Woodward v Commissioner of Inland Revenue [1985] FJCOR 1; CR Appeal 001.1983 (7 November 1985)

IN THE COURT OF REVIEW
OF FIJI

APPEAL 1 OF 1983

EDWARD CHARLES WOODWARD
APPELLANT

vs

COMMISSIONER OF INLAND REVENUE
RESPONDENT

Mr G. Keil for the Appellant
J. Scott for the Respondent

JUDGMENT

Edward Charles Woodward (whom I will call the taxpayer) in 1972 inherited from his grandfather a copra plantation at Savusavu, Vanua Levu, containing 240 acres 1 rood 30 perches and known as Naveria comprised in Certificate of Title 5679. His grandfather had died in 1944 leaving a life estate in the land to his son Henry Leonard Barrack. The latter effected no fewer than four subdivisions of the land, intending to raise money by leasing it in part. Those four subdivisions appear to total 11 acres 1 rood 10.7 perches although-the Government Valuer estimated the area at 12.67 acres. The property had originally, as I have said, been a copra plantation, and the taxpayer, when he took over, intended to continue it as such, but he found the market depressed, and the expenses attendant upon the production of copra resulted in a very small income from that source. The life tenant had allowed nineteen tenants to build houses on the land he had subdivided, and a further twenty seven to build houses on land which he had not formally subdivided, but these tenants were backward in paying their rent, and apparently unwilling to acknowledge an absentee landlord, although the taxpayer visited the property at least once a year. Faced with that situation he decided to sell their various lots in the subdivided land to the tenants. This, however caused him further problems, in that those who had built houses on the unsubdivided land, pressed him to subdivide in order to give them title. Unwilling to face the trouble and expense of such a subdivision he advertised the property for sale as one block, asking a price of $300,000. That advertisement was in October, 1977 and referred to 12 commercial blocks, 40 to 60 residential blocks, and 60 20 acre agricultural blocks, and the taxpayer stated in evidence that it was based upon engineering plans which he had caused to be drawn up. He also said that he had advertised earlier in 1976 and later in 1978 and 1979, and had, besides advertising in, Fiji, advertised also in Australia and Hawaii, but advertisements brought him no satisfactory offers, and he therefore decided to subdivide for sale. He had discussions with prospective purchasers in Savusavu and formed the view that a subdivision into five acre blocks would meet a demand. However, he found difficulties with the Town and Country Planning Department, and eventually found himself forced to subdivide into larger blocks. That was in 1980. Up to that time he had made 27 sales, and I set out the amounts received each year:

1973 one	16000
1974 three	25500
1975 twelve	35100
1976 three	9500
1977 two	800o
1978 five	41500
1979 one	45000

The Revenue contend that the taxpayer is liable to tax under section 11(e) of the Income Tax ct Cap 200 which I set out. It can only be understood by being read with the commencement of the Section, which starts off:

"11. For the purpose of this Act total income means the aggregate of all sources of income including ...." (and it lists a number of sources).

After these there is a proviso.

"Provided that, without in any way affecting the generality of this section total income for the purpose of this Act shall include" –

and there are over twenty matters which are included, of which (e) reads:

"(e) In the case of a person, residing or having his head office or principal place or business outside Fiji, but carrying on business in Fiji, either directly or through or in the name of any other person, the net profit or gain arising from the business of such person in Fiji:

Provided that any person normally residing outside Fiji who engages in the sale of other disposition either directly or by the sale of options to purchase or by any other means whatsoever of any land in Fiji or any estate or interest in any such land shall be deemed to be carrying on business in Fiji, and any profit or gain derived from the carrying on or carrying out of any undertaking or scheme connected with the disposition either directly or indirectly of any land in Fiji or any estate or interest in any such land, including schemes involving the interposition-of a company, entered into or devised for the purpose of making a profit shall be deemed to be total income for the purpose o this Act."

In this appeal both counsel agree that the taxpayer is a non-resident, but since it is a matter of law, I should perhaps express an opinion about it. He has his home in Melbourne, Australia and conducts an insurance consultancy business there. When he inherited this property he came to see it, and toyed with the idea of running the copra plantation from Australia, with visits to Fiji. When the copra industry became depressed, and his tenants would not pay their rents, he put the property on the market and gave up all idea of settling, either temporarily or permanently, in Fiji. He said he had made visits to Fiji once a year - on one occasion twice. In the circumstances he cannot, in my view, be other than a non-resident.

The first part of Section 11(e) is reasonably straight forward, and taxes the net profit or gain of a non-resident from his Fiji business. The sting, however lies in the proviso, by which a non-resident who engages in the sale of land is deemed to be carrying on a business, and an ordinary income tax provision is converted, so Mr. Scott submits, to a tax on capital gains. The crux of the matter would appear to be to as certain whether the taxpayer engages in the sale of land, for if he does, then he is deemed to be carrying on a business, and the net profit or gain thereof attracts tax.

