clr/1989/1989_3A_169.pdf

(1989)Law imposes tax retrospectively, in this respect the Court adoptedand followed thecases of Papaconstantinowand Another v. The Director of Inland Revenue

(1986)3 C.L.R. 1672 and Panayiotou v. The Republic (19S6)3CL.R.

1. 5 TheCourt didnot accept theinterpretationsuggested by applicant as regards the words "εν τοιαύτη περιπτώσει" (in such a case) in the aforesaid proviso. In the opinion of the Court these words cannot but refer to the case of a gift as described in paragraph (b) of section 10of Law 52/SO. What is meantby thewording of theproviso isthatthevalue 10 of the property should be considered, at the time of the gift, to be that which the property had at the time of its acquisition by the donor,or its value as on.27th June 1978.whichever date might be subsequent. This section does not refer to any subsequent sale. Itmerely sets thevalue of the property at the time of the gift, for whatever purpose might follow, 15 so that no room will be left for tax evasion. In the light of the interpretation placed by the Court on the aforesaid words, the Court concluded that the respondent rightly calculated the profit by reference to thedifference between thesale price andthevalue 2 0 of theland as on 27th June,
2. Recourse dismissed. No order as to costs. 25 Cases'referred to: Papaconstantinou and Another v. Director of the Department of Inland Revenue

(1986)3 C.L.R.1672. 30 Panayiotou v.Republic

(1986)3 CLR.

1. Recourse. Recourse against thedecision of therespondentsto impose 35 on applicanttheamountof £65.000,-ascapitalgains tax. P.Demetriou, for theApplicant. A. Evangelou, Senior Counsel of the Republic, for the 40 Respondents. Cur. adv. vult. 170 3 C.L.R. Loizou v. Republic & Another DEMETRIADES. J. read the following judgment. By this recourse the applicant challenges the decision of the respondents, dated the 5th April, 1984, by which capital gains tax amounting to £65,000.-wasimposed on him. 5 The applicant wastheowner oftwo pieces oflandsituatedat PeyiavillageintheDistrict ofPaphos. The first piece,plot 10/1 of Sheet/Plan 44/32 was registered in his name under Registration No.41762.and was of an extent of 50 donums.2 10 evleks and2760sq.feet andthesecond, plot 389.of Sheet/Plan 44/24.wasof an extent of2 donums and 3evleks.These pieces of landweretransferred inhis name on the 4th October.
2. by wayofgift from his father. 15 On the 2nd February,
3. the applicant sold the said properties at theprice of£750.000.-. As aresult ofthedeal,respondent No.2raised an assessment on the applicant for capital gains tax. amounting to £65.000.20 andby Notice datedthe 17th September, 1983,he infomied the applicant of his decision.The applicant, through hislawyers,by letters dated the 10th October. 1983 and 5th March,
4. objected to thesaidassessment, onthe following grounds: 25 (a)theapplicant,asadonee,wasexemptedfrom taxfrom the periodprecedingthe gift; (b)the taxation ispersonal and does not run with the land: 30 35 (c)there hadbeen no increase in the value of the land during theperiodbetween 1982,thedateofthegift, and 1983,the dateof thesale; (d)theretrospective valuation ofthelandwascontrarytothe law andthe Constitution. By his letter dated the 5th April, 1984, respondent No. 2 dismissed the objection of the applicant and maintained his assessment, hencethepresent recourse. 40 Counsel for the applicant argued that - 171 Demetriades,J. Loizou v. Republic &Another

