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ΠΑΓΚΥΠΡΙΟΣ ΔΙΚΗΓΟΡΙΚΟΣ ΣΥΛΛΟΓΟΣ
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(1988) 3 CLR 15
1988 January 12
[A. LOIZOU, J.]
IN THE MATTER OF ARTICLE 146 OF THE CONSTITUTION VARNAVAS SAVVA,
Applicant,
v.
THE REPUBLIC OF CYPRUS, THROUGH
1. THE DIRECTOR OF INLAND REVENUE DEPARTMENT,
2. THE ATTORNEY-GENERAL OF THE REPUBLIC,
Respondents.
(Case No. 752/86).
Taxation -Income tax-Income tax returns-Failure to submit-Effect.
Judicial control-Taxation-Income tax-Assessments of-Principles applicable.
Taxation-The Assessment and Collection of Taxes Laws 1978/1979-Section 30(2)-Interest on bank deposits of minors derived from the proceeds of sale of immovable property, which had been donated to such minors by the applicant (their grandfather)-In virtue of the said section the income is. deemed to belong to the transferor for all the period during which the transferee is a minor.
Taxation-Income tax-Due inquiry-Failure to precede assessment by the correct ascertainment of material facts after appropriate, inquiry-Notwithstanding applicant's failure to submit returns, the exercise of the discretion was defective.
On 3.9.76 the applicant transferred his field at Yeroskipou to his children and his two minor grandchildren. On 19.4.79 the field was sold and the proceeds corresponding to the shares of the two minor grandchildren were deposited with a Bank.
By letter dated 10.4.86 the Commissioner of Income Tax requested certain information related to applicant's capital situation as at 31.12.83, but as the applicant failed to reply, the Commissioner finally determined applicant's income tax liabilities for each of the years 1979 - 1983.
The Commissioner estimated, inter alia, that for each of the years in question the applicant had an income of £300 p.a. from farming. He, also, added to applicant's income the interest accrued on the Bank deposits of the applicant's two minor grandchildren.
The applicant contended that on 17.10.76 he had transferred all his immovable property to his children and has stopped working. The respondent did not dispute this contention, but he submitted that the decision was reasonably open to him in the light of the material before him and applicant's failure to reply to the letter of 10.4.86.
Held, annulling in part the sub judice decision: (A)(1) The effect of the failure of a tax-payer to submit at the appropriate time his return of income has been dealt in the case of Nicou v. The Republic (1983) 3 C.L.R. 1113 at p. 1118.
(2) Once the applicant was alleging not to be engaged in farming as the Court is inclined to assume from the contents of the application and of the opposition and once by the letter of 10.4.86 the mind of the applicant was not alerted to give information about his income from farming the respondent Commissioner could not proceed to tax his income from farming without attempting to ascertain the true facts on this issue after the appropriate inquiry for the purpose.
(3) It follows that the aforesaid part of the sub judice decision was not preceded by the correct ascertainment of all material facts after the appropriate inquiry. Thus, the Commissioner exercised his power in a defective manner.
(B) (1)As far as the question of taxing the minors' interest as part of the applicant's income is concerned and once such interest derived from capital emanated from the sale of property transferred to the minors by way of gift the question is governed by section 30(2) of the Assessment and Collection of Taxes Laws 1978-1979.
(2) The proper construction is this, that an object of a tax once it is transferred in the name of a minor who is unmarried, continues to belong to the transferor until the minor becomes of age and the transferor is liable to be taxed thereon for all the years during which the transferee is a minor and not only for the year of the transfer as contended by learned counsel for the applicant. Any other construction would lead to unreasonable and absurd results.
Sub judice decision annulled in part and confirmed in part.
Cases referred to:
Nicou v. Republic (1983) 3 C.L.R. 1113;
Panayiotou v. Republic (1984) 3 C.L.R. 857;
Demetriou and Son v. The Republic (1968) 3 CL.R. 444;
Kyriakides v. Republic (1979) 3 C.LR. 86.
Recourse.
Recourse against the decision of the respondents to impose on applicant income tax for the years 1979-1985 and interest. on the amount so imposed.
M. Vassiliades, for the applicant.
Y. Lazarou, for the respondents.
Cur. adv. vult.
A. LOIZOU J. read the following judgment. By the present recourse the applicant seeks "a declaration of the Court that the decision and/or decisions and/or acts of the Director of the Department of Inland Revenue set out in his letter dated the 23rd September, 1986, and which relate to the imposition of income tax for the years 1979-1985 as contained in Form 104/85, Appendix "A", and interest on the amount of tax so imposed, is null and void with no legal effect."
