(1989)19S9July12 [A.LOIZOU, P.) INTHE MATTER OFARTICLE 146OFTHE CONSTITUTION PANICCOS PAMBORIS, Applicant, v. THE REPUBLICOF CYPRUS,THROUGH THE MINISTRY OF FINANCE AND ANOTHER, Respondents. (CaseNo.242/87) Taxation — CapitalGains Tax — The CapitalGainsTax Law 19S0 (Law 52/80), sections 15 to 19— An objection to the Director againstan assessment, isanecessaryprerequisitebefore thefilingof arecourse— No recourseliesunderArt, 146untiltheobjectionis determined. 5 Administrative review of executive or administrative actsor decisions— Nothing in Art. 146of the Constitutionprevents proceduresfor such a review, which canbeeitherby wayofconfirmation orcompletion ofthe actinquestion orby wayof areviewby higherauthorityorbyspecially set uporgansorbodiesof anadministrativenature. 10 Taxation — CapitalGains Tax — The CapitalGainsTax Law, 1980(Law 52/80), section 10— "Disposal"—A very wideterm coveringallkinds of transfersoralienation of thebeneficial titletoanassetexcept thefour instances specifically referred to in that section — Compulsory 15 acquisition — It is a disposal within the meaning of the term — Therefore,thecompensation issubjectto CapitalGainsTax. Taxation — Findings of fact — Failure by applicanttogive information to Commissioner — Commissionerentitledtodeterminetheassessmenton 2 0 the materialbefore him. 780 3 C.L.R. Pambons v. Republic &. -Vnother Constitution^ Law— Td\dtion — Constitution Art 244 — Cdpitdl Gdins Td\ as imposedbv the Capital Gam?Td\ Law I9S0(Ldw52/80) — The tax is neither destructive nor prohibitivein nature 5 Applicant propeitv was compulsonlv acquired The Director proceededandraised an assessment undei code2 initial taxation onthe basis of the assessment of the Director of the Department of Inland Revenue The applicant objected, but before determination of the objection he hied thepresent recourse 10 15 20 The Court held that the recourse could not be filed before determination of theobjection Inanv event,thecompulsory acquisition ot piopcrty is a disposal inthesense of section 10ot Law 52/S0 (Inthis case the provisions of the Compulsorv Acquisition of Property (Amendment) Iaw I98i (.Law 148/S5) were not applicable In virtue of subsection "Ϊ of section 12 as replaced bv such Law the compensation pavablc tor compulsory acquisition could not have been subjected to Capital Gains Tax) In the absence of information before him the Director could raise an assessment as he did Alter all the assessment raised undercode 2 enabled theapplicant to object thus placing belorc the administration all thetacts hewanted to place Recourse dismissed No order as ιο costs 25 Cases rcierrcdto Pelidesν Republic3RSCC 30 13, lordanouandOthers ν Republic
(1985)3 CI R 476, Pdntchdou ν Republic
(1986)3 CI R 6S7, Pitsiakkos ν Republic
(1985)3 CLR 1700, 35 PetrolmaLtd ν Municipal Committee of Famagusta
(1971)3CLR 420, Polyviou ν Improvement Boardof Ayia Napa
(1985)3 CI R 1085, 40 Nicou ν Republic
(1983)3 CLR 1113, AdisLtd ν Republic
(1986)3 CLR 900, 781 Pamboris v.Republic & Another
(1989)Kythrcotis v. Republic(19S7)3CLR.
- HadjiAlcxundrou v. RepublicandOthers (19SS)3 CL.R.
- HcntyHouse Proprietary Limited v.Federal Commissionerof Taxation 5 S8CL.R.141, Trytonos v. Republic(I9S4) 3CL.R. SS4, Nina Rainbow v.C.l.T.
(1984)3 CL.R.846. 10 Pannyiotou v. Republic
(1984)3CL.R. 857. Colocassides v. Republic
(1965)3CL.R.
