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Court of Appeal of Fiji |
IN THE COURT OF APPEAL, FIJI
ON APPEAL FROM THE HIGH COURT OF FIJI
CIVIL APPEAL ABU 1 OF 2017
(High Court HBT 4 of 2013)
(Tribunal Appeal 10 of 2010)
BETWEEN:
CHOTTABHAI PATEL HOLDINGS
Appellant
AND:
THE COMMISSIONER OF INLAND REVENUE
Respondent
Coram : Calanchini P
Chandra JA
Tuilevuka JA
Counsel: Ms. Samantha for the Appellant
Mr. Verebalavu for the Respondent
Date of Hearing: 28 June 2018
Date of Judgment : 10 May 2019
JUDGMENT
Calanchini P
[1] I agree that the appeal should be dismissed.
Chandra JA
[2] I agree with the reasons and conclusions of Tuilevuka JA.
Tuilevuka JA
Introduction
[3] The Appellant company, Chottabhai Patel Holdings Limited (‘Company’) was incorporated on 24 October 1978. The Company’s memorandum and articles of association were never tendered in evidence in any of the proceedings below. However, both counsel appear to accept that the Company’s sole purpose was to hold income earning properties as long term invetsments for its shareholders. It is also common ground that, at all material times, the Company was engaged in the business of property management and investment.
[4] On 02 January 2003, the Company acquired for $340,000.00 plus VAT of $34,000.00 a piece of land comprised in Certificate of Title 3478 and situated on The Cove on Denarau Island (“the Cove”) made pursuant to a sale and purchase agreement dated 10 September 2002.
[5] A director of the Company, Mr. Anil Patel, had deposed in an affidavit that the incentive for acquiring the Cove on Denarau Island was due to the fact that:
“Denarau was envisaged to be the largest intergrated resort development in Fiji ......”.
[6] From September 2002 to November 2009, the Company simply held onto the Cove without carrying out any improvement thereon. Then, in November 2009, the company sold the Cove, as a vacant block, to one Lynn Craig Turner and one Cara Maria Pollock Turner for $2.1 million.
[7] This transaction was the first property sale ever to be undertaken by the Company as vendor.
[8] Notably, at the time of the sale, the Company owned eight (8) other properties which it had acquired at various times. Four (4) of these were being let out to residential and commercial tennants.
The Tax Assessment
[9] As it turned out, the Commissioner of Inland Revenue (“Respondent”) determined that the Company had made a gain or profit from the sale of the Cove and that this gain or profit was assessable as income under section 11 and section 11(a) of the Income Tax Act.
[10] Vide a letter dated 07 April 2010, the Respondent sent a formal Notice of Assessment (“the assessment”) to the Company for advance tax assessed for 2010. The total tax assessed for the sale was $490,896.00. This assessment was based on the Company’s estimated net profit of $1,753,200.00.
[11] The Company was not satisfied with the assessment. On 3 June 2010, it lodged a Notice of Objection to the Assessment with the Respondent. Vide a letter dated 30 August 2010, the Respondent asserted that the sale was caught under section 11(a). The Company responded by lodging a Notice of Review to the Tax Tribunal on 24 September 2010.
[12] Before the Tribunal, the Company argued that it only decided to sell the Cove because the Turners had offered a lucrative price and that it only made the decision to accept this offer because of the prevailing political and economic situation after December 2006. The Company maintained that the sale was an isolated one-off transaction which was not within the normal proceeds of it’s business.
[13] The Respondent maintained that the Company acquired the Cove for the purpose of selling or otherwise disposing of it and that the Company had derived a profit from the carrying on or carrying out of any undertaking or scheme, which the Company had entered into or devised for the purpose of making a profit.
[14] Òn 3 January 2013, the Tax Tribunal dismissed the Company’s Notice of Review. The Company then appealled the Tax Tribunal’s decision to the Tax Court. On 23 November 2016 the Tax Court, dismissed the company’s appeal.
[15] This is the appeal against the Tax Court’s decision.
Tribunal’s Reasoning
[16] The issue before the Tribunal was whether or not the proceeds from the sale of the Cove was “income” for the purpose of section 11 of the Income Tax Act (Cap 201) or whether it was an extraordinary one-off transaction outside the normal proceeds of the Company’s business.
