PANTZARIS ν. REPUBLIC (1989) 3A CLR 861

Taxation - Income Tax - Trading in land - compulsory acquisition of land - Whether profit derived from compensation subject to tax - In the light of the circumstance of this case the decision to tax the profit was reasonably open to the respondent.

Taxation Income Tax - Liability to pay - Accrues when the relevant taxable income is derived. i.e. in the year when it was earned irrespective of the year when a notice of assessment was served - 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.

The applicant was a dealer in land. In 1969 he bought land within the industrial area of Strovolos. That land was compulsorily acquired in 1975. The agreement relating to the amount of compensation payable for the acquisition was reached on 23/12/78. The applicant received a profit of13.642.

When later during 1984 an assessment was raised for the year of assessment 1978 in respect of such profit the applicant took objection. The final decision was taken on 30th June 1987.

In the light of the principles enunciated in the last of the aforementioned Headnotes the Court rejected the submission of Counsel for the applicant that the profit in any event was not taxable by reason of the amendment to the compulsory acquisition law, which was enacted in 1987 retrospectively as from 27/5/1983.

The question is not whether compulsory acquisition is or is not a sale, but whether the difference between the cost of acquiring the land in question and the amount of compensation is profit subject to income tax.

Land in Cyprus is capable 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 nature of trade in land are set out in the case Law of this Court.

Such characteristics do not form a comprehensive list and no single item is in any way decisive. The question is: whether on the facts found it was reasonably open to a person properly instructed with the law to find, that there was an adventure in the nature of trade was the land acquired a commodity of trade In the circumstances of the present case, it was reasonably open to the respondent to arrive at the sub judice decision. Indeed, the applicant purchased building sites in 1962. When later he sold the one, his profit was taxed. When he sold another, his profit was again taxed. When later he sold yet another once again his profit was taxed. The land in the present case was purchased in 1969. It was situated in the vicinity of Strovolos and the notice of acquisition was published in 1975.

Recourse dismissed. No order as to

costs.

Cases referred to:

Kyriakides v. Republic (Minister of Finance and Another) 4 R.S.C C. 109,

Christou v. Republic of Cyprus through The Commissioner of Income Tax (1965) 3 C.L.R.214,

Matsis v. Republic (Minister of Finance and Another) (1969) 3 C.L.R. 245,

loannides v. Republic (1985) 3 C.L.R. 1801,

Kirkness v. John Hudson & Co. Ltd [1955] 2 All E.R. 345,

Coltness Iron Company v. black 6 app. Cas., 315,

Sutherland v. Commissioners of Inland Revenue 12 T.C 63.

Commissioners of Inland Revenue v. Newcastle Breweries, Ltd. 12 T.C. 927,

Burmah Steam Ship Co. Ltd. v. Commissioners of Inland Revenue 16 T.C.67,

Short Bros. Ltd. v. Commissioners of Inland Revenue 12 T.C. 955,

Georghiadcs v. Republic (1982) 3 C.L.R. 659.

Edwards v. Bairstow [1955] 3 All E.R. 48,

P.G.G.Clift.v. Republic and Another (1965) 3 C.L.R. 285.

Christides v. Republic (1966).3 C.L.R. 732,

Makrides v. Republic (Minister of Finance) (1967) 3 C.L.R. 147,

Mangliv. Republic (1983) 3 C.L.R. 52,

HadjiEraclis and Another v. Republic (1984) 3 C.L.R. 604,

Ignatiou and Another v. Republic (1989) 3 C.L.R. 346,

C. D. Hay Properties Ltd. v. Republic and Another (1989) 3 C.L.R. 393,

Marson v. Morton and Others 59 T.C 381.

Recourse.

Recourse against the income tax assessments for the years 1978-1979 and the special contribution assessments for the four quarters of 1978 raised on Applicant.

A. Dikigoropoulos, for the Applicant.

Y. Lazarou, Counsel of the Republic B', for the Respondents.

Cur.adv. vult.