The applicant who comes from Yeroskipou village and is a pensioner, tranferred on the 3rd September 1976, by way of gift (D. 1854/86), a field in .Yeroskipou under Registration No. 7668 sheet/plan LI/27 1/5/3/2 of an extent of sixty donums and two evleks to his children Petros, Georghios, Yiannakis, Constantia, and Georghia Varnava, 1/6 share each, and to. his granddaughters Marina and Gavrilia Savva Savvidou - the children of his son Savvas - 1/12 share each. The said field was divided on the 7th February 1979 into fields under Registration Nos. 8258 and 8259 by D.L.R. Division Declaration DD207/79.
On the 19th April 1979, the field under Registration No. 8259 was sold to Astarti Development Limited, and the amounts of the proceeds corresponding to the shares of the two grand-daughters of the applicant were deposited with the Cyprus Popular Bank Limited.
The respondent Director of Inland Revenue obviously in his capacity as Commissioner of Income - tax, by letter dated the 10th April 1986, asked certain material relating to his capital situation as on 31st December 1983, which had been submitted so that the examination of the tax obligations of the applicant would be possible. To this letter (Appendix B), the applicant did not reply and so on the 23rd September 1986, the respondent Director after an examination of the case determined the objections that had been made for the years 1979 - 1983 and sent to the applicant notices of assessment of income - tax of even date together with an ac- companying letter (Appendix "C"). These final assessments for the years in question were made on the basis of the statements of the applicant, the only difference being the addition of income from farming which the respondent Director estimated at three-hundred pounds per year and the addition of the interest accrued to the minor grand-children of the applicant. For the years 1984-1985 the applicant had no tax liability.
It is the case for the respondents that with regard to the income from farming the applicant, always had such income and more concretely, for the years 1975, 1976, and 1977 the taxable income from farming was estimated at two-hundred and three- hundred pounds respectively, amounts which were agreed upon by the applicant. In any event the decision of the respondent Director to impose tax on the applicant for this income was reasonable bearing in mind the omission of the applicant to produce various elements which were asked of him by the letter of the 10th April 1986 and to cooperate with the income-tax office for the ascertainments of his correct taxable income.
Also the decision of the respondent Director to impose on the applicant tax for the interest which was collected by his minor grand-children Gavrilia and Marina from the Cyprus Popular Bank is correct and in accordance with the Law having in mind the provisions of section 30(2) and (3) of the Assessment and Collection of Taxes Law 1978/79. As it had already been mentioned the capital on which the interest accrued to the grand-children came from the sale of the property which the applicant had transferred to them, on the 3rd September, 1976. The position of the interest in question per year analytically appears in Appendix "D" and it is of about £1,200 to £2,100, varying from year to year.
I shall deal first with that part of the sub judice decision by means of which income-tax was imposed on the applicant with regard to income from farming.
It is the contention of the applicant that he has since the 27th October, 1976, transferred all his immovable property to his children and that for reasons of health and age, he has not been working.
Learned counsel for the respondent did not dispute the above contention. He submitted, however, that the applicant always had an income from farming and referred to the years 1975 (1974), 1976 (1975), and 1977 (1976), and in any event he further submitted the decision of the respondent to tax the applicant was reasonable and was taken on the basis of the material before him given that the applicant failed to produce the material which he was asked to produce by the respondent by means of the letter dated the 10th April, 1978, and to cooperate with the income-tax office for the ascertainment of his proper taxable income.
It must be stated that in the said letter the applicant was asked:
(a) To produce certificates from banks regarding the balance of his deposits at the end of each year from 1979 until 1983 inclusive, and the interest thereon. A certificate from the bank that besides the above accounts he had no other account in his name or in the name of his wife or in the name of his minor children.
(b) A certificate from Astarti Development Company Ltd., regarding the sale of a field of an extent of fourteen donums and two evieks at Paphos (Yeroskipou), regarding any interest paid to the sellers from the date of sale until settlement.
It is therefore clear that the applicant was not at all asked by means of the said letter to give any information regarding .his income from farming.
The effect of the failure of a tax-payer to submit at the appropriate time his return of income has been dealt by me in the case of Nicou v. The Republic (1983) 3 C.L.R. 1113 at p. 1118:
"Needless to say that one should not lose sight of the fact that the applicant himself failed to sumbit at the appropriate time his returns of income which would inevitably contain 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 the income-tax returns, takes upon himself the risk of having his assessable income arrived at by an inquiry which in the present case could not but have been the best possible.
