|
ΠΑΓΚΥΠΡΙΟΣ ΔΙΚΗΓΟΡΙΚΟΣ ΣΥΛΛΟΓΟΣ
|
|
|
(1989) 3A CLR 780
1989 July 12
[A. LOIZOU, P.]
IN THE MATTER OF ARTICLE 146 OF THE CONSTITUTION
PANICCOS PAMBORIS,
Applicant,
v.
THE REPUBLIC OF CYPRUS, THROUGH THE MINISTRY OF
FINANCE AND ANOTHER,
Respondents.
(Case No. 242/87)
Taxation - Capital Gains Tax - The Capital Gains Tax Law 1980 (Law 52/80), sections 15 to 19 - An objection to the Director against an assessment, is a necessary prerequisite before the filing of a recourse - No recourse lies under Art 146 until the objection is determined.
Administrative review of executive or administrative acts or decisions - Nothing in Art 146 of the Constitution prevents procedures for such a review, which can be either by way of confirmation or completion of the act in question or by way of a review by higher authority or by specially set up organs or bodies of an administrative nature.
Taxation - Capital Gains Tax - The Capital Gains Tax Law, 1980 (Law 52/80), section 10- "Disposal" - A very wide term covering all kinds of transfers or alienation of the beneficial title to an asset except the four instances specifically referred to in that section - Compulsory acquisition - It is a disposal within the meaning of the term - Therefore, the compensation is subject to Capital Gains Tax.
Taxation - Findings of fact - Failure by applicant to give information to Commissioner- Commissioner entitled to determine the assessment on the material before him.
Constitutional Law - Taxation - Constitution Art 24.4 - Capital Gains Tax as imposed by the Capital Gains Tax Law 1980 (Law 52/80) - The tax is neither destructive nor prohibitive in nature.
Applicant's property was compulsorily acquired. The Director proceeded and raised an assessment under code 2 "initial taxation on the basis of the assessment of the Director of the Department of Inland Revenue". The applicant objected, but before determination of the objection, he filed the present recourse.
The Court held that the recourse could not be filed before determination of the objection. In any event, the compulsory acquisition of property is a disposal in the sense of section 10 of Law 52/80. (In this case the provisions of the Compulsory Acquisition of Property (Amendment) Law 1985 (Law 148/85) were not applicable. In virtue of subsection 3 of section 12 as replaced by such Law the compensation payable for 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. After all, the assessment raised under code 2 enabled the applicant to object, thus placing before the administration all the facts he wanted to place.
Recourse dismissed. No order as to
costs.
Cases referred to:
Pelides v. Republic 3 R.S. C. C. 13,
Iordanou and Others v. Republic (1985) 3 C.L.R. 476,
Pantelidou v. Republic (1986) 3 CL.R. 687,
Pitsiakkos v. Republic (1985) 3 C.L.R. 1700,
Petrolina Ltd. v. Municipal Committee of Famagusta (1971) 3 C.L.R. 420,
Polyviou v. Improvement Board of Ayia Napa (1985) 3 C.L.R. 1085,
Nicou v. Republic (1983) 3 C.L.R. 1113,
Adis Ltd. v. Republic (1986) 3 C.L.R. 900,
Kythreotis v. Republic (1987) 3 C.L.R. 495,
HadjiAlexandrou v. Republic and Others (1988) 3 C.L.R. 1155,
Henty House Proprietary Limited v. Federal Commissioner of Taxation C.L.R. 141,
Tryfonos v. Republic (1984) 3 C.L.R. 884,
Nina Rainbow v. C.L.R. (1984) 3 C.L.R. 846,
Panayiotou v. Republic (1984) 3 C.L.R. 857,
Colocassides v. Republic (1965) 3 C.L.R. 542.
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 Strovolos.
L. Papaphilippou, for the Applicant.
Y. Lazarou, Counsel of the Republic B, for the Respondents.
Cur. adv. vult.
A. LOIZOU, P. read the following judgment. By the present recourse the applicant seeks-a-declaration of the-Court that the act and/or decision of the Director of the Department of Inland Revenue, hereinafter to be referred to as the Director dated the 7th February, 1987, by which they decided to impose on him capital gains tax under the provisions of the Capital Gains Tax Law, 1980 (Law No.52 of 1980), on the profits derived from the compulsory acquisition of his field at Ayios Vassilios in Strovolos under Registration No G1978, plot 1781, is null and void and with no legal effect.
At the material time the applicant was the co-owner in undivided shares of the two-thirds share of the field in question out of which the Republic acquired compulsorily on the 18th December 1981 an area of twentyone donums, one evlek and two thousand square feet, which plot was divided from the rest and given its present separate Registration No. G1978.