- 15 Recourse. . Recourse against the decision of the respondents to impose on applicant capital gains tax on the profits derived from the compulsory acquisition of his field at Ayios Vasilios, in 20 Strovolos. L. Papaphiiippou, for the Applicant. Y. Lazarou,Counsel of theRepublic B,fortheRespondents. 25 Cur. adv. wit. A. LOIZOU,P. readthe following judgment. Bythe present Tecoursethe applicant seeks-a-declaration of the-Gourt-that-the-^30 act and/or decision of the Director of the Department of Inland Revenue, hereinafter to bereferred to astheDirector dated the 7th February, 1987, by which they decided to impose on him capital gainstax underthe provisions of theCapita!GainsTax Law, 1980(Law No.52of 1980),on theprofits derivedfrom the 35 compulsory acquisition of his field at Ayios Vassilios in Strovolos under Registration No G1978, plot 1781,is null and void andwith no legal effect. At the material time the applicant was the co-owner in 40 undivided shares of the two-thirds share of the field in question out of which the Republic acquired compulsorily on the 18th 782 3 CL.R. Pamboris v. Republic &Another A. Loizou. P. December 1981 an area of twentyone donums, one evlek and two thousand square feet, which plot was divided from the rest andgiven its present separate Registration No.G197S. 5 Theamount receivedbytheapplicant forhisshareofthesaid acquired property was £43.573, (tortythree thousand five-hundred and seventythree pounds). The total amount of compensation payable was£80,000(eighty thousandpounds). 10 The Director on the 22nd May, 19S
- when the said acquisition came to his knowledge, raised an assessment to capital gain and notified the applicant that they would tax him with the amount of £11,152 (eleven thousand one-hundred and fifty-two pounds) and that he was entitled to object to it. The 15 applicant on the29th May. 1985.lodgedawritten objection on theground that thesaidtransaction didnot amount toadisposal within the meaning of section 10of the aforesaid Law. Subsequently on the Sth November 1985 The Compulsory 20 Acquisition ofProperty (Amendment) Law 1985"(LawNo. 148 of 1985) was enacted by Subsection 3 of Section
- was replaced by a new subsection which provided in paragraph (a) thereof that thecompensation payable assuch isnot "subject to any tax.deduction or fee", whichwasgiven retrospective effect 25 asfrom the27th May,
- As a result of the enactment of the said Law, the Director came totheconclusion that inviewoftheretrospectivity ofthis Law compensations which were paid after the 27th May, 1983 30 were exempt from Capital GainsTax. Accordingly on the 11th June 1986the Director,beingunderthemistaken belief that the compensation payable inrespect of the compulsory acquisition of the subject property was still to be paid to the applicant, cancelledtheassessment whichwasmadeonthe22ndMay 1985 35 and informed the applicant accordingly by letter datedthe 11th June
- Subsequently, the Director wasinformed by the Director of Lands and Surveysthat the compensation payable in respect of 40 the property in question hadbeen paid to the applicant before the27th May, 1983,that is,on the 11th February
- 783 A.Loizou, P. Pamboris v.Republic & Another
(1989)Followingthisinformation theDirectorproceededandraised newassessments on the7th February 1987(Appendix B),under Code 2 "initial taxation on the basis of the assessment of the Director of the Department of Inland Revenue". This is explained on the assessment itself. Against this assessment the 5 applicant objected through his counsel (Appendix C) by which hedisputed the following. (a)A compulsory acquisition which is made on the basis of the Compulsory Acquisition ofProperty Law 1962 isnot 10 a"disposition of property"within theambit ofSection 10 of the Capital GainsTax'l9S0.(LawNo.52of 1980). (b)There was not included in the costs of acquiring the property the transfer fees, the interest and the costs of 15 maintaining same. Before however the Director had a chance to consider and determine hisobjection byraising final assessments asprovided by Sections 15 to 19of the Capital Gains Tax Law 1980, the 20 present recourse was filed bythe applicant. Learned counsel for the Director raised the objection that there is no final executory act that could be the subject of a recourse underArticle 146oftheConstitution butapreliminary 25 act. Section 15of Law No.52 of 1980,makes provision for the filing ofan objection tothe Directorinrespectoftheamountof tax payable and Sections 16-18 make provisions in respect of 30 the consideration of such objections by the Director. Section 19
(1)provides as follows: "19.-
(1)Any person who, being aggrieved by the assessment made upon him, has failed to agree with the 35 Director in the manner provided in section 17,may make a recourse to the Supreme Court." Asstatedbythe Supreme Constitutional Court inthecaseof Petides v.Republic 3R.S.C.C. 13at p. 17: "ThisCourttakestheopportunity ofstressingthatthough 784 40 3 CL.R. Pamboris v. Republic &Another A. Loizou, P. 5 Article 146grants it exclusive jurisdiction in administrative law matters there is nothing in such Article to prevent procedures for administrative review of executive or administrative acts or decisions from being provided for in a Law. Such review may beeither- 10 (a)by way of confirmation or completion of the act or decision inquestion,inwhichcaseno recourse ispossible to this Court until such confirmation or completion has taken place (e.g.under section 17of CAP96);or 15 (b)bywayofareview byhigherauthority orbyspecially setup organs or bodies of an administrative nature,in which case a provision for such a review will not be a bar to a recoursebefore thisCourtbutoncetheprocedureforsuch a review hasbeen setinmotion byaperson concerned no recourse ispossibletothis Court untilthereviewhasbeen completed." 20 The viewthat hasbeen followed inseveral cases isthat once an applicant has availed himself of the review procedure which has thus been set in motion, no recourse will lie to this Court under Article 146.until such review has been completed. (See Nicolopoullou - Iordanou and Others v. The Republic 25