[17] The Tribunal first examined the purpose behind section 11. In doing so, it looked at the three illiustrative limbs set out therein. It also looked at the exclusionary provision of section 11(a), and then reviewed how “income” and “income tax” developed legislatively over the years in Fiji, New Zealand, Australia and Canada.
[18] As the Tribunal noted, the precursor to Fiji’s section 11 was section 3 of the Income Tax Ordinance. For some thrty eight (38) years or so, section 3 existed as a stand alone provision. Later, by an amendement in 1957, subsection (1A) was added, by which, was introduced three limbs. These three limbs were couched in language of which the three limbs of section 11(a) of the Income Tax Act, are an exact replica. These same three limbs were enacted in New Zealand and Australian legislation much earlier than they were in Fiji.
[19] The Tribunal also referred to the relevant Second Reading Speech[1] of section 11 and also to its earlier decision in Taxpayer A [2012] FJTT 3[2] wherein the Tribunal examined the purpose behind the three limbs of section 11(a).
[20] The Tribunal then observed as follows[3]:
The language of these provisions seem quite clear. I am satisfied that the illustrative examples were only intended to be what they are. They appear designed to assist in the case of uncertainity. The structure of the provision is uniquely Fijian. For the above reasons, I reject the submissions of the Applicant in relation to the historical development and purpose of the introduction of Section 11(a) of the Act.
[21] The Tribunal was of the view that section 11 is intended to be as broad and general in application as its forerunner, section 3.
[22] After examining the purpose behind section 11, the Tribunal then turned to consider whether the particular transaction in question was caught under section 11.
[23] The question it posed at paragraph 58 of its Ruling was, whether or not the sale of the Cove was a transaction that was in the nature of a trade or business[4]. At paragraphs 59 and 60, the Tribunal concluded that the profit from the transaction was captured under the general provision of section 11. The Tribunal took the view that the Cove was purchased by the Company for business purposes. The Company then sold the property. It derived a profit from that sale. That profit, therefore, arose from the Company’s business[5]. It was more than just a capital accretion.
[24] Having concluded that the profits from the transaction were caught under the general provision of section 11, the Tribunal still went on to consider whether the profit was also caught by section 11(a) of the Act. The Tribunal concluded that the Company was engaged in the business of “dealing in property” within the terms of section 11(a). In reaching this conclusion, the Tribunal had proferred a rather broad interpretation of the phrase “dealing in property” [6].
[25] In terms of section 11(a), the Tribunal took the view that the Company acquired the Cove and then simply held onto it. When it saw an opportunity, the Company then sold the Cove and made a sizeable profit out of that disposal. It then re-invested the money.
62.I am satisfied that the term could capture the activities of the Taxpayer. The Taxpayer is a Property Management and Investment Company. It does more than receive passive income rental. It acquired a property, held it, did nothing with it and disposed of it, having made a sizable profit. According to the submissions, it saw a better opportunity to exploit, needed money and reapplied it elsewhere.
[26] The Tribunal quoted from Shankar Lal s/o Ram Tahal v Commissioner of Inland Revenue (without proper citation) as authority that, to be in the business of a property dealer, a person must buy and sell with the object of profit. The higher the frequency of such transactions entered into by a person, the easier it is to classify that person as a “property dealer”. However, a person may still be a dealer even if there is a relatively low degree of frequency in his or her engaging in buying or selling for profit.
63.In Shankar Lal s/o Ram Tahal v Commissioner of Inland Revenue, Dunckley J., stated:
by definition, to be a business as a property dealer, a person must buy and sell properties with the object of profit. A dealer in property is a trader in property. Ususally the more transactions a person enters into, the more obviously he can be termed a dealer. In this case, the number of transactions is not large in relation to the period involved. This does not necessarily mean that the appellant is not a dealer.
[27] The Tribunal then went on to say that the first limb of section 11 does not require that the taxpayer be a property dealer. Rather, all it requires is that the taxpayer’s business comprises dealing in property.
64.It needs to be kept in mind here, that his Honour was speaking of the business of a property dealer. The first limb though does not require that the Taxpayer be a property dealer, only that the business of the Taxpayer comprises dealing in property.
[28] The Tribunal was of the view that had the legislature intended section 11(a) to capture property dealers only, the legislature would have drafted the section accordingly[7]. The Company was engaged in the business of dealing in property. The profit it realized from this transaction was caught under both the general provision of section 11 and also under the first limb of section 11(a).