The amount received by the applicant for his share of the said acquired property was £43,573, (fortythree thousand fivehundred and seventythree pounds). The total amount of compensation payable was £80,000 (eighty thousand pounds).
The Director on the 22nd May, 1985, 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 applicant on the 29th May, 1985, lodged a written objection on the ground that the said transaction did not amount to a disposal within the meaning of section 10 of the aforesaid Law.
Subsequently on the 8th November 1985 The Compulsory Acquisition of Property (Amendment) Law 1985 (Law No: 148 of 1985) was enacted by Subsection 3 of Section 12, was replaced by a new subsection which provided in paragraph (a) thereof that the compensation payable as such is not "subject to any tax, deduction or fee", which was given retrospective effect as from the 27th May, 1983.
As a result of the enactment of the said Law, the Director came to the conclusion that in view of the retrospectivity of this Law compensations which were paid after the 27th May, 1983 were exempt from Capital Gains Tax. Accordingly on the 11th June 1986 the Director, being under the mistaken belief that the compensation payable in respect of the compulsory acquisition of the subject property was still to be paid to the applicant, cancelled the assessment which was made on the 22nd May 1985 and informed the applicant accordingly by letter dated the 11th June 1986.
Subsequently, the Director was informed by the Director of Lands and Surveys that the compensation payable in respect of the property in question had been paid to the applicant before the 27th May, 1983, that is, on the 11th February 1983.
Following this information the Director proceeded and raised new assessments on the 7th 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 applicant objected through his counsel (Appendix C) by which he disputed the following.
(a) A compulsory acquisition which is made on the basis of the Compulsory Acquisition of Property Law 1962 is not a "disposition of property" within the ambit of Section 10 of the Capital Gains Tax 1980, (Law No.52 of 1980).
(b)There was not included in the costs of acquiring the property the transfer fees, the interest and the costs of maintaining same.
Before however the Director had a chance to consider and determine his objection by raising final assessments as provided by Sections 15 to 19 of the Capital Gains Tax Law 1980, the present recourse was filed by the applicant.
Learned counsel for the Director raised the objection that there is no final executory act that could be the subject of a recourse under Article 146 of the Constitution but a preliminary act.
Section 15 of Law No. 52 of 1980, makes provision for the filing of an objection to the Director in respect of the amount of tax payable and Sections 16-18 make provisions in respect of 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 Director in the manner provided in section 17, may make a recourse to the Supreme Court."
As stated by the Supreme Constitutional Court in the case of Pelides v. Republic 3 R.S.C.C. 13 at p. 17:
"This Court takes the opportunity of stressing that though Article 146 grants 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 be either -
(a) by way of confirmation or completion of the act or decision in question, in which case no recourse is possible to this Court until such confirmation or completion has taken place (e.g. under section 17 of CAP 96); or
(b) by way of a review by higher authority or by specially setup organs or bodies of an administrative nature, in which case a provision for such a review will not be a bar to a recourse before this Court but once the procedure for such a review has been set in motion by a person concerned no recourse is possible to this Court until the review has been completed."
The view that has been followed in several cases is that 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 (1985) 3 C.L.R. 476 at 481-482).
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 as is for instance the case under the Income Tax Laws. See on this Elisavet Pantelidou v. The Republic (1986) 3 C.L.R. 687 at pp 694- 702; Pitsiakkos v. The Republic (1985) 3 C.L.R. 1700 at 1720; Petrolina Ltd. v. The Municipal Committee of Famagusta (1971) 3 C.L.R. 420 at 425.
In Polyviou v. Improvement Board of Ayia Napa (1985) 3 C.L.R. 1085 at 1067 it was held that the review procedure under Section 18 of the Streets and Buildings Regulation Law, Cap. 96 (as amended) is not an indispensable prerequisite but an 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 made such review procedure an optional choice.
Generally the Court does not interfere with the conclusions of fact reached by the administration not have been before it as it is the responsibility of a tax- payer to lay all the facts before the administration, or in this case the Commissioner or to furnish any further particulars that may be required in order that a final decision may be reached. (See Nicou v. The Republic (1983) 3 C.L.R. 1113). So the procedure followed by the Director in the present case is a permissible one 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.
From the above it is clear that the recourse is not maintainable and should be dismissed on this ground alone since 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 the acquisition of the subject property as a disposition falling under section 10 of the Capital Gains Tax Law, 1980, is correct being in accordance with the relevant law. The definition of the term "disposal" as stated by me in Adis Ltd. v. The Republic (1986) 3 C.L.R. 900, "is so wide that it covers all kinds of transfers or alienation of the beneficial title to an asset from one person to another except the four instances enumerated in the said section.."
