyretrospectivemerelybecauseapartof therequisitesfor itsactionisdrawn from atime antecedenttotheenactmentof theLaw.Ihadtheopportunityto considerallthesecaseswith whichIagreeandIhumbly adopt. InthecircumstnacesIdonotrinditnecessarytoembarkany fur,c thereitherontheissueofretrospectivityorontheissueofunconstitutionalityofLaw52/
2. ^ / Asregardsthesecondissue,thecontentionoflearnedcounsel for the applicants is also untenable.The applicants exchanged theirrespective shares in the said lands.as.aforesaid and thisis «Q whattheydeclared.before theD.L.O.Theydid not,inanyway, declarethat thesaid disposals weremadebywayof gift andin thecircumstances therespondent wasrightinconsidering these disposalsanexchangeof theirrespective shares.Thatthereisa difference between an exchange and a gift is elementary andI neednotciteanyauthorityinordertoillustratethedifference. It suffices to say-that the applicants,did not gift their respective sharestoeachotherasaforementioned, astheyallreceivedshares inthesaidland,inreturn,byexchangingtheirrespectiveshares. Thatthereisadifference betweenanexchangeandagiftcanalso 30 begatheredfromtheprovisionsoftherelevantsectionoftheLaw whichalsoprovodestheanswertothesecondissueraisedbythe applicants.ThissectionisSection 10oftheLawandprovidesasfollows: j 35 "10.Forthepurposeof thisLaw,disposal ofproperty ineludesasale,anagreementofsale,anexchange,aleaseregis2081 Chrysostomis Ag.J. Vorka &Others v.Republic

(1988)tered in accordance with the provisions of the Immovable Property(Tenure,Registration andValuation)Lawinforcefor the timebeing andagift ofproperty,aswellasanabandonmentoftheuseorenjoyment ofanyrelevantrightbutitdoes notinclude: 5 (a)atransferincontemplationofdeath; (b)agiftmadefromparenttochildorbetweenhusbandand wife orrelations within the second degreeof kindred or toa limitedcompanywhoseshareholdersallareandcontinuetobe memberof thedisponer'sfamily for aperiodoffiveyearsaf- 10 tersuch gift: Providedthatinsuchcasethevalueofthepropertyshallbe deemedtobetheoriginalvalueofthepropertyatthetimeofits acquisition by the donor or the value thereof on 27th June, 1978,whicheverdateissubsequent: Provided further thatwherethepropertyhasbeenacquired bythedonor before the 14thJuly, 1974,thedoneemayelect thatthevalueofthepropertybedeemedtobethevaluethereof ason 14thJuly,1974; (c) a gift to the Republic or to any charitable institution 20 thereinapprovedassuchbytheCouncilofMinisters; (d)anexchangeorsaleundertheAgriculturalLand(Consolidation)Lawsinforceforthetimebeing." From the wording of theabove section it isabundantlyclear that anexchangeof property isincluded inthe word "disposal" 25 andis,therefore,subject tocapitalgainstax. Forall theabovereasonsIhavecometotheconclusion that thesubjudicedecisionsoftherespondentwerereasonablyopen tohimandtheywerereachedafter adueinquiry.Nomisconceptionolfact orLawexists andthereisnounconstitutionality. In 30 2082 15 3 CX.R. Vorka & Others v. Republic Chrysostomis Ag. J. theresult thisrecourse fails and tHedecisionsof theDirector are affirmed. Therewill benoorderastocosts. Recourse dismissed. - Noorderas to costs. ,, 2083