clr/1989/1989_3A_861.pdf

(1989)In ihc light of the principles enunciated in the last of the aforementioned Headnotcs the Court rejected the submission of Counsel for theapplicant thattheprofit inanyeventwasnottaxableby reason of theamendment tothecompulsoryacquisition law.which was enactedin 19S7retrospectively asfrom 27/5/I9S

1. 5 Thequestion isnotwhethercompulsoryacquisitionisorisnotasale. but whether the difference between the cost of acquiring the land in questionandtheamountofcompensation isprofit subject toincometax. 10 Land inCyprus iscapableof beingacommodity,thesubject matter of an investment and also a commodity of the kind which is traded. Characteristicsofanadventure inthenatureoftradeinlandarcsetout inthecaselawof thisCourt. 15 Suchcharacteristics donot form acomprehensive list andnosingle itemisinanywaydecisive. Thequestion is: whetheronthefacts found. it wasreasonably open to aperson properly instructed withthelawto find that there wasan adventure in the nature of trade. Wastheland acquired a commodity of trade? In the circumstances of the present 20 case,itwasreasonablyopentotherespondent toarriveatthesubjudicc decision. Indeed, theapplicant purchasedbuildingsitesin
2. When later hesold the one. his profit was taxed. When hesold another,his profit wasagain taxed. When later hesold yet another, onceagainhis profit wastaxed. Thelandinthepresent casewaspurchased in
3. It ?5 wassituated inthevicinityofStrovolosandthenoticeofacquisitionwas published in
4. Recourse dismissed. .\!o order as to costs. 30 Casesreferredto: Kyriakidcs v. Republic(MinisterofFinanceandAnother)4R.S.C.C.
5. 35 Christou v. Republic of Cyprus through TheCommissioner of Income Tax

(1965)3C.L.R. 214. Matsisv.Republic (Minister ofFinance andAnother)

(1969)3 C.L.R.

1. loannides v. Republic(19S5)3C.L.R. IS01, S62 40 3 C.L.R. Pantzaris v. Republic Kirkncss v.JohnHudson&Co.Ltd[1955]2All H.R.
2. Collncss IronCompany v. Black6App. Cos..
3. 5 Sutherlandv. Commissionersof InlandRevenue 12 T.C.
4. Commissioners of Inland Revenue v.Newcastle Breweries. Lid. 12 T.C. 927, 10 BurmahSieamShipCo.Ltd.v.Commissionersof InlandRevenue 16T.C.
5. Short Bros. Ltd. v. Commissionersof InlandRevenue 12 T.C.955, 15 Georghiadesv.Republic(19S2) 3C.L.R.
6. Edwardsv. Bairstowfl955j 3All li.R.4S. P.G.G.Gift v.RepublicandAnother

(1965)3C.L.R. 285. 20 Christidcs v.Republic

(1966)3C.L.R. 732. Makrides v.Republic(Ministerof Finance)

(1967)3 C.L.R. 147. 25 Mangli v.Republic

(1983)3 C.L.R.

1. HadjiErnclis andAnother v. Republic(19S4)3 C.L.R.
2. IgnaiiouandAnother v.Republic(19S9)3 C.L.R. 346, 30 CD. Hay Properties Ltd. v.RepublicandAnother

(1989)3 C.L.R.

1. Marson v.Morton andOthers59 T.C.3S
2. 35 Recourse. Recourse against the income tax assessments for the years 197S-1979andthespecialcontribution assessmentsforthefour quartersof 197SraisedonApplicant. 40 A. Dikigoropoulos, forthe Applicant. S63 Pantzaris v. Republic

(1989)y. Lazarou. Counsel of the Republic Β ' . for the Respondents. Cur. adv. vult. 5 STYLIANIDES, J. read the following judgment. The applicant by means of this recourse challenges the validity of the decision of the Commissioner of Income Tax (the "Respondent") on the objection for the Income Tax Assessments for the years of assessment 197S (income 1977). 10 1979 (income 1978) and 1979 (income 1979) and Special Contribution Assessments for the four quarters of

