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ΠΑΓΚΥΠΡΙΟΣ ΔΙΚΗΓΟΡΙΚΟΣ ΣΥΛΛΟΓΟΣ
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(1988) 3 CLR 2295
1988 November 26
[KOURRIS.J.]
IN THE MATTER OF ARTICLE 146 OF THE CONSTITUTION
AKINITA STEPHANOUIOANNIDE LTD.,
Applicants,
v.
THE REPUBLIC OF CYPRUS, THROUGH
1.THE MINISTER OF FINANCE,
2.THE COMMISSIONER OF INCOME TAX,
Respondents.
(Case No. 94/87).
Taxation—Income tax—Sale of land—Profit therefrom—When liable to income tax—Principles applicable—Review of authorities—The nature of the question.
Taxation—Assessments—Judicial control—Principles applicable.
The applicants are a family company incorporated in 1969. Its shareholders were the parents and the children of a family. The main purpose of the company was to acquire the immovable property of the parents.
The company acquired some immovable property from the said parents in 1973. In 1976 the company sold such property. The respondents treated the profit as being liable to income tax and, as a result, they raised the sub judice assessment.
The sub judice assessment was impugned on two grounds, namely:
(a)That it was raised after the expiration of 6 years from the year when the profit was supposed to have been realized
(b) That the profit was wrongly treated as trading profit.
Held, annulling the sub judice decision:
(1)On the totality of the material placed before the Court it transpired that the assessment was raised on 31.12.1983, and, therefore, it is not out of time.
(2) The taxability of profits from the sale of land is a question of mixed law and fact. In this case neither the company nor its promotors were ever engaged in trading in land. It is clear that in this case in selling properties in question the company realised an investment. It was not reasonably open to treat the profit as a trading profit liable to income tax.
Subjudice decision annulled.
No order as to costs.
Cases referred to:
Koussoumides v. The Republic (1966) 3 C.L.R. 1;
Makrides v. The Republic (1967) 3 C.L.R. 146;
Georghiades v. The Republic (1982) 3 C.L.R. 659.
Agrotis v. The Commissioner of Income Tax. 22 C.L.R. 27;
Californian syndicate Ltd. v. Harris, 5 T.C. 159.
Turner v. Last (1965) 42 T.C. 517.
Eames v. Stephen properties Ltd. (1966) 43 T.C. 672.
J. Bolton and son Ltd. v. Farrelly [1953] 24 T.C. 161.
Recourse
Recourse against income tax assessment raised on applicants for the year 1977.
G. Triantafyllides, for the applicants.
Y. Lazarou for the respondents.
Cur.adv.vult.
KOURRIS. J. Read the following judgment. By the present recourse, the applicants challenge the validity of the decision of the Commissioner of income tax whereby tax amounting to £3,049.38c was imposed upon the applicant company in respect of the year 1977.
FACTS:-
The applicants is the company "AkinitaStephanouIoannide Ltd", of Ktima, a private limited company which was incorporated in 1969. The compnay is a family company consisting of the parents and their children and the main object for which the company was formed was to acquire the family property registered in the name of the parents Maria and StephenosIoannides. In 1973 applicants have acquired from the promotor of the company Mr.StephanosIoannides, a building site, Registration No. 22433 and a field Registration No. 24612 in exchange for another field which the company owned. In 1976 the aforesaid two properties were sold by the company and the respondents being of the opinion that it was a gain made in an operation of business. i.e. trading in land have assessed applicants to pay income tax in respect of the profit they realized fromt the sale of the above two properties. Hence the present recourse.
THE LAW:
In view of the presumption of legality of administrative acts., the sub judice assessments should be presumed to be valid unless the applicant succeeds to prove the contrary. In the case of Koussoumides v. The Republic (1966) 3 C.L.R. 1, it was established that in a recourse to the Supreme Court under Article 146 of the Constitution it is on the applicant on whom the initial burden of proof lies to satisfy the Court that it should interfere with the subject matter of the recourse. This was followed in the case of Rallis Makridesv. The Republic (1967) 3 C.L.R. 146, at page 153. In the case of LilianGeorghiadesv. The Republic. (1982) 3 C.L.R. 659, at pages 667-669, the Full Bench of the Supreme Court has made it abundantly clear that if the respondents' decision is one which was reasonably open to them, then this Court will not disturb same. Furthermore, in income tax cases it is expressly stated in the relevant laws that the burden to satisfy the Court that an assessment is excessive, is on the person who attacks same (see Section 21 sub-section (2) of the Assessment and Collection of Taxes Laws 1978-1979). This law applies also to the special contribution cases by virtue of Section 6 of Laws 34/78 and 55/74.
Counsel for the applicant argued that in accordance with the relevant Law 4/78, the respondents had up to the 31st December, 1983, to raise an assessment in respect of the year 1977, i.e. they had a period of six years. He went on to say that they failed to do so and consequently the assessment is out of time.
The second ground on which the applicants base their application is that the respondents wrongly treated the applicants as traders in land.
The issues, therefore, which fall for determination are the following:
(a) Whether the assessment raised is out of time.
(b) Whether the applicant company can be treated as having traded in land, or embarked upon an adventure or concern in the nature of trade or whether the sum of gain that has been made was a mere enhancement of value by realizing a security.
With regard to the first point, to the effect that the assessment raised is out of time learned counsel for the applicant, relied on the fact that the tax payable was expressed in "cents", which this monetary expression was not in force on the 31st December, 1983, but came into force in January 1984. Also, he said, that the box of the right-hand top of the assessment has the number 77/ 84/01/010 which means the assessment was raised in 1984 and not in 1983.