65.In the present case, the business of the Taxpayer does comprise dealing in property, even if that activity only takes place intermittently. I find accordingly.
66.Against the backdrop of determining that the profit is captured by both the general provision and the first limb, at one level makes the ongoing enquiry in relation to limbs two and three, somerwhat superfluous.
[29] Having concluded that the proceeds were also caught under the first limb of section 11(a), the Tribunal then went on to consider the second limb of section 11(a). At paragraph 67 of its ruling, the Tribunal observed inter alia that although the true motivation and intention of the Company was in some doubt, it was more likely than not that the Company acquired the property in order to make profit. However, the Tribunal declined to make a conclusive determination on this[8].
[30] It appears that the Tribunal was directing itself, at paragraphs 68 to 70, to the third limb of section 11(a), that is, to the question whether the Company was engaged in an undertaking or a scheme? However, at paragraph 71, the Tribunal felt it was unnecessary to examine the third limb because it was satisfied that the proceeds of sale in question were caught by the general provision of section 11 as well as the first limb of section 11(a)[9].
[31] The Appellant Taxpayer then appealed to the High Court sitting as the Tax Court.
APPEAL TO THE HIGH COURT SITTING AS TAX COURT
[32] The Company filed eight (8) grounds of appeal in the Tax Court[10]. The eight grounds of appeal were:
The Agreed Issues were:
(i) whether the business of the Applicant comprised dealing in the property so as to make it liable to tax for profit or gain made.
(ii) whether the property was acquired for the purpose of selling or disposing under the 2nd limb of section 11(a) ITA as to make it liable to tax.
(iii) whether the Applicant was carrying on any undertaking or scheme entered into or devised for the purpose of making profit under the 3rd limb of section 11(a) ITA.
(iv) whether the gain made is excluded under the exclusionary provision of section 11(a) ITA.
[33] Before the Tax Court, the Company maintained its position that the windfall it obtained from the sale of the Cove is not “income” and is exempt from taxation under section 11 or section 11(a) because it was not in the business to trade in properties. The Company appeared to rely on the fact that the Cove was not sold within three years of acquisition, and that the sale was an isolated transaction given that the Company had never sold any of its properties over the past thirty (30) years.
[34] The Tax Court, at paragraph 17, revisited section 11 and section 11(a). At paragraph 18, the Court noted that “income” includes any gain derived from the sale of any real property if the business of the taxpayer comprises dealing in such property[11]. The Judge said at paragraph 19 that it was clear that the Company had made a gain from the sale of the Cove and that the Company was engaged in the business of dealing in real property[12]. The Judge said that the onus was on the Company to establish that the sale from an isolated transaction was not in itself a trade or business[13]. He then went on to consult the Oxford Advanced Dictionary of Current English which defined the terms “business” and “trade” as “buying” and “selling”.
[35] The Judge then looked at the affidavit evidence of Anil Patel who is a director of the Company. Patel had deposed inter alia that:
[36] From the above, the Court drew the conclusion that the Cove was acquired by the Company for its business[14] and, in the circusmtances of this case, the decision to dispose of the property was due to the “lucrative offer” made on it. Although it was a one-off transaction, the decision to sell was still a “business decision” made for the benefit of the Company’s business[15].
[37] The Judge was of the view that the language of section 11 and section 11(a) is unambiguous and clear in its import. As such, it was unnecessary to consider the legislative development in other commonwealth jurisdictions to aid in the construction of these sections[16].
[38] The Judge then concluded that the transaction was by a taxpayer whose business comprises “dealing in land”. Accordingly, it was caught under the first part of section 11(a) and was not excluded by the second part of section 11(a). He then dismissed the appeal[17].
APPEAL OF TAX COURT’S JUDGEMENT OF 23 NOVEMBER 2016
[40] There are altogether nine (9) grounds of appeal. The nine grounds of appeal filed were as follows:
(i) The Learned Judge failed to consider and deal with the issues and to address and consider the grounds of appeal and the submissions made by the parties and the basis on which the Tax Tribunal had arrived at its decision such that the Learned Judge erred in finding that the Appellant was liable to tax under section 11(a) of the Income Tax Act.
(ii) The Learned Judge erred in law in failing to ascertain the intention of the legislature by reference to the historical and legislative background both in Fiji and relevant jurisdictions which had been adopted into the Fiji tax legislations and which would not have taxed the Appellant and in the cirdcumstances the Learned Judge erred in finding that the Appellant was liable to tax under section 11(a) of the Income Tax Act.