1. Neither in the statement of facts nor in the address of counsel any reference is made to the IncomeTax Assessment 15 for the year of income
2. The applicant on the 10th February.
3. purchased a field at Latsia which he sold on 29th September,
4. From this transaction he realised a net profit of £2.650.-. Income Tax 20 Assessment was raised for 1979 on 19th December. 19S
5. The aforesaid amount of 2.650.-was taxed. Noticeof objection was given by thetaxpayer on 9thJanuary,
6. Theobjection was determined by the Respondent and his decision was communicated to the applicant by letter dated 30th June.
7. 25 the relevant part of which reads:"With regard to the sale of land, you were held to be a land dealer in the past and profits realised from the sale of 3 buildings sites were assessed to tax. Therefore the profit 30 from land F.200 is taxed on the above ground and taking into consideration the very short period held from the date of purchase to the date of sale." Relevant Notice of Assessment dated 30th June. 19S
8. was 35 sent to applicant. At a meeting held on 4th August. 19S
9. between the Tax Authorities and the applicant and his accountants, agreement was reached under section 20

(4)of the Assessment and Collection of Taxes Law. 197S, (Law No. IS/78) as amended. The applicant agreed to the amount of the 40 profit realised from the aforesaid sale to be a taxable profit under the IncomeTax Legislation. S64 3 C.L.R. Pantzaris v. Republic Stylianides, .Ϊ. Therefore, no recourse lies as no decision was taken by the Respondent under paragraph 5 of section 20 of Law 18/

1. 5 The sole dispute is the taxability of the profit received from the compulsory acquisition of land at Strovolos and relates to the vears of assessment 1979 and 1978 (years of income 197S andΊ977). The applicant in 1969 purchased at £3,744.- the one half 10 share of afield at Strovolos (theindustrial area),shown D.L.O. maps as Plot No.
2. Sheet Plan XXX/6.E.1 and Plot No. 14, Sheet Plan XXX/6.E.2 of Block L; Plot No. 14 of an extent of 11 donums and 2400 square feet and Plot No.44 400 square feet. By order of acquisition, published in the Official Gazette 15 on 25th June.
3. under Notification 483, Plot No. 14 was compulsorily acquired by the Republic andPlot No.44 was. by order published in the Official Gazetteon 27th October. 1978, under Notification, compulsorily acquired by the same authority. Negotiations were held between the acquiring 20 authority and the applicant on thejust compensation payable. Finally on 23rd December,
4. agreement was reached for the payment of £17.386.- including interest. The applicant. thereby, received a profit of £13.642.-. So far there is no dispute. 25 Assessment was raised for the year of assessment 1978 on 20th December.
5. Objection was taken by the applicant through his accountants by noticeof objection dated 31st. 19S4, which was dulv s>iven to the Respondent on 11thJanuary,
6. 30 35 40 The Assessment and Noticeof Assessment for the year 1979

(1978)was raised on 19th December. 1985, and notice of objection was given on 9th January,

1. The ground of objection was that the tax was excessive and was not in accord with the submission of his accountants. The decision of the Respondent was communicatedtothe applicant by letter dated 30th June, 1987, and relevant Notices of Assessments were issued andsent on 30th June,
2. The material part of the decision, as contained in the letter dated 30th June.
3. aforesaid, reads:- S65 Stylianides, J. Pantzaris v. Republic

(1989)"With regard tothesaleof land,you wereheldtobe aland dealer in the past and profits realised from the sale of 3 building sites were assessedtotax The profit from land L.14 that was requisitioned by Governmentis taxed inthe year of receipt of money, as therightto receive a sum of 5 moneythatis merely undernegotiation inanearlierperiod. or is contingently established in that period, and is finally settled in a later period,thesum has to be brought in as a receipt of thelaterperiod." 10 The profit from the landthus acquired by theGovernment was taxed intheyear of receipt of themoney. On 4th August. 1987, meeting took place between the applicant and his accountants on the one hand and the 15 Respondent on the other,but noagreement was reached with regard tothis receipt andtheRespondentonSthAugust.

1. sent anotherletter with revised assessments. Thereafter thefiling of this recourse ensued. 20 Counsel for the applicant submitted that the validity of the subjudice decision shouldbedeterminedonthebasisof thelaw in force at the time o\' its issue, i.e. 30th June. 1987, or Sth August,
2. The Compulsory Acquisition of Property 25 (Amendment) Law, 1985 (Law No. 148/85), which by express provision came into operation on 27th May. 1983 exempts from all taxes compensation payable for property compulsorily acquired under the Compulsory Acquisition Legislation. Sections2 and3of Law No. 148/85read:30 '"
3. Toάρθρον 12 του βασικούνόμου τροποποιείταιδιά της διαγραφή; του εδαφίου

(3)αυτούκαι της αντικατα­ στάσεων τουδιάτουακολούθουνέουεδαφίου:'