Counsel for the respondents submitted that the sub judice assessment was raised on 31st December, 1983, and refers to the year of assessment 1977 and that it was addressed to the applicant by registered letter dated 31st December, 1983. He said that the fact that the number on the right-hand side of the assessment bears the year 1984 does not mean that the assessment was raised in 1984. The assessment was in fact raised and dispatched on 31st December. 1983, but, for data-processing purposes by the computer, for all assessments raised after the 25th of each month there are references of the following month. And that in the present case the month referred to on the assessment is January 1984, i.e., the next month following. With regard to the argument that the amount of the assessment is expressed in "cents" and not in "mils", learned counsel for the respondents said, that all assessments raised after the 23rd December, 1983, were expressed in "cents" for computer purposes as it appeared from the attached cirpular No. 380 dated 17.12.1983 (see Exhibit 1) issued by the respondent commissioner to all assessing staff.
I have considered the arguments of both counsel, and in view of the material before me and in particular of exh. 1,I have been satisfied that the assessment was raised and dispatched on the 31st December, 1983, i.e. within six years from the end of year of assessment concerned. Therefore the sub judice assessment was not raised out of time and this point fails.
I now turn to the second issue concerned, i.e. whether the applicant company can be treated as having traded in land, or embarked upon an adventure or concern in the nature of trade or whether the sum of gain that has been made was a mere enhancement of value by realizing a security.
The taxability of the profits from the sale of one building site and another piece of land, an issue such as the present one is an issue of mixed law and fact which has to be decided in the light of the particular circumstances of each case. This has been laid down in the case of Agrotis v. The Commissioner of Income Tax, 22 C.L.R. 27 at page 30 which adopts a number of English cases.
The test to be used in resolving an issue such as the one under consideration has been laid down in the case of Californian Syndicate Ltd. v. Harris, 5 T.C. 159 where at pages 165 -166 it was said.
"... each case must be considered according to its facts: the question to be determined being is the sum of gain that has been made a mere enhancement of value by realizing a security or is it a gain made in an operation of business in carrying out a scheme for profit making?".
The above test was adopted in Agrotis case (supra) and also in recent English cases. On the same point assistance may also be derived from the case of LilianGeorghiades v. The Rebulic (1980) 3 C.L.R. 525 at pages 544-546, and on appeal, under the heading. Considerations relevant to determine whether a receipt constitutes income.
In the Agrotis case (supra), whoose facts resemble the facts of the present case Hallinan, C.J. put the test as follows. Whether a company incorporated under the companies law which sells certain land is merely realizing an investment or is selling a current asset in the nature of its stock and trade so that any resulting profit is not a capital accretion but is a trading profit liable to income tax.
Learned counsel for the respondents suggested that the applicants traded in land and therefore any profit they made is taxable. He said that the Court in deciding whether there is an adventure or not may look at the objects of the company and that at looking at the objects of the applicant company trading in land is the basic object of the company. He also said that the Court should take into consideration the period of ownership of the land and if the ownership of the land is for a short period and then sell it is in the light of authorities not characteristic of a person to hold an investment (Turner v. Last [1965] 42 T.C. 517 and Eames v. Stepnell-Propertise Ltd. [1966] 43 T.C. 672). He also pointed out that another criterion is the frequency of a number of similar transactions by the same person; He relied on the case of J. Bolton and son Ltd. v. Earrelly [1953] 34 T.C. 161. He said the applicants sold another building site in 1978 indicating their intention trade in land.
Learned counsel for the applicants suggested that the applicant company is a family company which was formed by StephenosIoannides and his wife in 1969, for the purpose of acquiring the properties of the promoters and that the main objects of the company were not to deal in land. This is evident from the memorandum of the company which under paragraph 2 (a) is stated.
'' Η απόκτηση διά δωρεάς ολοκλήρου ή τμήματος της ακινήτου περιουσίας της ανηκούσης εις τν κ. Μαρία Στ. Ιωαννίδου και/ή τον κ. Στέφανο Ιωαννίδη.''
He went on to say that clauses 2(β), (g) and ( d)areclauses which empower a company to deal in land but these clauses are standard clauses which can be found in the memorandum of association of all companies registered in Cyprus. In the present case the applicant exchanged a plot of land with Stephanosloannides which they subsequently sold and it is the proceeds of this sale that are being taxed in the present case. He said, that if instead of receiving a plot of land in exchange, applicants had received from Stephanosloannides money, that money would not have been taxable because if mat money were taxable applicants ought to have been taxed on the exchange of properties as well.
I have considered carefully the submissions made by both counsel and it appears that in the present case the applicant company which is a family company was formed in order to acquire immovable property registered in the name of Stephanosloannides and his wife. And neither the applicant company nor Stephanos Ioannides or his wife engaged themselves ever in trading of land themselves. It is clear that the applicants in 1976 when they sold the particular piece of land which they received in part exchange from StephanosIoannides they were not embarking in an adventure in the nature of trade but were simply realizing an investment. They were liquidating their asset. And since they would not have been taxed if they had received money from StephanosIoannides for the alienation of the plot of land and only if they had sold it not only to StephanosIoannides but to any other party, they cannot be taxed for selling, the plot of land which they received in part exchange three years later.
This is not an ordinary case of trading in land where there is a purchase with a view of sale, then an actual sale at a profit.
In view of the above it was not reasonably open to the respondent commissioner to reach the conclusion that the applicants traded in land and therefore, their decision to raise on the applicants tax is null and void.
In these circumstances, the recourse succeeds but with no order for costs.
Sub judice decision annulled.
No order as to costs.