There is one fairly recent case on this section) viz. Weller v Commissioner of Inland Revenue No: 75 of 1981 in the Fiji Court of Appeal. There Weller had bought a Villa at Pacific Harbour, intending to settle there. However, when he came to Fiji with his wife to live at Pacific Harbour, he found circumstances otherwise than as he had expected, and he and his wife decided to sell the Villa and leave Fiji. He sold at a profit and the Commissioner sought to tax his profit. The Fiji Court of Appeal held that he had not, in those circumstances, engaged in the sale of land although they point out that, in some circumstances, engaging in business might result in only one sale. It held that the word 'engage' connotes occupation in some activity for a period of time. Both counsel sought to distinguish Weller's case, Mr. Scott on the ground that the decision was within a very narrow compass, and Mr. Keil on the ground that it was really a decision on 'engages in' rather than on 'net profit or gain' which he says, is the real essence of the matter. Some support is lent to the Court of Appeal's construction by the decision of the English Court of Appeal in Reg. v Elbow Vale Tribunal ex parte Lewis (1982) 1 WLR 420 where a man was held not to be engaged in remunerative, full time work when he was absent sick, on the ground that 'engaged in work' means actually in employment and not away sick. Mr. Scott also drew my attention to a New Zealand case, Norman v Inspector of Factories (1961) NZLR 1014 which held that where the occupant of a shop and his employees were engaged in the sale of goods on the premises the occupant must be convicted of keeping his shop open on a Saturday. I find that the taxpayer sold portions of his land as I have set out above - in all twenty seven sections between 1973 and 1979, both years inclusive. In addition, in 1976, 1977 and 1978 or 1979 he advertised the land for sale, not only in Fiji, but also in Australia and Hawaii. It is true that nothing came of these advertisements, but they indicate that he was trying to sell his land. Then there is the letter from his agents Messrs Harrison and Grierson, Surveyors, of 16th October, 1975 to the Director of Town and Country Planning which indicates a desire to regularise the occupation of his land in order that a systematic development of the balance area can be proceeded with. Then there is his expenditure in surveying and sub-dividing. All these seem to point, in my view, to the taxpayers being engaged in the sale of land, and I accordingly hold that he was so engaged.

That being so, he must be deemed to be carrying on business in Fiji, and his net profit or gain is susceptible to tax. Keil submits that since the land was inherited, there was no initial cost and without cost, you cannot have a profit or gain, assuming those words to be synonymous as was held by the Earl of Selbourne in Mersey Docks and Harbour Board v Lucas (1884) 8 App Cas 891; 53 LJQB 4. But I do not think that helps Mr. Keil for in that case the Mersey Board had no initial cost. Its income was derived from Dock dues, harbour rates and the like, all derived from rights granted to it in time past, and although the Board could set its expenses against that income, it had made no expenditure to obtain those rights. In fact, however, the Revenue here obtained a valuation of the property as at 1974, and have made an allowance to the taxpayer of sixty per cent on his assessment - an allowance presumably to take care of initial cost. Accordingly I reject Mr. Keil's submission. Mr. Keil relied on two Australian cases, McClelland v Federal Commissioner of Taxation [1970] HCA 39; (1970) 120 CLR 487: (1971) 1 WLR 191 which was an inheritance, and Williams v Federal Commissioner of Taxation [1972] HCA 31; (1972) 3 ATR 283 which was a gift. Both of these cases were decided upon a statute the words of which are vastly different from the words of Section 11 (e), and I cannot see that Mr. Keil can derive any help from them. I would add that when the Australian Commissioner was successful in the High Court of Australia in McClelland's case, he had made an allowance somewhat similar to the allowance made here. Mr. Keil said and I think this is his real complaints, "this is an income tax Act and Section 11 (e) imposes a tax upon income. That is an echo of the comments of Lord Macnaghten over eighty years ago, made in the course of delivering the leading judgment in the House of Lords in London County Council v Attorney General [1900] UKLawRpAC 57; (1901) A.C. 26 L.J.Q.B. 77; T.C. 265, "Income Tax, if I may be pardoned for saying so, is a tax on income. It is not meant to be a tax on anything else." Unfortunately that statement is not entirely true to day, even in England, and in Fiji I am constrained to hold that Section 11(e) and its proviso of the Income Tax Act Cap. 200 imposes a tax on capital gains. This appeal must accordingly fail with the result that the taxpayer must pay the Commissioner's costs, to be taxed in default of agreement.

COURT OF REVIEW

7TH NOVEMBER, 1985

SOLICITORS: MITCHELL, KEIL & CO:
SOLICITOR FOR THE INLAND REVENUE.