Moreover under section 13(3) of the Assessment and Collection of Taxes Law, 1978-1979, in cases where a person has not delivered a return and the director is of the opinion that such person is liable to pay tax to the best of his judgment, the Director may determine the object of the tax and assess such person according to the nature and extent of his business".
Also in the Nicou case (supra), I dealt with the principles governing the judicial control of decision imposing income-tax and I said the following at pages 1119-1120:
"The burden of proof to satisfy the Court that it should in terfere with such a decision lying always on an applicant. (See Rallis Makrides v. The Republic (1967) 3 C.L.R. 47; Clift v. The Republic (1965) 3 C.L.R. 285; Christides v. The Republic (1966) 3C.I.R.732; Coussournides v. the Republic (1966). 3 C.L.R. 1, adopted and followed in Lilian Georghiades v. The Republic (1980) 3 C.L.R. 525 at pp. 544-545, which latter case was approved on appeal by the Full Bench of this Court, its judgment reported under the same name in (1982) 3 C.L.R. 659 and where at pp. 667-669 it is inter alia stated:
'Unlike the powers vested in the District Courts before Independence to adjudicate upon a taxation assessment by section 43 of Cap. 233, and earlier by virtue of section 39 of Cap. 297, (of the Old Edition of the Statute Laws of Cyprus) the Supreme Court has no jurisdiction to go into the merits of the taxation and substitute where necessary its own decision. The power of the Supreme Court is limited as indicated to the scrutiny of the legality of the action, and to ascertain whether the administration has exceeded the outer limits of its powers. Provided they confine their action within the ambit of their power, an organ of public administration remains the arbiter of the decision necessary to give effect to the Law; and so long as they make a correct assessment of the factual background and act in accordance with the notions of sound administration their decision will not be faulted. In the end, the Courts must sustain their decision if it was reasonably open to them'".
The Nicou case was followecd by Malachtos J., in Panayiotou v. The Republic (1984) 3 C.L.R. 857 at pp. 862-863.
In this case we have it that the applicant has as from 1976 transferred all his immovable property and ceased doing any work. We have it also that this state of affairs was within the knowledge of the respondent Commissioner since the assertion about the alienation of the immovable property is a fact relied upon by the applicant in the recourse and is not denied by the respondent in the opposition. Neither the objection of the applicant has been produced, nor is there before me any record of the respondent Commissioner containing the material upon which such objection as regards his assessment regarding farming has been determined, nor the reasons thereof, nor is there anything to suggest that a proper inquiry has been made in the circumstances, particulary so in view of his having retired and after the transfer of the property in question by him to his children and grandchildren and indeed the sale of the share of the grand-children. Once therefore the applicant was alleging not to be engaged in farming as I am inclined to assume from the contents of the application and of the opposition and once by the letter of the Commissioner, Exhibit "B", the mind of the applicant was not alerted to this fact, namely to give information about his income from farming the respondent Commissioner could not proceed to tax his income from farming without attempting to ascertain the true facts on this issue after the appropriate inquiry for the purpose. Thus the respondent Commissioner has exercised his discretionary power in .a defective manner because the sub judice decision had not been preceded by the correct ascertainment of all material facts after a proper inquiry. See Demetriou and Son v. The Republic (1968) 3 C.L.R. 444. In the result that part of the sub judice decision which related to the imposition of income-tax on income from farming must be annulled.
Coming now to the second part of the sub judice decision, namely the imposition of income-tax on interest paid to his grandchildren I have this to say. Since the capital from which the interest was derived emanated from the sale of immovable property which was transferred by the applicant to his grand-children by way of gift, question is governed by section 30(2) of the Assessment and Collection of Taxes Laws 1978-1979. The proper construction that can be given to this section is this. An object of a tax once transferred in the name of a minor who is unmarried such object continues to belong to the transferor until the minor becomes of age and the transferor is liable to be taxed thereof for all the years during which the transferee is a minor and not only for the year of the transfer as contested by learned counsel for the applicant. Any other construction would lead to unreasonable and absurd results, which such results should be avoided if it is possible as in this case to construe a provision in a manner leading to a reasonable and workable application of it. (See Kyriakides v. The Republic (1979) 3 C.L.R. 86.
In view of all the above the second leg of the sub judice decision was taken in a manner consonant with section 30(2) of the Law and was thus reasonably open to the respondent Commissioner on the material before him.
For all the above reasons the sub judice decision is annulled in part and confirmed in part.
Sub judice decision partly annulled.