(1985)3CL.R. 476 at4S1-482). Also under the aforesaid provisions of the Law it emanates that an objection to the Director's assessment is a necessary prerequisite before the filing of a recourse asisfor instance the 30 case under the Income Tax Laws. See on this Elisavet Pantelidou v. The Republic
(1986)3 CL.R. 687 at pp 694702;Pitsiakkos v.TheRepublic
(1985)3CL.R. 1700at 1720; Petrolina Ltd. v. The Municipal Committee of Famagusta
(1971)3CL.R. 420at425. 35 InPolyviou v.Improvement Board of Ayia Napa
(1985)3 CL.R. 1085 at 1067 it was held that the review procedure under Section 18of the Streets and Buildings Regulation Law, Cap.96(asamended) isnot anindispensableprerequisitebutan 40 optional remedy and that the recourse could be filed before resorting first to such procedure, but in this case the particular provisions of the law expressly madesuch review procedure an 785 A. Loizou. P. Pamboris v. Republic &Another
(1989)optional choice. Generally the Court does not interfere with the conclusions of fact reached by the.administration,even though the full facts . might not have been before it asit isthe responsibility of atax- 5 payertolayallthefacts before theadministration,orinthiscase theCommissioner or to furnish anyfurther particulars that may be required in order that afinal decision may be reached. (See Wcou v.TheRepublic (19S3)3CL.R. 1113).Sothe procedure followed bythe Director inthepresent caseisapermissible one 10 in as much as by taking a provisional decision he afforded the tax payer a further opportunity to subject all facts that he deemed them to be essential for the determination of his tax liability. 15 From the above it is clear that the recourse is not maintainable andshouldbedismissedon thisground alonesince the act or decision of the Director, that is the preliminary assessment, did not amount to a final executory act. (see Elisavet Pantelidou v.The Republic (supra). I shall proceed, however, to deal with the recourse on the merits. Additionally or independently the respondent submits that his decision to treat theacquisition of thesubject property asadisposition falling undersection 10oftheCapita!GainsTax 25 Law, 1980.iscorrect being inaccordancewiththerelevant law. The definition of the term "disposal" as stated by me in Adis Ltd. v. The Republic
(1986)3 CL.R. 900, "is so wide that it covers all kinds of transfers or alienation of the beneficial title to an assetfrom one person toanotherexceptthefour instances 30 enumerated in thesaid section '\ Section 10of the Lawprovides:"10. For the purposes of this Law, disposal of property 35 includes a sale, an agreement of sale, an exchange, a lease registered in accordance with the provisions of the Immovable Property (Tenure, Registration and Valuation) Lawin force for thetime beingandagift ofproperty, aswell as an abandonment of the useof enjoyment of any relevant 40 right but it does not include- 7S6 20 3 CL.R. Pamboris v. Republic &Another A. Loizou, P. '(a)a transfer incontemplation of death; 5 10 15 20 (b) agift madefrom parentto childorbetween husbandand wife or relations within the second degree of kindred or to a limited company whose shareholders all are and continue to be members of the disponer's family for a period of five years after such gift; Provided that in such case the value of the property shallbedeemedto betheoriginal valueoftheproperty at the time of its acquisition by the donor or the value thereof on27th June, 1978.whichever date issubsequent; Provided further wheretheproperty hasbeen acquired by the donor before the 14th July, 1974.the donee may elect that the value of the property be deemed to be the value thereof ason 14thJuly 1974; (c)a gift to the Republic or to any charitable institution therein approved assuch bythe Council of Ministers; (d)an exchange or sale under the Agricultural Land (Consolidation) Laws inforce for thetime being." 25 Clearlythedisposal oflandbycompulsory purchase doesnot fall within any of the aforesaid exceptions. Therefore, where immovable property is disposed of by being compulsorily acquired such transaction isa "disposal"within the meaningof section 10and assuch it issubject to capital gainstax. 30 Relevant in this respect is Christophoros Kythreotis v. TheRepublic
(1987)3CL.R.495where SawidesJ.,statedthe following at p. 501: 35 40 "From the material before me it is clear that all along the Director of Inland Revenue acted in accordance with the provisionsoftheCapital GainsTax Law, 1980andexercised the powers vestedin him under such law. At thetime of the imposition ofthetaxanditscollection theDirector of Inland Revenue wasunder the belief that there wasno provision in the law exempting property compulsorily acquired from the payment ofcapital gainsttax,theacquisition ofthe property 787 A.Loizou,P. Pamboris v.Republic &Another
