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ΠΑΓΚΥΠΡΙΟΣ ΔΙΚΗΓΟΡΙΚΟΣ ΣΥΛΛΟΓΟΣ
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(1989) 3A CLR 823
1989 July 22
[A. LOIZOU, P.]
IN THE MATFER OF ARTICLE 146 OF THE CONSTITUTION
AKINITA NICOLAOS KARANTOKIS LTD,
Applicants,
V.
THEREPUBLIC OF CYPRUS, THROUGH THE MINISTER OF
FINANCE AND ANOTHER,
Respondents.
(Case No. 318/86)
By means of the present recourse the applicants impugned the income tax assessments for the years 1979/78, 1979, 1980, 1981, 1982 and 1983 and/or the decision to impose income tax in respect of each of the aforesaid years. the decision to treat the profit realised by the applicant from the sale of 50 plots of land as taxable income from trade and the decision of the respondent to demand a surcharge of 10% for the years 1979, 1980 and 1981.
The applicant raised a preliminary point to the effect that the sub judice decisions should be declared null and void, because the respondent did not comply with what was agreed between the parties, when the present applicants withdrew a previous recourse No. 495/80 that the objections for the years 1972-1977 were to remain open and that they would be determined afresh, if and when the applicant company made a profit liable to tax.
On the material before it, the Court reached the conclusion that the respondent did not deviate from such agreement. As a result the preliminary Objections were dismissed.
Case to proceed for hearing on the rest of
the issues. Question of costs reserved.
Recourse.
Recourse against the income tax assessments rated on applicants for the years 1979-1983.
G. Titintaivilides. for the Applicants.
Y Lazaroti. Counsel of the Republic, for the Respondents.
Cur adv. vult.
A. LOIZOU. P. read the following judgment. By the present recourse the applicant company seeks:
"(a) a Declaration that Assessment Nos. 33/86/02, 79/86/02, 80/86/02, 81/86/02, 82/86/02 and 83/86/02 for the years of assessment 1979/78, 1979, 1980, 1981, 1982 and 1983 respectively and/or the decision of the respondents to impose income tax on applicant for the years of assessment 1979/78. 1979, 1980, 1981, 1982 and 1983 amounting to £28.6 12.43 cent or any other sum or at all together with interest at 9% per annum on the above tax is null and void and no effect whatsoever.
(b) The decision of the respondent to treat the profit realized by the applicant from the sale of fifty plots of land offered to them by their Managing Director as taxable income from trade in and or at all is null and void and of no effect whatsoever.
(c) The decision of the respondent to demand a surcharge of 10% for the years of assessment 1979. 1980 and 1981 amounting to £877.99 or any other sum or at all is null and void and of no effect whatsoever."
The applicant company which is a private company, of limited liability formed in 1963, is an investment and land holding company and among its objects is trading in land.
In January, 1971 Mr. Nicos Karantokis who is a shareholder and the Managing Director of the applicant company gifted to it 50 building sites at Makedonitissa locality out of his stock-in-trade.
Transfer of the building sites in the name of the applicant company was affected at the Land Registry Office, though it is alleged by the applicant company that the transfers were made by way of gift to the company by the Managing Director, Mr. Karantokis, and on his instructions under the terms of the contract for the purchase of the land. Formally these transfers appear in the L.R.O. books not to have been made by gift but by purchase from the Archbishop.
The applicant company during the years 1972 to 1979 sold 49 out of the 50 building sites gifted as stated below and a total profit of £161,004 was realised. This profit was treated by the applicant Company as a profit from the realisation of capital asses not liable to income tax.
The building sites were disposed of as follows:
Year of Disposal No. of B/Sites disposed of Profit realized £
1972 3 7,429
1973 15 34.743
1976 1 2,923
1977 5 16,237
1978 24 94.759
1979 1 5,043
9 161,004
The respondent Commissioner on the other hand considered this profit as a trading profit of the applicant company and on the 21st April 1980 adjusted the loss disclosed in the accounts and computations of the years 1972, 1973, 1976 and 1977 by deducting from the amount of the loss the profit made from the same of building sites, and made corresponding deductions to the amount of loss which the company was entitled to carry forward as at 31st December of each of the years concerned and set off against its income from other sources. The aggregate deduction of the losses was £61,202.