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 1978 (income 1977), 1979 (income 1978) and 1979 (income 1979) and Special Contribution Assessments for the four quarters of 1978.

Neither in the statement of facts nor in the address of counsel any reference is made to the Income Tax Assessment for the year of income 1979.

The applicant on the 10th February, 1979, purchased a field at Latsia which he sold on 29th September, 1979. From this transaction he realised a net profit of £2,650.-. Income Tax Assessment was raised for 1979 on 19th December, 1985. The aforesaid amount of 2,650.- was taxed. Notice of objection was given by the taxpayer on 9th January, 1986. The objection was determined by the Respondent and his decision was communicated to the applicant by letter dated 30th June, 1987, 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 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, 1987, was sent to applicant. At a meeting held on 4th August, 1987, 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, 1978, (Law No. 18/78) as amended. The applicant agreed to the amount of the profit realised from the aforesaid sale to be a taxable profit under the Income Tax Legislation.

Therefore, no recourse lies as no decision was taken by the Respondent under paragraph 5 of section 20 of Law 18/78.

The sole dispute is the taxability of the profit received from the compulsory acquisition of land at Strovolos and relates to the years of assessment 1979 and 1978 (years of income 1978 and 1977).

The applicant in 1969 purchased at £3,744.-. the one half share of a field at Strovolos (the industrial area), shown D.L.O. maps as Plot No. 44, 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 on 25th June, 1976, under Notification 483, Plot No. 14 was compulsorily acquired by the Republic and Plot No. 44 was. by order published in the Official Gazette on 27th October, 1978, under Notification, compulsorily acquired by the same authority. Negotiations were held between the acquiring authority and the applicant on the just compensation payable. Finally on 23rd December, 1978, 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.

Assessment was raised for the year of assessment 1978 on 20th December, 1984. Objection was taken by the applicant through his accountants by notice of objection dated 3 1st, 1984, which was duly given to the Respondent on 11th January, 1985.

The Assessment and Notice of Assessment for the year 1979 (1978) was raised on 19th December, 1985, and notice of objection was given on 9th January, 1986. 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 communicated to the applicant by letter dated 30th June, 1987, and relevant Notices of Assessments were issued and sent on 30th June, 1987.

The material part of the decision, as contained in the letter dated 30th June, 1987, aforesaid, 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 building sites were assessed to tax The profit from land L.14 that was requisitioned by Government is taxed in the year of receipt of money, as the right to receive a sum of money that is merely under negotiation in an earlier period, or is contingently established in that period, and is finally settled in a later period, the sum has to be brought in as a receipt of the later period."

The profit from the land thus acquired by the Government was taxed in the year of receipt of the money.

On 4th August, 1987, meeting took place between the applicant and his accountants on the one hand and the Respondent on the other, but no agreement was reached with regard to this receipt and the Respondent on 8th. August, 1987, sent another letter with revised assessments.

Thereafter the filing of this recourse ensued.

Counsel for the applicant submitted that the validity of the sub judice decision should be determined on the basis of the law in force at the time of its issue, i.e. 30th June, 1987, or 8th August, 1987. The Compulsory Acquisition of Property (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. Sections 2 and 3 of Law No. 148/85 read:-

"2. Το άρθρον 12 του βασικού νόμου τροποποιείται διά της διαγραφής του εδαφίου (3) αυτού και της αντικαταστάσεως του διά του ακολούθου νέου εδαφίου:-·

'(3)(α) Η καταβλητέα αποζημίωσις, ως τοιαύτη, εις ουδένα φόρον, κράτησιν ή τέλος υπόκειται.

(β) Η απαλλοτριούσα αρχή πριν ή προβή δυνάμει του παρόντος άρθρου εις οιανδήποτε πληρωμή, αφαιρεί εκ του πληρωτέου ποσού τους πάσης φύσεως προ της απαλλοτριώσεως φόρους, τέλη ή δασμούς οφειλόμενους αναφορικώς προς απαλλοτριωθεί-σαν ιδιοκτησίαν, και καταβάλλει το ούτο αφαιρεθέν ποσόν εις την αρχήν εις, ην οφείλεται ο τοιούτος φόρος, δασμός ή τέλος.'