(iii) The Learned Judge failed to apply the principles propounded in California Copper Syndicate v Harris (1904) 5TC 159 followed in various jurisdictions including Fiji that not all capital accretions are taxable, and failed to hold that in the case of the applicant the profits subjected to tax by the Respondent was a mere capital accretion not in the nature of its business and not subject to tax.
(iv) The Learned Judge erred in law, having regard to the factual background that the Appellant was not in the business of buying and selling land, in finding that the sale of property at Port Denarau was a transaction in the nature of trade or business of the Appellant and thus subject to income tax.The Learned Judge erred in law, view of the background facts, in finding that the appellant’s business comprises “dealing in property” and thus came within the first part of proviso (a) to Section 11. (See paragraph 30).
(v) The Learned Tax Tribunal erred in law and in fact failing to hold that the gain did not fall within the exclusion in 11(1) of the Income Tax Act. (See paragraph 30).
(vi) The Learned Tax Tribunal erred in law and in fact failing to hold that the gain did not fall within the exclusion in 11(1) of the Income Tax Act. (See paragraph 30).
(vii) The Learned Judge as with the Tax Tribunal erred in law and in fact failing to consider and/or apply and/or hold that the appellant was not liable to tax under Section 11 or 11(a) by virtue of the in section 11(a) of the Income Tax Act.
(viii) The Learned Judge’s decision as that of the Tax Tribunal that the Appellant was liable to tax under section 11(a) of the Income Tax Act is wrong and contrary to the principles enunciated in previous decisions which have provided guidance to taxpayers and the Respondent which in its case before the Tribunal had taken a stand which was inconsistent with basis of the findings of the Tribunal.
(ix) The Learned Trial Judge failed to properly consider and/or apply the relevant principles of law as enunciated in the various authorities cited and stated it to be unnecessary and inexpedient to refer to these cases. (See paragraph 28).
However at the hearing, the issue was narrowed down to the single question as to whether or not the transaction in question should be caught under section 11 and section 11(a). This is a question of law only as is required by section 3(4) of the Court of Appeal Act. Section 11 and 11(a) provide as follows:
Definition of total income
11. For the purpose or this Act, "total income" means the aggregate of all sources of income including the annual net profit or gain or gratuity, whether ascertained and capable of computation as ..... being profits from trade or commercial or financial or other business or calling or otherwise howsoever, directly or indirectly accrued to or derived by a person from ...... business or otherwise howsoever, as the case may be,.................
Provided that, without in any way, affecting the generality of this section, "total income", for the purpose of this Act, shall include-
(a) any profit or gain accrued or derived from the sale or other disposition of any real or personal property or any interest therein, if the business of the taxpayer comprises dealing in such property, or if the property was acquired for the purpose of selling or otherwise disposing of the ownership of it, and any profit or gain derived from the carrying on or carrying out of any undertaking or scheme entered into or devised for the purpose of making a profit: but nevertheless, the profit or gain derived from a transaction of purchase and sale which does not form part of a series of transactions and which is not in itself in the nature of trade or business shall be excluded;
[41] In Commissioner of Inland Revenue v Lal [1977] FJCA 12; ABU 65 of 1976, 25 March 1977, this Court was askeed to consider whether or not a particular property was acquired for the purpose of selling it in terms of section 15(a) of the Income Tax Ordinance? Section 15 (a)[18] was similar in terms to section 11(a).
Section 15(a) requires consideration of three separate questions. They are:—
(1) Was Nakavu sold as part of a business of respondent which comprised dealing in land,
(2) Did respondent acquire Nakavu for the purpose of selling it, and,
(3) Was the sale of Nakavu an undertaking or scheme devised for the purpose of making a profit?
[42] This Court approached these questions by looking at the purpose of the acquisition of the property. As the Court pointed out, the purpose of acquisition is not necessarily the same as the subjective “intention” behind the acquisition.
I turn first to what was, I think, the real and only issue in this case, namely; Did respondent acquire Nakavu for the purpose of selling it? The question is one of fact bearing in mind of course that it is purpose which is relevant. Intention was referred to in each of the judgments given earlier.
