(1988)1988November29 [A.LOEOU,P.] INTHEMATTEROFARTICLE146OFTHECONSTITUTION VENUSFINANCEANDBUILDINGCOMPANYLIMITED, Applicant, v. THEREPUBLICOFCYPRUS,THROUGH 1.THEMINISTEROFFINANCE, 2.THECOMMISSIONEROFINCOMETAX, Respondents. (CaseNo. 212/86). Taxation—Assessmentofincome tax—Valuation ofstock-in-trade ofa business—invirtueoffundamentalaccountingprinciplesitisnecessary,before computingtossesorprofitsofabusiness, tomakesucha valuation—The basicofthevaluationshouldbethecostorthemarketvalueofthestock-intradeinquestion, whicheverthelowest—Impossibilityofascertainingthe * market value ofthestock-in-tradeinquestioninthis case (anunfinished buildingintheoccupiedareaofCyprus)—Reasonablyopentotherespondenttorelyonitscost. Taxatioh—Assessmentofincome tax—Propertiessituatedinthearea ofthe RepublicofCyprusoccupiedbyTurkish invasionforces—The temporary *Q inabilityoftheirownerstousesamefor theirtradeorbusinessduetoenemyoccupationdoesnotamounttoadefiniteceasureofuseorlossofsuch property. Theissuesraisedanddeterminedinthiscasearesufficiently indicatedin thehereinaboveheadnote. Recoursedismissed. Noorderastocosts. 2348 ie 3 C.L.R. " Venus Finance v. Republic Casesreferredto: FinartConstructLtd.v.TheRepublic
(1984)3CJ1.R.29; Geo. M.HadjiKyriacos CompanyLtd. v.The Republic
(1986)3 C.LR. 1598; 5 GeorgeTsimonLtd. v. TheRepublic
(1980)3CX.R. 321; Geo. PavlidesLtd. v.TheRepublic
(1980)3CLJ*.345. .* J • • • Recourse. 10 Recourse against the decision of the respondent whereby the deduction of £51,872 claimed by applicant as cost of work in progressrelatingtoabuildinginKyreniacommenced in 1972but discontinued inJuly,'1974 asaresultof theTurkish invasion was disallowed. ^ S.Karydes, for the applicant. 15 A. Evangelou,Senior Counselof theRepublic, for therespondents. _ Cur. adv. vult. 20 25 A.LOIZOU P.read the following judgment. The Applicant Company was incorporated on the 30th May 1969 as a private company with limited liability. Its authorised, issued and fully p&idup sharecapital during the material times was£100,000divided into 100,000 shares of £1 each. In its accounts for the yearended 31stMay, 1977itclaimed asadeduction thesum of £51,872 which was the cost of work in progress relating to a building atKyreniawhichcommenced in 1972butwasdiscontinuedinJuly 1974asaresultoftheTurkish invasion. Therespondent Commissioner uponexamination oftheapplicant's accountsfor the yearsended 31st May 1977,1978,1979 2349 A.LoizouP. VenusFinancev.Republic
(1988)and 1980, which was carried out in 1981,disallowed the said claimonthegroundthat thebuildinghadnotbeenpermanently extinguishedorlostandproceededtoadjust thesubmittedcomputationsoftheincomeoftheApplicantCompany.Thedisallowanceofthesaiddeductionhadtheeffect ofturningthecomputed 5 losstoataxableprofit andhencerecourseNo.274/85was filed againstthedecisionoftherespondentCommission. Subsequently,theapplicantCompanysubmitteditsauditedaccountsandcomputationfortheyearssubjectmatterofthepresent recourse,whereby anamountof £18,342wasclaimedasbeing IQ eligibletobesetoff againsttheprofitsmadeintheaboveperiod aslosscarried forward from theprecedingyears.Sincetheloss broughtforward bytheapplicantcompanyarosefromthewriting off ofthecostofworkinprogressrelatingtothebuildingatKyrenia therespondent Commissioner acted as before, and disal- . lowedsuchlossandproceededtoadjust thecomputationsofthe ApplicantCompanyaccordingly.Hisdulyreasoneddecisionwas communicated to applicant on the 25th January 1985together withtheNoticesofTaxPayablewhichareappendedtotheApplication. Thequestionwhichcallsforconsideration inthepresentcase is whetherincomputing thechargeableincomeoftheapplicant company for the yearsof assessment 1980, 1981,1982therespondent Commissioner shouldtakeintoconsideration thecost priceorthemarketvalueofapplicants'propertysituatedinKyre- ^5 nia.Noassessmentwasraisedordeterminedinrespectoftheincomeoftheapplicant companyfor theyearof assessment 1983 (yearofincome 1983).Thereference therefore bytheapplicant Companyinthepresentrecourse,totheyearofassessment 1983 hastherefore nolegalbasis. 