(3)(α) Ηκαταβλητέα αποζημίωσις. ως τοιαύτη, ειςουόένα φόρον,κράτησινή τέλος υπόκειται. (β) Ηαπαλλοτριούσα αρχήπρινή προβήδυνάμει του παρόντος άρθρουεις οιανδήποτε πληρωμή, acrai- 40 ρεί εκ του πληρωτέου ποσού τους πάσης φ-ύοεως προ της απαλλοτριώσεως φόρους,τέληή δασμούς 866 35 3 C.L.R. Pantzaris v. Republic Stylianides. J. οφειλόμενους αναφορικώς προς απαλλοτριωθείσαν ιδιοκτησίαν.και καταβάλλειτο ούτο αφαιρεθέν ποσόν εις την αρχήνεις, ην οφείλεται οτοιού­ τος φόρος, δασμόςήτέλος.' 5 3. Η ισχύς του παρόντοςΝόμουθεωρείταιωςαρξαμένη την 27ην Μαΐου 1983." The liability to pay income tax accrues and tax is charged 10 when the relevant taxable income is derived. (See sections 5 and 6 of the Income Tax Law; Vasos Constantinou Kvriakides and The Republic (Minister of Finance and Another)4 R.S.C.C. 109). 15 20 25 30 The liability to pay tax accrued inthe year when theincome was earned, irrespective of whether the Commissioner of Income Tax has served a notice of assessment to the taxpayer or not.and the income tax is deemed to have been imposed at the time when the income was earned and the liability actually accrued -(see Demeths Petrou Christou and the Republic of Cyprus through The Commissioner of Income Tax

(1965)3 C.L.R. 214, at p. 228; Andreas Matsis v. Republic (Minister of Finance and Another)

(1969)3 C.L.R. 245, a case on estate duty; Ioannides v. Republic

(1985)3 C.L.R. iSOl.atp. 1S14). " The liability of the applicant accrued in the year of income and Law No. 14S/S5 is not applicable. The machinery of assessment and the time of assessment is governed by Law 18/78. When liability for taxes accrues, and is neither met nor extinguished, the statutory provisions applicable for the quantification and recovery of such tax at the time of such quantification and assessment and recovery are the laws in force at this time. 35 40 Counsel for the applicant submitted that compulsory acquisition of property is not "sale" and therefore any gain or profit therefrom cannotbetheobject totax. Hereferred tothe definition of the expressions '"sale'' and "sell" in the Interpretation Law, Cap. 1."Sale" and"sell" include "exchange, barter and offering or exposing for sale". The Sale of Goods Law. Cap.267, in section 4 provides:S67 Stylianides, J. Pantzaris v. Republic

(1989)''4.

(1)A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price ..." InKirkness v.John Hudson &Co.Ltd [1955]2All E.R.345. 5 the question for answer was the interpretation of the word ''sold" insection 17