Section 10 of the Law provides:-
"10. For the purposes of this Law, disposal of property 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) Law in force for the time being and a gift of property, as well as an abandonment of the use of enjoyment of any relevant right but it does not include-
'(a) a transfer in contemplation of death;
(b) a gift made from parent to child or between husband and 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 live years after such gift;
Provided that in such case the value of the property shall be deemed to be the original value of the property at the time of its acquisition by the donor or the value thereof on 27th June, 1978, whichever date is subsequent;
Provided further where the property has been 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 as on 14th July 1974;
(c) a gift to the Republic or to any charitable institution therein approved as such by the Council of Ministers;
(d) an exchange or sale under the Agricultural Land (Consolidation) Laws in force for the time being."
Clearly the disposal of land by compulsory purchase does not fall within any of the aforesaid exceptions. Therefore, where immovable property is disposed of by being compulsorily acquired such transaction is a "disposal" within the meaning of section 10 and as such it is subject to capital gains tax.
Relevant in this respect is Christophoros Kythreotis v. The Republic (1987) 3 C.L.R. 495 where Savvides J., stated the following at p. 501:
"From the material before me it is clear that all along the Director of Inland Revenue acted in accordance with the provisions of the Capital Gains Tax Law, 1980 and exercised the powers vested in him under such law. At the time of the imposition of the tax and its collection the Director of Inland Revenue was under the belief that there was no provision in the law exempting property compulsorily acquired from the payment of capital gainst tax, the acquisition of the property amounted to a disposition and, therefore, a capital gains tax had to be imposed on the amount of compensation payable, plus simple interest at 9 percent on such amount, calculated three months after the disposition of such property till the collection of the tax."
The same view was expressed by me, in HadjiAlexandrou v. The Republic (1988) 3 C.L.R. 1155)
Compulsory acquisition has also been referred to as a compulsory sale. This implies that same is still a sale that is a disposition, because what is compulsory is the acquisition of the property, the purchase price is still ascertained on the basis of the price that it would fetch if the property was sold in the open market which assimilates it with a disposition. A similar view was also expressed by the High Court of Australia in the case of Henty House Proprietary Limited v. Federal Commissioner of Taxation 88 C.L.R. 141, a case concerning the income-tax payable by the appellant Company where it was held at p. 151 as follows:
"No distinction in any way material to these purposes can 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 requisite authority."
And also at pp. 151-152:
"The entire expression 'disposed of lost or destroyed' is apt to embrace every event by which property ceases to be available to the taxpayer for use for the purpose of producing 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 ample reason for rejecting a narrower construction. In particular, the words 'is disposed of' are wide enough to cover all forms of alienation, as Dixon and Fullagar JJ. remarked in Federal commissioner of Taxation v. Wade (1951) 84 C.L.R. 105, at p. 110, and they should be understood as meaning no less than 'becomes alienated from the taxpayer', whether it is by him or by another that the act of alienation 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."
Andatp.157:
"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 price has been fixed by agreement or by arbitration."
Regarding the applicant's remaining allegations it is-my view that all such allegations lack substance. More analytically, the allegation that the Director failed to carry out a due inquiry in that the expenditure which the applicant had incurred in acquiring the gain was never deducted in ascertaining his taxable liability is untenable. The reason that no such expenditure was deducted is because the applicant failed to claim same in the return of sale which he submitted to the Director - attached to the opposition as Appendix "A".
The effect of the failure of a taxpayer to submit full particulars to the Director has been dealt in the case of Nicou v. The Republic (supra) at p. 1118:
"Needless to say that one should not lose sight of the fact that the applicant himself failed to submit 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."
The above statement of the law was reiterated in the cases of Tryfonos v. The Republic (1984) 3 C.L.R. 884 at p. 886, Nina Rainbow v. C.L.R. (1984) 3 C.L.R. 846 at p. 847 and Alecos Panayiotou v. The Republic (1984) 3 C.L.R. 857.
The same view was expressed in Colocassides v. The Republic (1965) 3 C.L.R. 542 where the Court held that in view of the fact that the applicant had repeatedly failed to give more information to the Commissioner to decide more correctly his assessment, the Commissioner was entitled to determine the assessments on the material which was before him.
Likewise untenable is the allegation that the respondent acted contrary to the principles of good administration and the rules of natural justice on the ground that the applicant was never given the opportunity to be heard prior to the challenged decision. As is evident from the facts pertaining to the recourse, the assessment in question is a provisional assessment against which the applicant had the opportunity to object and did object. Thus there is clearly no substance in this allegation.
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 support this contention are unconvincing and do not establish beyond all reasonable doubt or at all that the law under consideration is in conflict with Article 24.4 of the Constitution.
For all the above reasons the recourse is dismissed with no order as to costs.
Recourse dismissed. No order as
to costs.