30 Theapplicantcompanyclaimsthatitsproperty,whichissituatedintheinaccessibleoccupiedareainKyrenia andformspart of its stock-in-trade, should bevalued atmarket valueandthat theyareentitledtomakeprovisionforthediminutionofthevalue ofthispropertyduetoitspossiblephysicalorotherdamage. 35 2350 3C.L.R. 5 VenusFinancev.Republic A.LoizouP. Itisafundamental principleofcommercialaccountingthatbefore computingprofits orlossesofabusinessitisnecessary to takeintoconsiderationthetradingstockandtomakeavaluation of such stock.The issuein thepresent caseis thevalue which shouldbeplaceduponthis"stock-in-trade. ' Itiscommongroundthat,accordingtotheordinaryprinciples ofcommercialaccounting,thebasisofvaluationoftradingstock isitscostoritsmarketvaluewhicheveristhelowest. · Itseemsthatinthelightoftheveryspecialcircumstancesof 10 thiscaseandoftheprevailing stituationthemarketvalueofthis propertycannotbeascertained,though it hasitsvalue.Theuse therefore of the cost of the stock-in-trade by the Respondent Commissionerwastheonlyascertainable factor. It has been submitted by learned counsel for therespondent 15 Commissionerthatinthesecircumstances,itwasreasonablefor theCommissionertotakeintoconsideration thecost'pricebeing theonlyascertainablevaluethatgivesthefairest andmostreasonableresults andnotthemarketpriceof the saidpropertywhich cannotbeascertained. 20 25 30 Thematter is notdevoid of authority. In thecase of Finart ConstrucvUd. v.TheRepublic
(1984)3C.L.R.p.29itwassaid atpages33and34that: "Thequestion,therefore, atissueinthepresentcaseisthe valuewhichshouldbeplaceduponthisstock-in-tradeincomputingtheprofitsoftheapplicantcompany,asitisthecontention oftherespondent Commissionerthatduetotheabnormal conditionsandtotheinaccessibilityoftheownersoranybody elsetothatpartoftheislandwhichisoccupiedbytheTurkish forces,themarketvalueisuncertain.Itwasurgedthatnobody cansayfor surewhatisthemarketvalueofthistradingstock andthesametimethatnobodycandenythatthereissomevalue. 2351 A. Loizou P. Venus Finance v. Republic
(1988)Theonly certainthingis thecostprice;andtheonly possi ble solution was totake intoconsideration thecost priceand notthemarketvalue whichisunknown.Itwas submittedthat it was notunreasonable for therespondent Commissioner to takeintoconsiderationthecostpricewhichisascertainable and 5 thattheissueturnsonanaccountingprinciplewhich is appli cable innormalconditionsandnotinabnormalconditions as thoseprevailing hereonaccountof theTurkish occupationof partof theIsland." Similar approach is tobefound in thecase of Geo. ΜHadji- \Q KyriakosCompanyLtdv. TheRepublic
(1986)3 CL.R. 1598. Theeffect of theTurkish invasion onpropertiessituatedwithin anoccupiedareahasbeenalsoconsideredinGeorgeTsimonLtd. v. TheRepublic
(1980)3 CL.R. 321 atpages 343 and 344 and in Geo.PavlidesLtd. v. TheRepublic
(1980)3 CL.R. 345, at 1 5 page 359 anditwas heldthatthe temporary inaccessibility ofthe properties andthetemporaryinability of theirowners tousesame for their trade or business due to enemy occupation does not amounttoadefinite ceasure of useorlossoftheirproperty. Ihavecometotheconclusionthatthedecisions of therespon- 20 dentCommissionwas reasonable inthecircumstancesandinac cordancewith thelaw andthattherecourse should andis hereby dismissed. Inthecircumstances,however, therewillbe noorder as tocosts. Recoursedismissed. Noorderastocosts. 2352 25