3. Η ισχύς του παρόντος Νόμου θεωρείται ως αρξαμένη την 27ην Μαΐου 1983."

The liability to pay income tax accrues and tax is charged when the relevant taxable income is derived. (See sections 5 and 6 of the Income Tax Law; VasosConstantinouKyriakides and The Republic (Minister of Finance and Another)4 R.S.C.C. 109).

The liability to pay tax accrued in the year when the income 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 DemetrisPetrouChristou 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. 1801,atp. 1814).

The liability of the applicant accrued in the year of income and Law No. 148/85 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.

Counsel for the applicant submitted that compulsory acquisition of property is not "sale" and therefore any gain or profit therefrom cannot be the object-to tax. He referred to the 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:-

"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 ."

In Kirkness v. John Hudson & Co. Ltd [1955] 2 All E.R. 345, the question for answer was the interpretation of the word "sold" in section 17(1) (a) of the Income Tax Act, 1945. Under section 29 of the Transport Act, 1947 privately owned railway wagons under requisition should vest in the Transport Commission, and 663 wagons which belonged to the taxpayers vested in the Commission under that section. It was held that the word "sold" in its ordinary meaning connoted mutual assent and wagons compulsorily acquired were not "sold" within the ordinary meaning of that word. Lord Reid at p. 361 said:-

"It is true that 'compulsory purchase' has long been a familiar phrase. The word 'purchase' is frequently used in the Lands Clauses Acts. ... The Acts contain elaborate provisions enabling the owner to sell even if under disability, and for determining the amount of the purchase money or compensation if that is not agreed, and it is only if the owner fails to execute a conveyance after the purchase money has been deposited that the undertakers can themselves take the necessary steps to acquire the property. So it is not surprising that the phrase 'compulsory purchase', or 'compulsory sale' 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":

Lord Tucker said at p. 367:-

"By express enactment or by necessary implication from the context, any word may be given a meaning different from, or wider than, that which it ordinarily bears, and this 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 legal vocabulary, such a transaction would be included in the word 'sale', but this would not seem to me to justify givingsuch an interpretation to the word in the context of s. 17."

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 p. 330).

The question that falls for determination in the present case is not whether the compulsory acquisition is sale but whether the receipt by the applicant of the difference between the cost of acquisition and the afore-described property and the compensation paid by the Republic as acquiring authority is profit taxable under the Income Tax Legislation.

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 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 the Admiralty on hire. An assessment of Excess Profits Duty was made for the period ended March, 1916, in respect of the profits of the boat, including the sums received from the Admiralty in respect of the hire. The Appellant contended that 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 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 a ship for profit, and that the hire received from the Admiralty formed part of the profits of such trade chargeable to Excess Profits Duty. Lord Mackenzie said at p. 70:-

"The next point taken is that the drifter was taken compulsorily. I do not think that the mode by which the occupation of the drifter was achieved matters at all. This question is, to what purpose was she being put after she was taken over by the Admiralty."

In The Commissioners of Inland Revenue 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 the compulsorily acquired was not a receipt of the business trade or profit arising from its trade or business. It. was held by Rowlatt, J., that the mere fact of compulsion could not make any difference. In the House of Lords Viscount Case, L.C., said at p. 953:-

"Two points are made on behalf of the Appellants. First, it is said that the £5,300.- is not a profit from the Appellants' business at all, but is a sum payable by way of compensation for the compulsory taking by the Crown of a part of the Appellants' capital. I cannot agree with that contention ... if the raw rum had been voluntarily sold to other traders, the price must clearly have come into the computation of the Appellants' profits, and the circumstance that the sale was compulsory and was to the Crown makes no difference in principle."

In Burmah Steam Ship Co. Ltd. v. The Commissioners of Inland Revenue 16 T.C. 67 damages for estimated loss of profit from trading with a ship delivered late after overhaul, was held that they were included as a trading receipt in the computation of the company's profits for Income Tax purposes.