(1989)amounted to a disposition and.therefore, a capital gains tax hadto be imposed on the amount of compensation payable. plus simple interest at 9percent on such amount, calculated three months after the disposition of such property till the collection of the tax." 5 Thesame view wasexpressed by me,in HadjiAlexandrou v.TheRepublic
(1988)3CL.R. 1155) Compulsory acquisition has also been referred to as a 10 compulsory sale.This implies that same isstill a sale that is a disposition, because what iscompulsory istheacquisition ofthe property, the purchase price is still ascertained on the basis of the price that it wouldfetch ifthe property wassoldinthe open market which assimilates it with a disposition. Asimilar view 15 was alsoexpressed bythe High Court ofAustraliainthecaseof Henty House Proprietary Limited v.Federal Commissioner of Taxation 88 CL.R. 141,a case concerning the income-tax payablebytheappellant Company where itwasheldat p. 151as follows: "Nodistinction in anywaymaterial to thesepurposescan be drawn between a sale by the taxpayer in the market, or an exchange or a gift made by him. and a transfer of the title effected by the act of another to whom the law gives the 25 requisite authority." And alsoatpp. 151-152: "The entire expression 'disposed of lost or destroyed' isapt 30 to embrace every event by which property ceases to be availabletothetaxpayerforuseforthepurposeofproducing assessable income, either because it ceases to be his, or because it ceases to be physically accessible to him, or because it ceases to exist. In the context of s. 59 there is 35 ample reason for rejecting a narrower construction. In particular,thewords'isdisposed of arewideenoughtocover allforms of alienation, asDixon andFullagarJJ.remarkedin Federal Commissioner of Taxation v. Wade
(1951)84 CL.R. 105, at p. 110, and they should be understood as 40 meaning nolessthan 'becomes alienatedfrom the taxpayer', whether it is by him or by another that the act of alienation 788 20 3 CL.R. Pamboris v.Republic &Another A. Loizou, P. is done. Neither the words themselves nor the setting in which they appear afford any support for the view that cases of involuntary alienation fall outside their meaning." 5 Andat p. 157: 10 "There is of course, no great difficulty in regarding a compulsory acquisition as a sale where the process of acquisition is by way of notice to treat, and a binding obligation to convey is created when, though not before, a pricehasbeen fixed by agreement orby arbitration." Regarding the applicant's remaining allegations it ismy view that all such allegations lack substance. More analytically, the 15 allegation that the Director failed to carry out a due inquiry in that the expenditure which the applicant had incurred in acquiringthegainwasneverdeductedinascertaininghistaxable liability isuntenable. The reason that no such expenditure was deducted is because the applicant failed to claim same in the 20 return of sale which he submitted to the Director -attached to the opposition as Appendix "A". 25 30 35 The effect of the failure of a taxpayer to submit full particulars tothe Director hasbeen dealt inthecaseofNicou v. TheRepublic (supra) at p. 1118: "Needlesstosaythat oneshouldnot losesight ofthefact that theapplicant himself failed tosubmit atthe appropriate time hisreturnsofincome whichwouldinevitablycontain matters that would have been within his exclusive knowledge and which could be duly investigated by the respondent Commissioner. A taxpayer that fails or neglects to submit theincome-tax returns,takesupon himself theriskof having his assessable income arrived at by an inquiry which in the present case could not but have been the best possible." The abovestatement of the lawwasreiterated inthecasesof Tryfonos v.TheRepublic
(1984)3CL.R. 884at p.SS6,Nina Rainbow v. C.LT.
(1984)3 CL.R. 846 at p. S47 and Alecos 40 Panayiotou v.TheRepublic
(1984)3CL.R.857. The same view was expressed in Colocassides v. The 789 A. Loizou, P. Pamboris v. Republic &Another
(1989)Republic
(1965)3CL.R. 542wheretheCourt heldthat inview of the fact that the applicant had repeatedly failed togive more information to the Commissioner to decide more correctly his assessment, the Commissioner was entitled to determine the assessments on the material which wasbefore him. 5 Likewiseuntenable istheallegation thattherespondent acted contrary to the principles of good administration and the Riles of natural justice on the ground that the applicant was never given the oppominitv to be heard prior to the challenged 10 decision. Asisevident from thefactspertainingtotherecourse. the assessment in question is a provisional assessment against whichtheapplicanthadtheopportunity toobject anddidobject. Thus there isclearlv no substance in this allegation. 15 The same applies to the allegation that the challenged assessment is contrary to Article 24.4 of the Constitution. My short answer to this argument is that the tax imposed on the applicant is neither destructive nor prohibitive in nature. The arguments advanced by learned counsel for the applicant to 20 support this contention are unconvincing and do not establish beyond all reasonable doubt or at all that the law under consideration isinconflict withArticle24.4ofthe Constitution. For all the above reasons the recourse is dismissed with no 25 order as to costs. Recourse dismissed. No orderas tocosts. 790