(1989)(a)The increase in the value of the property took place between the 27th June, 1978, the datefixed by the Law, andthe4thOctober,1982,thedatewhentheproperty was gifted totheapplicantby hisfather andnotax is payable on such increase as it is specifically exempted by the 5 provisions of the Law. (b)There hadbeen no increase in thevalue of the property between thedateof thegift andthedateof thesaleofthe property by theapplicant. 10 (c)Therespondentsmisinterpretedtheprovisions oftheLaw in this respect (section 10 of Law 52/80) in that the meaning of theproviso toparagraph (b)of section 10of the Law is not clear andthat in any event thewords "εν 15 τοιαύτηπεριπτώσει"(insuch a case) clearly refer tothe event of agift,even thoughtheexistence oftheproviso is thusrendered meaningless. (d)Thetaxation ispersonal andnot achargeontheland,and 20 the applicant couldnot have made any profit out of the increase of the value of the property which occurred before heacquiredthepropertyitself oranyinterest init. (e)Law (52/80) in so far as it imposes tax on profit onland 25 made before its enactmentis contrary to Article 24.3 of the Constitution and, therefore, unconstitutional. The computation of thetax asfrom the27th June, 1978,that as long before the day of the enactment of the Law, constitutes retrospective taxation. Thequestion ofconstitutionalityof Law52/80wasraisedand decided by this Court onprevious occasions. Thus,in thecase of Papaconstantinou and Another v. The Director of the Department of inland Revenue

(1986)3 C.L.R. 1672, A. 35 Loizou J.,ashethenwas,after makingreference totheLawand a numberof authorities,said thefollowing atp. 1678: "It is clear therefore thatthesections of our Law challenged donotimpose tax retrospectively merely because theprofit 40 is calculatedby reference totimepriortoits enactment. Nor aretheyretrospective merelybecause apartofthe requisites 172 30 3 C.L.R. Loizou v. Republic &Another Demetriades,J. for its action is drawn from a time antecedent to the enactment of the Law. It would have been retrospective only if the section imposed tax on transactions prior tothe dateof its comingintoforce, namely the 1stAugust 1980." 5 The above case was followed in the case of Panayiotou v. The Republic

(1986)3 C.L.R. 2311, where Pikis J. said the following atp.2315: 10 15 "Thetestofretrospectivity, asindicatedbythePrivyCouncil in Yew Bon Tew v,Kenteraan Bar Mara is whether the statute impairs existingrightsandobligations. If it hasthat effect it is retrospective; but not otherwise. The law here underconsideration is,inmyjudgment,prospective inscope and effect. It does not alter the tax obligations of the applicant prior to the date of its enactment. In fact, the obligation to pay tax under the statute arose years after its enactmenton29.3.84,coincidentwiththesaleof immovable property." 20 I share the views of my brother Judges expressed in the above cases and I, therefore, find that the provisions of Law 52/80inthisrespect arenot unconstitutional. 25 30 35 I now turn to the first part of the arguments of counsel, concerning the interpretation of section 10(b) of Law 52/

1. This section reads as follows: "
2. Διά τους σκοπούς του παθόντος Νόμουόιάθεσις ιδιοκτησίας περιλαμβάνειπώλησιν, συμφωνίαν πωλήσε­ ως,ανταλλαγήν,μίσθωσιν, ήτιςενεγράκρη συμφώνως προς τας διατάξειςτου εκάστοτε εν ισχύϊ περί Ακινήτου Ιδιο­ κτησίας (Διακατοχή, Εγγραφήκαι Εκτίμησις) Νόμου και δωρεάν ιδιοκτησίαςωςκαιεγκατάλειψινχρήσεως ή εκμεταλλεύσεως οιουδήποτεσχετικού δικαιώματος, αλλάδεν περιλαμβάνει (α)μεταβίβασιναιτίαθανάτου 40 (β)δωρεάνγενομένηνυπόγονέωςπροςτέκνον,μεταξύσυ­ ζύγωνή συγγενών μέχριδευτέρουβαθμούσυγγενείας ή προς εταιρείανπεριορισμένης ευθύνηςάπαντες οι μέ173 Demetriades, J. Loizou v.Republic &Another