Compensation may be income if it is for the acquisition of the asset so as in effect to produce an accelerated sale or business receipt - (Short Bros. Ltd. v. The Commissioners of Inland Revenue 12 T.C. 955).

The manner of parting with an asset does not change the character of the receipt. The receipt takes its attribute from the nature of the asset parted with. (Georghiades v. Republic (1982) 3 C.L.R. 659). The issue for the determination is on the proper application of the law, a factual one-(Edwards. v. Bairstow [1955] 3 All E.R. 48).

Was the property acquired compulsorily a commodity of trade or a commodity of investment?

Land no more in Cyprus constitutes only an asset of an investment nature. The land is capable 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 nature of trade in land were set out in a number of cases of this 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 Tax (1965) 3 C.L.R. 285; Christos Christides and 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 C.L.R: 604; ApostolosIgnatiou and Another v. The Republic of Cyprus through The Commissioner of Income Tax (1989) 3 C.L.R. 346, and C.D. Hay Properties Ltd. v. The Republic of Cyprus, through 1.The Commissioner of Income Tax 2.The Ministry of Finance (1989) 3 C.L.R. 393.

The characteristic mentioned in the aforesaid cases is not a comprehensive list and no single item is in any way decisive. Sir Nicolas Browner-Wilkinson V.C. said in Marson v. Morton and Others 59 T.C. 381, at p. 392:-

"I emphasise again that the matters I have 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 in each case it is necessary to stand back, having 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 the taxpayer investing the money or was he doing a deal?"

In Halsbury's Laws of England, 4th Edition, Volume 23, p. 142, paragraph 212, we read:-

"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 thenature of trade is a question of law. If the commissioners direct themselves rightly on the law, there decision on the evidence before them whether there is or is not a trade is an inference of fact with which an appellate court will not interfere, but if it appears to the court that the decision could not reasonable have been reached if there had been proper direction in law, the court may proceed on the footing that there has been a misconception of law."

It is well settled that in recourses under Article 146 of the Constitution against an assessment the Court will not interfere with the sub judice decision of the Income Tax Authorities, if it is of the opinion that such decision was reasonably and properly open to them on the basis of the correct facts and in the light of the correct application of the relevant legislation and principles of law - (see, inter alia, P.G.G. Clift and The Republic of Cyprus through (a) The Minister of Finance, (b) The Commissioner of Income Tax (1965) 3 C.L.R. 285; Mangli v. Republic (1983) 3 C.L.R. 52; HadjiEraclis and Another v. Republic (1984) 3 C.L.R. 604).

If the conclusion on the facts of a case reached by the Taxing Authorities is the only reasonable one that the taxpayer entered into an adventure in the nature of trade, or if, in the circumstances, different minds might come to different conclusions, the Court does not interfere with the conclusion of the Taxing Authorities. It is only when no reasonable man would reach the challenged decision that the Court interferes.

The question, therefore is: On the facts found, could any reasonable person properly instructed with the law find here an adventure in the nature of trade? Was the land acquired a commodity of trade?

The applicant purchased in 1962 building sites in AyiosAntonios quarter of Nicosia. Later he sold the one and realized a profit of £1,375.-. That profit was taxed and the applicant accepted that he was a trader in land. He sold another building site in 1965 at a profit of £1,975.- and again this was taxed as the transaction was a trade in land. In 1966 he received £2,175.profit from the sale of a building site, which was taxed. The land in the present case was purchased in 1969. It wassituated in the vicinity of Strovolos (in the industrial area) and the notice of acquisition was published in 1975.

The Respondent based mainly the sub judice decision on the aforesaid trading transactions of the applicant.

The Court is of the view that there was ample room for the Respondent to arrive at the sub judice decision. The purchase of the land could reasonably be considered as one made with a view to exploiting future opportunities which might 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 was reasonably open to the Respondent.

For the foregoing, the recourse fails and is dismissed.

Let there be no order as to costs.

Recourse dismissed. No order as

to costs.

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