At the same time he adjusted the computation by the auditors of the loss which the applicant company sustained for special contribution purposes in the years 1976 and 1977 and on the 25th April 1980 issued notices of Assessment to the applicant company giving effect to his decision which formed the subject matter of Recourse No. 495/80 However that recourse was withdrawn on the 23rd September 1981, in view of the fact that the respondent Commissioner's decision against which that recourse was filed was not a final one because there was no taxable income. It was undertaken by counsel for the respondent Commissioner that a new decision would be reached and proper notices of determination would be sent to the applicant company if and when the company made a profit. Such notices of determination were sent in the years 1979/1978, 1980, 1981, 1982 and 1983. In all of the years 1979/78 to 1981 in accordance with the adjustments to the computations submitted made by the Respondent, a profit arose for income tax purposes.
As alleged by the applicant company no fresh determination was made in respect of the assessments for the years 1973 (72) to 1978 (77) but the respondents simply adopted in his adjustments to the profit of the subsequent years the amount of loss to carry forward as at 31st December 1977 as he had already computed it (£29,448).
It was stated in the letter of the respondent dated 25th February .1986 that the profits in question were taxable because: inter alia
(a) The main object of the applicant Company is to acquire immovable property but it has also power to deal with them.
(b) There could not be any devotion or natural love and affection by Mr. Karandokis towards the applicant company in order that Mr. Karandokis would make a gift of 50 building sites out of his trading stock without financial gains.
(c) On the date of the transfer of the plots in January 1971, the share capital of the company was one-hundred pound. As in order to finance its agricultural projects it required immediate financial assistance, its managing director decided to transfer the said fifty plots to the company in order for its company to acquire the necessary capital and for him to avoid taxation of the profits which would have arised otherwise from the sale of the land.
He concludes that it is not possible for him to revise his previous decision and that he had decided to confirm the assessments of the applicant company.
It was submitted on behalf of the applicant company, as a preliminary point that since it was agreed between the parties when withdrawing recourse No. 495/80 that the objections for the years 1972-1977 were to remain open, and that they would be determined afresh if and when the applicant company made a profit liable to tax, and since in this instance the respondent did not determine the objections in respect of the assessments for the years 1972-1977, but simply adopted, in the relevant adjustment to the profit for the subsequent years, the amount of loss to carry forward as at 31st December 1977 as it had already been computed he acted wrongly and contrary to what was agreed and in consequence of which the sub judice assessments should be annulled.
The respondent on the other hand alleges that the case was reconsidered afresh as agreed and a final decision was taken in the first year after the applicant company made a profit which was the year of income 1978 of (assessment 1979). The respondent commissioner in examining the accounts for the year ended 31st December 1978 reconsidered the point that had formed the subject matter in recourse No. 495/80, and decided to maintain his decision i.e. that the gains from the sale of land are liable to tax under section 5(1)(a) of the aforesaid Income Tax Laws.
It was further submitted that since there is no obligation on the part of the Respondent to issue assessments in cases where there is not object of tax, there was no question on the part of the respondent Commissioner of sending notices of determination of objection for the years of income 1972-1977 in view of the fact in those years there was no object of tax but only a loss amounting to £29,448.
I have dealt rather briefly with the relevant facts as after the written addresses were filed I was informed that both sides had confined their arguments to the preliminary legal point as the rest of the issues are mixed questions of law and fact on which evidence will have to be adduced.
From a perusal of the documents before me, it is clear that an assessment was raised for the year 1979(78), which was forwarded to the applicant company under cover of a letter dated the 5th December 1980 (Appendix E) from which letter it is apparent that the loss brought forward for the year ended 31st December 1977, which was allowed as a deduction against the income of 1978 (year of assessment 1979), was reduced from the amount of £90,650 as was claimed by the applicant company to £29,448. Since however, applicant company objected again to the above assessment (Appendix H(II)) basing its objection on the fact that the assessment was not in accordance with the computations submitted, the respondent finally determined the objection on the 25th February 1986 and informed the applicant company by his letter of the same date (Appendix "I") of the reasons for his decision.
As it was correctly submitted on behalf of the respondent there was no obligation on the part of the respondent to send new notices of determination for the years in question, in respect of which there was no object of tax but only the aforesaid loss.
For the reasons stated above the preliminary objection of the application company fails and is hereby dismissed.
In the result the case is to be heard on the rest of the issues.
Question of costs to be decided at the end of the case.
Preliminary objection dismissed.