Whilst any statement of intention is relevant to purpose the terms are not synonymous. This was pointed out in Plimmer v. C.I.R. (1958) NZLR 147: 7. AITR 286. It has now become clear that dominant purpose is the test: Holder v. C.I.R. (1974) NZLR 52 - a decision of the Privy Council. Where a taxpayer relies on his own evidence as to his intentions at an earlier time he has a vital interest in the result. This type of evidence has been called "subjective evidence" and required careful and critical scrutiny. Lord Buckmaster in J & R O' Kane v. C.I.R. XII RTC 303, 347 said:-
"It may well be accepted that (they intended to retire); yet the intention of man cannot be considered as determining what it is that his acts amount to, and the real thing that has to be decided here is what were the acts that were done in connection with this business and whether they amounted to a trading
So approaching my task I must consider in an objective way the facts of this case and the statements of intention or reason given by respondent for his actions.
[43] This approach seems consistent with that which the Tribunal and the Tax Court had taken below, for while the Company has argued rather narrowly and subjectively as to what it had actually intended in acquiring the Cove, both the Tribunal and the Tax Court chose an objective analysis of the evidence to ascertain the purpose for which the Cove was acquired.
[44] In Federal Commissioner of Taxation v Myer Emporium Ltd [1987] HCA 18; (1987) 163 CLR 199 (14 May 1987), the issue before the High Court of Australia (per Mason A.C.J., Wilson, Brennan, Deane and Dawson JJ.)21 was whether a “gain made by a taxpayer as a result of a business deal or a venture in the nature of trade is income of the taxpayer even if the transaction that yields the gain is outside the ordinary course of business” or whether a gain is only income if made in the ordinary course of carrying on a business[19].
[45] The High Court of Australia said that while it is settled that a profit or gain made in the ordinary course of carrying on a business constitutes income, it does not necessarily follow that a profit or gain made in a transaction entered into otherwise than in the ordinary course of a taxpayers’ business, is not income[20].
14. ....... Because a business is carried on with a view to profit, a gain made in the ordinary course of carrying on the business is invested with the profit-making purpose, thereby stamping the profit with the character of income.
[46] However, a gain made not in the ordinary course of business may still be income if it arises from a transaction entered into by the taxpayer with the intention or purpose of making a profit.
14. ....... But a gain made otherwise than in the ordinary course of carrying on the business which nevertheless arises from a transaction entered into by the taxpayer with the intention or purpose of making a profit or gain may well constitute income.
[47] Whether a gain made not in the ordinary course of business is income depends on the circumstances of each case. If the circumstances are such as to give rise to an inference that the taxpayer’s purpose or intention in entering into a transaction was to make a profit or gain, the profit or gain will be income[21].
[47] It matters not that the transaction was not in the taxpayer’s ordinary course of business – or that the profit or gain was made as a result of an isolated one-off transaction.
14. ....... notwithstanding that the transaction was extraordinary judged by reference to the ordinary course of the taxpayer's business. Nor does the fact that a profit or gain is made as the result of an isolated venture or a "one-off" transaction preclude it from being properly characterized as income (Federal Commissioner of Taxation v. Whitfords Beach Pty. Ltd. [1982] HCA 8; (1982) 150 CLR 355, at pp 366-367, 376). The authorities establish that a profit or gain so made will constitute income if the property generating the profit or gain was acquired in a business operation or commercial transaction for the purpose of profit-making by the means giving rise to the profit.
[48] The court then cited Californian Copper Syndicate v. Harris (1904) 5 TC 159 as authority for the above propositions.
15. The celebrated decision in Californian Copper Syndicate v. Harris (1904) 5 TC 159 makes the point. ............
16. This test was approved by the Privy Council in Commissioner of Taxes v. Melbourne Trust, Limited [1914] UKLawRpAC 41; (1914) AC 1001, at p 1010 and was applied by the House of Lords in Ducker v. Rees Roturbo Development Syndicate (1928) AC 132, at p 140. ........................................
17. The important proposition to be derived from Californian Copper and Ducker is that a receipt may constitute income, if it arises from an isolated business operation or commercial transaction entered into otherwise than in the ordinary course of the carrying on of the taxpayer's business, so long as the taxpayer entered into the transaction with the intention or purpose of making a relevant profit or gain from the transaction.