(1)(a)of the IncomeTax Act, 1945.Under section 29 of theTransport Act. 1947privately owned railway wagons under requisition should vest in the Transport Commission, and 663wagons which belonged to the taxpayers 10 vested in the Commission under that section. It was held that theword'"sold"initsordinary meaningconnoted mutual assent and wagons compulsorily acquired were not "sold" within the ordinary meaning of that word. Lord Reid at p.361said:15 "It is true that 'compulsory purchase" has long been a familiar phrase.Theword 'purchase' isfrequently usedinthe LandsClausesActs....TheActscontain elaborate provisions enabling the owner to sell even if under disability, and for determining the amount of the purchase money or 20 compensation ifthat isnot agreed, and itisonly ifthe owner fails to execute a conveyance after the purchase money has been deposited that the undertakers can themselves take the necessary stepstoacquiretheproperty.Soitisnot surprising that the phrase "compulsory purchase',or 'compulsory sale*. 25 has come to be used to describe the operation of the Acts. But it has certainly not been common to use the words 'purchase' or 'sale' by themselves to describe compulsory acquisition": 30 LordTucker said at p.367:"Byexpress enactment orbynecessary'implication from the context, any word may be given a meaning different from, or wider than, that which it ordinarily bears, and this 35 may apply to the word "sale' where it appears in a context relating to the processes of compulsory acquisition of land under the Lands Clauses Consolidation Act, 1845.and other similar enactments. In this context, it may well be that the phrase 'compulsory purchase', having become part of the 40 legal vocabulary, such atransaction wouldbe included in the word 'sale1, but this would not seem to me to justify giving S6S 3 C.L.R. Pantzaris \. Republic Styhanides, J. such an interpretation to the word in the context of s 17." 5 No tax can be imposed on the citizen without a phrase in a law clearly showing an intention to lay a burden on him -(per Lord Blackburn in Coltness Iron Company v. Black 6 App Cas 315, at ρ 330) The question that falls lor determination in the present case is not whether the compulsory acquisition is sale but whether 10 the receipt by the applicant of the ditterence between the cost of acquisition and the afore-descnbed property and the compensation paid by the Republic as acquiring authority is profit taxable under the IncomeTax Legislation. 15 The manner of parting with an asset does not determine whether the proper nature of an item of receipt is income Every case bears special facts in it In Sutherland v.The Commissioners of Inland Revenue 20 12 T.C. 63, the appellant was the managing owner of a steam drifter which was, until 15th December, 1915, engaged in herring fishing At that date the boat was compulsorily taken over by theAdmiralty onhire An assessment of Excess Profits Duty was made for theperiod ended March, 1916, in respect of 25 the profits of the boat, including the sums received from the Admiralty in respect of the hire The Appellant contendedthat under the hiring a new and entirely different business was commenced, or alternatively, that the payments made by the Admiralty represented compensation for the stoppage of his 30 business It was held, that,notwithstanding the different use to which the ship was put by the Admiralty, and the alterations necessary therefore, the Appellant was carrying on the same trade or business throughout of employing aship for profit, and that the hire received from the Admiralty formed part of the 35 profits of such trade chargeable to Excess Profits Duty. Lord Mackenzie said at ρ 70- 40 "The next point taken is that the dnfter was taken compulsorily. I do not think that the mode by which the occupation of the dnfter was achieved matters at all This question is,to what purpose was she being put after she was taken over by theAdmiralty " 869 Stylianides. J. Pantzaris v.Republic

(1989)In The Commissioners of InlandRevenue v. Newcastle Breweries, Ltd. 12 T.C. 927, large stocks of rum of the respondent company was taken over compulsorily by the Admiralty. It was contended on behalf of the respondent company that the sum received for thecompulsorily acquired 5 wasnotareceiptofthebusinesstradeorprofit arising from its tradeor business.ItwasheldbyRowlatt,J.,that themere fact of compulsion couldnot makeanydifference. Inthe Houseof LordsViscount Case,L.C.,saidatp. 953:10 "Two points aremadeon behalf of theAppellants.First, itissaidthatthe£5,300.-isnotaprofit from theAppellants' businessatall,butisasumpayablebywayofcompensation for the compulsory taking by the Crown of a part of the Appellants'capital.Icannot agreewiththatcontention ...if 15 the raw rum hadbeen voluntarily soldto other traders,the price must clearly have come into the computation of the Appellants' profits, andthe circumstance that the salewas compulsory and wasto the Crown makes no difference in principle." 20 In Burmah Steam Ship Co.Ltd. v.The Commissioners of InlandRevenue 16T.C.67damages for estimated lossof profitfromtradingwithashipdeliveredlateafteroverhaul,was held that they were included as a trading receipt in the 25 computation of the company's profits for Income Tax purposes. Compensation may be income if it isfor theacquisition of the asset so as in effect to produce an accelerated sale or 30 business receipt - {Short Bros. Ltd. v.The Commissioners of InlandRevenue 12T.C. 955). The manner of parting with an asset does not change the characterofthereceipt.Thereceipttakesitsattributefrom the 35 nature of the asset parted with. (Georghiades v. Republic

(1982)3C.L.R.659).Theissueforthedetermination is onthe proper application of the law, a factual one-(Edwards v. Bairstow[1955]3AllE.R.48). 40 Was the property acquired compulsorily a commodity of tradeor acommodity of investment? 870 3 C.L.R. Pantzaris v. Republic Stylianidcs. J. Land no more in Cyprus constitutes only an asset of an investment nature. The land iscapable of being a commodity, the subject matter of an investment and also a-commodity of the kind which is,traded. Characteristics of an adventure in the 5 nature of trade inlandwereset out in anumber of cases ofthis Court and I need not repeat them. (See Georghiades v. Republic (supra); P.G.G. Clift and The Republic of Cyprus though (a)The Minister of Finance, (b)The Commissioner of Income / a *

(1965)3C.L.R.285; Christos Christides and 10 The Republic of Cyprus, thorough The Director of Inland Revenue Department of the Ministry of Finance

