clr/1989/1989_3A_823.pdf

(1989)Recourse. Recourse against the income tax assessments rated on applicants for the years 1979-

1. 5 G. Trianmfyllides. tor the Applicants. V. Liwirou. Counsel of the Republic,for theRespondents. Cm: adv. vult. 10 A. LOIZOU. P.readthefollowing judgment. By thepresent recourse the applicant company seeks: "(a)a Declaration that Assessment Nos.33/86/
2. 79/86/
3. 15 SO/86/
4. SI/86/
5. 82/S6/02 and 83/86/02 for the vears of assessment 1979/
9. 1982 and 1983 respectively and/or the decision of the respondents to impose income tax on applicant tor the vears of assessment 1979/
12. 198Κ 1982 and 1983 20 amounting to £28.612.43 cent or Linyother sum or at all togetherwith interest at9%perannum ontheabove tax is null and void and noeffect whatsoever. (b)Thedecision of therespondenttotreat theprofit realised 25 by the applicant from the sale of fifty plots of land offered to them by their Managing Director as taxable income from trade inandor atall is null and void andof no effect whatsoever. 30 (c) The decision of therespondent to demandasurcharge of I0# for the years of assessment 1979, 1980 and Ί981 amounting to £877.99 or any othersum or at all is null and void and of no effect whatsoever." 35 The applicant company which is a private company, of limited liability formed in
13. is an investment and land holding company andamong its objects is trading in land. In January. 1971 Mr. Nicos Karantokis who is a 40 shareholder and the Managing Director of the applicant company gifted to it50 building sites at Makedonitissa locality S24 3 C.L.R. Akin. Karantokis Ltd v.Republic & An. A. Loi/ou, P. out of his stock-in-trade. Transfer of the building sites in the name of the applicant company was affected at the Land Registry Office, though it is 5 alleged by the applicant company that the transfers were made by way of gift to the company by the Managing Director, Mr. Karantokis. and on his instructions under the terms of the contract for the purchase of the land. Formally these transfers appear in the L.R.O. books not to have been made by gift but 10 by purchase from the Archbishop. Theapplicant company duringtheyears 1972to 1979sold49 out of the 50 building sites gifted as stated below and a total profit of £161,004 was realised. This profit was treated by the 15 applicant Company as a profit from the realisation of a capita! asses not liable to income tax. Thebuilding sites were disposed of as follows: Yearof Disposal 1972 1973 1976 1977 197S 1979 No.of R/Sites disposedof Profit reali 15 1 5 24 1 £ 7.429 34.743 2,923 16.237 94.759 5.043 9 161.004 *> The respondent Commissioner on the other hand considered this profit as a trading profit of the applicant company and on 35 the 21st April 19S0adjusted the loss disclosed in the accounts and computations of the years
15. 1976 and 1977 by deducting from the amount of the lossthe profit made from the same of building sites, and made corresponding deductions to the amount of loss which the company was entitled to carry 40 forward asat 31st December ofeach ofthe yearsconcerned and set off against its income from other sources. The aggregate deduction of the losses was£61.
16. 825 Λ. Loizou, P. Akin. Karantokis Ltd v. Republic & An. (1989J At thesame timeheadjusted thecomputationby theauditors of the loss which the applicant company sustained for special contribution purposes in the years 1976 and 1977 and on the 25th April 19S0 issued notices of Assessment to the applicant company giving effect to his decision which formed the subject 5 matter of Recourse No. 495/
17. However that recourse was withdrawn on the23rd September 1981,in view of the fact that the respondent Commissioner's decision against which that recourse was filed was not a final one because there was no taxable income. It was undertaken by counsel for the 10 respondent Commissioner thatanew decision would be reached and proper notices of determination would be sent to the applicant company if and when the company made a profit. Such notices of determination were sent inthevears 1979/1978, 1980,
18. 19S2 and
19. Inall of the years 1979/78to 1981 15 in accordance with the adjustments to the computations submitted made by the Respondent, a profit arose for income tax purposes. As alleged by the applicant company no fresh determination was made inrespect of the assessments for theyears 1973