CONCLUSION
[49] Section 11 (a) in its relevant part provides that:
“any profit or gain accrued or derived from the sale ..... of any real ... property ..., if the business of the taxpayer comprises dealing in such property, or if the property was acquired for the purpose of selling or otherwise disposing of the ownership of it, and any profit or gain derived from the carrying on or carrying out of any undertaking or scheme entered into or devised for the purpose
of making a profit: but nevertheless, the profit or gain derived from a transaction of purchase and sale which does not form part of a series of transactions
and which is not in itself in the nature of trade or business shall be excluded;
[50] The transaction in question would attract section 11(a):
(i) if the business of the company comprised dealing in such property or
(ii) if the property was acquired for the purpose of selling or disposing of ownership of the property,
(iii the company was carrying on or carrying out of any undertaking or scheme entered into or devised for the purpose of making a profit
[51] A profit would be exempted from income taxation if it does not form part of a series of transactions and which is not in itself in the nature of trade or business shall be excluded.
[52] The Company is engaged in the business of property management and investment. It is an agreed fact between counsel that the Company’s sole purpose was to hold income earning properties as long term invetsments for its shareholders. These agreed facts, prima facie, suggest that the business of the company comprised dealing in property. The onus was on the Company to establish otherwise. The Company’s articles of association was not tendered. In the absence of evidence to prove otherwise, I accept the submission that the Company’s business comprises dealing in property. Therefore, the transaction is caught under the first limb of section 11(a).
[53] I also accept that, in any event, the transaction is caught under the second limb of section 11(a). In saying this, I take into account that the Company purchased the Cove which is on Denarau Island because “Denarau was envisaged to be the largest intergrated resort development in Fiji.....”. That was the incentive to purchase the Cove according to Anil Patel, one of the directors of the Company (see paragraphs 5 and 35 above).
[54] Applying this Court’s approach in Commissioner of Inland Revenue v Lal (supra) the purpose of acquiring the Cove must be assessed objectively. It should not be determined from the subjective intention of the taxpayer.
[55] Accordingly, I endorse the views of the Tax Court that the Cove was acquired by the Company for the purpose of its business.
[56] Was the sale of the Cove made with the purpose of making a profit?
[57] I also endorse the view of the Tax Court that:
..the decision to dispose of the property was due to the “lucrative offer” made on it. Although it was a one-off transaction, the decision to sell was still a “business decision” made for the benefit of the company’s business
[58] Is the transaction to be exempted from income taxation simply because it was the first ever sale ever entered into by the Company which did not form part of a series of transactions?
[59] The section 11(a) exemption will apply if (i) the transaction does not form part of a series of transactions and (ii) the transaction is not in itself in the nature of trade or business.
[60] I accept that the sale of the Cove was the first ever property disposal by the Company as vendor, and, in that regard, was a one-off transaction which was not part of a series of transactions. Notwithstanding, if the sale was in the nature of trade or business, the section 11(a) exemption would not apply. Whether the one-off transaction was in itself, still in the nature of “trade or business”, one has to go back to determine the purpose behind the acquisition of the property, and, also the purpose behind its disposal. An objective analysis as in Commissioner of Inland Revenue v Lal is called for, rather than a determination of the subjective intention of the taxpayer. Whitfords Beach Pty. Ltd (supra) must be considered at this point but must be applied bearing in mind that section 11(a) requires to be examined the “purpose” behind the acquisition and the disposal of the Cove . Even if the one-off transaction is not in the ordinary course of the carrying on of the taxpayer's business, so long as the taxpayer entered into the transaction with the purpose of making a relevant profit or gain from the transaction, the gain or profit from that transaction will not be exempted under the exempting provision of section 11(a).
[61] Californian Copper Syndicate v. Harris (1904) 5 TC 159 (as expressed in the words of the Australian High Court in Myer Emporium) is good authority that:
....a receipt may constitute income, if it arises from an isolated business operation or commercial transaction entered into otherwise than in the ordinary course of the carrying on of the taxpayer's business, so long as the taxpayer entered into the transaction with the intention or purpose of making a relevant profit or gain from the transaction.
[62] I have concluded that the transaction is caught under section 11 and the first and second limbs of section 11(a). The profit or gain derived from the transaction is not exempted under the exempting provision of section 11(a).
Orders:
____________________________
Hon. Mr. Justice W Calanchini
PRESIDENT, COURT OF APPEAL
____________________________
Hon. Mr. Justice S Chandra
JUSTICE OF APPEAL
_______________________________
Hon. Mr. Justice A Tuilevuka
JUSTICE OF APPEAL
[1] At paragraph 52 of its Ruling.