(1989)τοχοιτηςοποίας είναιμέληκαιεξακολουθούνδιάμίαν πενταετίανμετάτηντοιαύτηνδωρεάνναείναιμέλητης οικογενείαςτουδιαθέτου: Νοείται ότι, εν τοιαύτηπεριπτώσει,ως αξία της ίδιο- 5 κτησίαςλογίζεταιη αρχικήαξία κατάτονχρόνοντης κτή­ σεως της ιδιοκτησίας υπότουδωρητούή η αξία αυτήςκα­ τά την 27ην Ιουνίου, 1978. οιαδήποτε τωνημερομηνιών τούτων ήθελενείναιη μεταγενέστερα: 10 Νοείται περαιτέρωότι εις περίπτωσινκαθ' ην ηιδιο­ κτησία εκτήθη υπό του δωρητούπρο της 14ης Ιουλίου, 1974.οδωρεοδόχος δύναταιναεπιλέξηόπωςωςαξία της ιδιοκτησίας λογισθήηο£ία αυτής κατά την 14ην Ιουλίου. 1974." " 15 ("10. For the purposes of this Law, disposal of property includessale,agreementforsale,exchange,aleaseregistered in accordance with the provisions of the Immovable Property (Tenure,Registration and Valuation) Law inforce 20 for the time being and a gift of property, as well as an abandonment of theuse orenjoyment of any relevant right butit does notinclude (a)atransfer incontemplationof death; 25 (b)agift madefrom parenttochildorbetween husbandand wifeorrelationswithintheseconddegreeof kindredorto a limited company all shareholders of which are and continue to be members of the disposer's family for a 30 periodoffive years after suchgift: Providedthatinsuchacasethevalueofthepropertyshall be deemed to be the original value of the property atthe timeofits acquisition bythedonororthevaluethereof - on 35 27thJune, 1978,whichever dateis subsequent: Provided further that where the property has been acquired by thedonorbefore the 14thJuly, 1974,thedonee mayelectthatthevalueofthepropertybedeemedtobethe 40 valuethereof as on 14thJuly,1974;") 174 3 C.L.R. 5 Loizou v. Republic &Another Demetriades, J. Counsel for the respondents argued, in answer to the arguments of counsel tortheapplicant,that although thephrase "εν τοιαύτηπεριπτώσει"(in such a case) which is found in the first proviso to section 10(

1. b)refers to the original gift, the subsequent saleis caughtby theprovisions of section 4. Itishis contention that the provisions of the proviso have a twofold affect, first to exempt gifts from parent to child from payment of capital gains tax and, secondly, to prevent evasion of pavment of tax bv the alienation of propertv within the familv. 10 Having carefully considered the provisions of the Law and the arguments of counsel,Idonotthinkthatthereis anylacuna or ambiguity in the provisions of section 10. In my view,the words "εν τοιαύτηπεριπτώσει"(in such a case), appearing in 15 thefirst proviso toparagraph (b)of that section cannotbut refer to the case of agift as described in the said paragraph andthat what is meantby thewording of theproviso is thatthevalue of the property should be considered,at the time of thegift, to be that which theproperty hadat thetime of its acquisition by the 20 donor, or its value as on the 27th June. 1978. whichever date might be subsequent. And this is immaterial to whether the donee sells the property or not. This section does not refer to any subsequent sale. Itmerely sets thevalue of the property at the time of its acquisition by the donee,for whatever purpose 25 mightfollow,sothatnoroomwillbeleft for tax evasion, in case the donee decides to dispose of the donated property at a later stage. So, if and when the donee decides to alienate the same property in away otherthanthose exempted by the provisions of section 10. he will inevitably be caught by the provisions of 30 section 4 of the Law andwill thenhave to pay thetax provided for by the Law. 35 40 The contention of counsel for applicant as to the interpretation of section 10(
2. b)of the Law is, therefore, dismissed. Coming now to the last contention of counsel for the applicant under (d)above, in the light of my findings as above. this should be dismissed also. The property was valued at £420.000.- as at 27th June, 1978. and hadthe same value when it was donatedto himby his father in October 1982. The same property was sold by the applicant in 1983 for £750.000.- and 175 Demetriades,J. Loizou v.Republic & Another

(1989)theprofit,havingregardtotheprovisionsoftheLaw,inthelight of my findings as above, isconsidered to be hisown. In view of the above. I find that the sub judice decision was reasonably open to the respondents. 5 In the result, this recourse fails and is hereby dismissed with no order asto costs. Recourse dismissed. No orderas 10 rocosts. 176