(72)to 197S

(77)but the respondents simply adopted inhis adjustments to theprofit of thesubsequent years theamountof lossto carry forward as at 31st December 1977 as hehadalreadv computedit (£29.448). 20 25 It was stated in the letter of the respondent dated 25th February 1986 thattheprofits inquestion were taxable because: inter alia (a)The main object of the applicant Company is to acquire immovable property but it has also power to deal with them. (b)There could not be any devotion or natural love and 35 affection by Mr. Karandokis towards the applicant company in order that Mr.Karandokis would make agift of 50 building sites out of his trading stock without financial sains. 40 (c)On the date of the transfer of the plots in January 1971. the share capital of the company was one-hundred 826 3 C.L.R. 5 Akin. Karantokis Ltd v.Republic &An. A. Loizou, P. pounds. As in order to finance its agricultural projects it required immediate financial assistance, its managing director decided to transfer the said fifty plots to the company in order for its company to acquire the necessary capital and for him to avoid taxation of the profits whichwouldhavearisedotherwisefrom thesaleof the land. He concludes that it is not possible for him to revise his 10 previous decision and that he had decided to confirm the assessments of the applicant company. It was submitted on behalf of the applicant company, as a preliminary point that since it was agreed between the parties 15 when withdrawing recourse No. 495/80 that the objections for the years 1972-1977 were to remain open, and that they would be determined afresh, if and when the applicant company made a profit liabletotax.andsinceinthisinstancetherespondentdid not determine the objections in respect of the assessments for 20 the years 1972-1977, but simply adopted, in the relevant adjustment totheprofit for thesubsequent years,theamountof lossto carry forward asat 31st December 1977asithadalready been computed he acted wrongly and contrary to what was agreed and in consequence of which the sub judice assessments 25 should be annulled. The respondent on the other hand alleges that the case was reconsidered afresh as agreed and a final decision was taken in the first year after the applicant company made a profit which 30 was the year of income 197S of (assessment 1979). The respondent commissioner in examining the accounts for the year ended 31st December 1978reconsidered thepoint thathad formed the subject matter in recourse No.495/80, and decided to maintain his decision i.e.that the gains from the sale of land 35 are liable to tax under section 5

(1)(a) of the aforesaid Income Tax Laws. It was further submitted that since there is no obligation on the part of the Respondent to issue assessments in cases where 40 there is not object of tax, there was no question on the part of the respondent Commissioner of sending notices of determination of objection for the years of income 1972-1977 827 Λ. Loizou. P. Akin. Karantokis Ltd v. Republic &An.

(1989)in view of the fact in those years there was no object of tax but only a loss amounting to £29,448. Ihave dealt rather briefly with the relevant facts as after the written addresses were filed Iwas informed that both sides had 5 confined their arguments to the preliminary legal point as the rest of the issues are mixed questions of law and fact on which evidence will have to be adduced. From a perusal of thedocumentsbefore me.it isclear thatan 10 assessment was raised for the year 1979

(78), which was forwarded to the applicant company under cover of a letter dated the5th December 1980 (Appendix E)from which letterit is apparent that theloss brought torward for theyear ended 31st December

1. which was allowed as a deduction against the 15 incomeof 1978 (year of assessment 1979).was reducedfrom the amount of £90.650 as was claimed by theapplicant company to £29.
2. Since however, applicant company objected again to the above assessment (Appendix H(II)) basing its objection on the fact that the assessment was not in accordance with the 20 computations submitted, the respondent finally determined the objection on the25th February 1986 and informed theapplicant company by his letter of the same date (Appendix "I") of the reasons for his decision. 25 As it was correctly submitted on behalf of the respondent there was no obligation on the pan of the respondent to send new·' notices of determination for the years in question, in respect of which there was no object of tax but only the aforesaid loss. For thereasons stated above the preliminary objection ofthe application company fails and is hereby dismissed. In the result the case is tobe heard on the rest of theissues. 35 Question of costs to be decided at the end of the case. Preliminaryobjection dismissed. S2S 30