(1966)3 C.L.R. 732; Rallis Makrides v. Republic (Minister of Finance)

(1967)3 C.L.R. 147; Mangli v.Republic

(1983)3 C.L.R. 52; HadjiEraclis and Another v.Republic

(1984)3 15 C.L.R. 604; Apostolos Ignatiou and Another v. The Republic of Cyprus through The Commissioner of Income Tax

(1989)3 C.L.R. 346, and CD. Hay Properties Ltd. v. The Republic of Cyprus, through 1.The Commissioner of Income Tax 2.The Ministry of Finance

(1989)3C.L.R.393. 20 The characteristics mentioned in the aforesaid cases isnot a comprehensive listandnosingleitemisinanywaydecisive.Sir Nicolas Browner-Wilkinson V.C. said in Marson v. Morton and Others59 T.C.381,at p.392:25 "Iemphasise again that thematters Ihave mentioned are not a comprehensive list and no single item is in any way decisive. I believe that in order to reach a proper factual assessment ineach caseit isnecessary to stand back, having 30 looked at those matters, and look at the whole picture and ask the question - and for this purpose it is no bad thing to go back to the words of the statute -was this an adventure in the nature of trade? In some cases perhaps more homely language might be appropriate by asking the question, was 35 the taxpayer investing the money or was hedoing adeal?" In Halsbury's Laws of England, 4th Edition, Volume 23,p. 142,paragraph 212,we read:40 "In disputed cases the appropriate commissioners, on appeal to them, decide whether there is a trade, but the question what are the characteristics of an adventure in the 871 Stylianides, J. Pantzaris v. Republic

(1989)nature of trade is a question of law. If the commissioners direct themselvesrightlyon the law,there decision on the evidencebefore themwhetherthereisorisnot atrade is an inference of fact with which an appellate court will not interfere,butifitappearstothecourtthatthedecisioncould 5 not reasonable have been reached ifthere hadbeen proper direction inlaw,the court may proceed on thefooting that therehasbeen amisconception oflaw." It is well settled that in recourses under Article 146of the 10 Constitution against an assessment theCourt willnot interfere withthesubjudicedecisionoftheIncomeTaxAuthorities,ifit is of the opinion that such decision was reasonably and properly open to them onthebasis of thecorrect facts andin the light of the correct application of the relevant legislation 15 and principles of law - (see, inter alia,P.G.G. Clift and The Republic of Cyprus through (a)TheMinister of Finance, (b)The Commissioner of Income Tax

(1965)3C.L.R.285; Mangli v. Republic

(1983)3 C.L.R. 52; HadjiEraclisand Another v. Republic

(1984)3C.L.R.604). 20 IftheconclusiononthefactsofacasereachedbytheTaxing Authoritiesistheonlyreasonableonethatthetaxpayerentered into an adventure in the nature of trade, or if, in the circumstances, different minds might come to different 25 conclusions,theCourtdoesnotinterfere withtheconclusionof the Taxing Authorities. It is only when no reasonable man wouldreachthechallengeddecision thattheCourt interferes. The question, therefore is: On the facts found, could any 30 reasonableperson properlyinstructedwiththelawfindherean adventure in the nature of trade? Was the land acquired a commodity oftrade? The applicant purchased in 1962 building sites in Ayios 35 Antonios quarterofNicosia.Laterhesoldtheoneandrealised a profit of £1,375.-.That profit was taxed and the applicant acceptedthathewasatraderinland.Hesoldanotherbuilding site in 1965 at a profit of £1,975.- andagain this wastaxedas the transaction was a trade in land. In 1966 he received 40 £2,175.profit from the saleof abuildingsite,whichwastaxed. The land in the present case was purchased in

1. It was 872 3 C.L.R. Pantzaris v. Republic Stylianides, J. situated in the vicinity of Strovolos (in the industrial area) and the notice of acquisition was published in
2. TheRespondent basedmainlythesubjudicedecision on the 5 aforesaid trading transactions of the applicant. The Court isof the view that there was ample room for the Respondent to arrive at the sub judice decision.The purchase of the landcould reasonably beconsidered as one made with a 10 viewto exploitingfuture opportunities whichmight materialise from the development potential of the land. The sub judice decision was not faulty. It was taken under misconception of law or fact and it wasreasonably open to the Respondent. 15 Forthe foregoing, the recourse fails andis dismissed. Let there beno order asto costs. 20 Recourse dismissed. No orderas tocosts. 873