[2] At paragraphs 55 and 56.
[3] At paragraph 57.
[4] At paragraph 58, the Tribunal posed the following:
[5] The Tribunal said as follows:
Profits from a trade or commericial or financial or other business or calling or otherwise howsoever, directly or indirectly accrued to or derived by a person from any office or employment or from any profession or calling or from any trade, manufacture or business or otherwise howsoever, as the case may be,
60 The profit arising from the sale in 2009, does seem to be profits from the Taxpayer’s business, directly accrued to the Taxpayer.
This was profits from the sale of land, purchased by the Taxpayer for business purposes. .........
[6] at paragraphs 61 to 67.
[7] The Tribunal said as follows:
If the legislature sought to only capture’property dealers’ by way of this illustrative example, it would have been a very simple drafting task to do so. Instead it chose a wider net, that while clearly cognisant of comparative taxation law of the time, was also steeped in its own rich jurisprudential tradition, arising out of the very wide language that was the 1920 Income Tax Ordinance.
[8] The Tribunal said thus at paragraph 57.
67.In any event, in relation to the second limbs, I tend to support the view of the Respondent in this regard. The Applicant was slow acting in the development of the property. There is simply no evidence of anything transpiring in the Year 2003. In my mind that is a lengthy period of time to do nothing with a property that was supposedly acquired for investment purposes. The Applicant provided to the Tribunal no evidence of any estimated construction cost. The architect plans contained within the Supplementary Affidavit Evidence of Mr A, were dated 2005. Three years after acquisition. The true motivations and intentions of the Taxpayer must as a result, be in some doubt. The purpose of the Taxpayer act acquisition, was more likely than not to have been a profit making one. Though I do not make any conclusive determination in this regard.
[9] The Tribunal said thus:
I am satisfied that the proceeds of sale arising from the disposition of the said property are caught by the general provision of Section 11 of the Act as well as the first limb of Section 11(a). I find accordingly.
[10] The eight grounds of appeal were:
[11] The Court said as follows at paragraph 18:
[12] The Judge said:
[13] The Judge said at paragraph 20:
[14] The Judge said:
To my mind, this could only be for its business.
[15] As Alfred J said:
[16] The Judge said:
[17] and at said:
31. In fine I dismiss the appeal from the Tribunal’s Judgment. I uphold the Respondent’s Assessment dated 7 April 2010
and its decision dated 30 August disallowing the Appellant’s objection and order each party to pay their own costs throughout
these proceedings.
[18] Section 15(a) provded in its relevant part as follows:
"Provided that, without in any way affecting the generality of this subsection, total income, for the purpose of this Ordinance, shall include -
(a) all profits or gains derived from the sale or other disposition of any real or personal property or any interest therein, if the business of the taxpayer comprises dealing in such property, or if the property was acquired for the purpose of selling or otherwise disposing of the ownership of it, and all profits or gains derived from the carrying on or carrying out of any undertaking or scheme entered into or devised for the purpose of making a profit; but nevertheless, the profit or gain derived from a transaction of purchase and sale which does not form part of a series of transactions and which is not in itself in the nature of trade or business shall be excluded;"
[19] At paragraph 13 of the judgement, the HCA noted the arguments thus:
13. The Commissioner submits that a gain made by a taxpayer as the result of a business deal or a venture in the nature of trade is income of the taxpayer, even if the transaction that yields the gain is outside the ordinary course of business. According to the argument, the amount falls within either s.25(1) or the second limb of s.26(a). The taxpayer makes two responses to this argument: (1) that a gain made as the result of a business deal or a venture in the nature of trade is not income unless it is made in the ordinary course of carrying on a business; and (2) that the realization of a capital asset is capital, not income, the amount received by Myer representing the receipt of a capital asset.
[20] As the Australian High Court said:
14. Although it is well settled that a profit or gain made in the ordinary course of carrying on a business constitutes income, it
does not follow that a profit or gain made in a transaction entered into otherwise than in the ordinary course of carrying on the
taxpayer's business is not income.
[21] The HCA went on to say as follows:
14. ....... Whether it does depends very much on the circumstances of the case. Generally speaking, however, it may be said that if the circumstances are such as to give rise to the inference that the taxpayer's intention or purpose in entering into the transaction was to make a profit or gain, the profit or gain will be income,..........
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