JRP (Hong Kong) Ltd v Chief Execitive Authority, Fiji Revenue and Customs Authority [2015] FJHC 445; HBT4.2012 (18 June 2015)

IN THE TAX COURT
HIGH COURT OF FIJI
AT SUVA

HBT No. 4 of 2012

IN THE MATTER
of the Decision made by the Tax Tribunal on 24th September 2012 in dismissing the Appellant's Income Tax Appeals No. 7, 8 and 9 of 2011

AND

IN THE MATTER
of Section 107 of the Tax Administration Decree 2009 (Decree 50 of 2009)

BETWEEN :

JRP (Hong Kong) Limited; SRP (Hong Kong) Limited; and ARP (Hong Kong) Limited
Appellants

AND :

CHIEF EXECUTIVE OFFICER, FIJI REVENUE AND CUSTOMS AUTHORITY, National Revenue and Customs Complex, Queen Elizabeth Drive, Nasese, Suva.
Respondent

Appearance : Ms Alexandra L., Counsel instructed by Cromptons, Solicitors & Barristers for the Appellants

Mr Richmond M., (SC) with Mr Houston., Counsel instructed by the Legal Division of Fiji Revenue and Customs Authority for the Respondent

Date of Judgment: 18 June 2015

JUDGMENT

[1] By the Notice of Appeal dated 17 October 2012, the Appellants sought the following Orders:

"THE APPELLANTS hereby give notice that they are aggrieved and dissatisfied with the decision given by the Tax Tribunal on 24 September 2012 wherein the said Tribunal dismissed the Appellants' Applications for Review (Notice of Appeal) dated 8 July 2011 against the decision of the Commissioner of Inland Revenue dated 9 June 2011, disallowing the objections by the Appellants dated 31 August 2009 in respect of the assessments for years of income ending 31 December 2001, 31 December 2002, 31 December 2003 and 31 December 2008 contained in the Notices of Assessment dated 3 July 2009 AND THE APPELLANT SEEKS AN ORDER that the said decision of the Tribunal be wholly set aside AND FOR AN ORDER that the Assessments for income tax payable on the disposition of certain shares held by the Appellants in RB Patel Group Limited under Section 11(a) of the Income Tax Act, Chapter 201 Law of Fiji (the Act) be set aside, AND A DECLARATION that such amounts are non taxable capital receipts and are therefore not subject to tax under Section 11 of the Act AND THAT the costs of this appeal by the Respondent to the Appellants AND FOR SUCH FURTHER AND OTHER ORDERS as the Tax Court deems just".

[2] The Appellants urged the following Grounds of Appeal in their Notice of Appeal:

(1) THAT the Learned Tribunal erred in law and in fact in disallowing the Appellants' Appeal to the Tribunal dated 8 July 2011 when the grounds before the Tribunal stipulated that the provisions of Section 11 of the Income Tax Act Cap. 201 had not been properly considered or applied.

(2) THE Learned Tribunal erred in law and in fact in that he failed to properly apply binding authority, refer Californian Copper Syndicate (Limited and Reduced) vs. Harris (Surveyor of Taxes) ( 1904) 5 TC 159 adopted in Commissioner of Inland Revenue vs. C Roose (Fiji) Limited [1962] FJCA 94.

(3) THE Learned Tribunal erred in law and in fact in that he wrongly applied the Tax Tribunal decision in Taxpayer "A" and Taxpayer "B" vs. FRCA Income Tax Appeal No. 4 and 5 of 2007 [31 January 2012], which in itself disregards the binding authority referred to at 2 above.

(4) THE Learned Tribunal erred in law and in fact in that he misdirected himself by applying the general provision of Section 11 to all amounts derived by a person carrying on any business carried on by them and not first considering whether such amounts could properly be characterized as income.

(5) THE Learned Tribunal erred in law and in fact in wrongly applying the principle derived from the Australian case Commissioner of Taxation vs. vs. Whitfords Beach [1982] HCA 8; (1982) 12 ATR 692 which case allows the court in limited circumstances to look to the owner of a business to determine the purpose of the business, but does not allow the court to ignore separate legal personality.

(6) THE Learned Tribunal erred in law and in fact in not having due regard to the evidence before the Tribunal which evidence supports the conclusion that the relevant receipts were not taxable capital receipts.

(7) THE Learned Tribunal erred in law and in fact in finding that the Appellants had carried out an undertaking or scheme which was subject to Section 11(a).

(8) THE Learned Tribunal erred in law and in fact in failing to consider or determine whether the Appellants, in carrying out the undertaking or scheme identified by the Tribunal (and referred to in 7 above):

(a) had been entered into or devised for the "purpose of making a profit" in relation to that undertaking or scheme;

(b) (if the Appellants had such a purpose) that this was the Appellants dominant purpose in relation to that undertaking or scheme;

(c) (if the Appellants had a dominant purpose of profit) that the Appellants had this purpose at the time the undertaking or scheme was commenced;

National Distributors Ltd vs. CIR (1987) 9 NZTC 6, 135; Rangatira Ltd vs.CIR [1997] 1 NZLR 129; CIR vs. Shankar Lal, unreported Ct. App, Civil Appeal No. 65 of 1976, 25/3/77; George Alexander Thompson vs. CIR, Ct App, Civil Appeal No. 8 of 1979; CIR vs. Property Nominees Ltd, Ct App, Civil Appeal No. 44 of 1986, 5/2/87; and Reddys Enterprises Ltd vs. CIR, unreported, Ct App, Civil Appeal No. 10 & 16 of 1985, 21/7/86).

(9) THE Learned Tribunal erred in law and in fact in having regard to the transfer of a Management Agreement by entities related to the Appellants, which transfer occurred several years after the dates on which the relevant test in Section 11(a) must be applied there being no evidence that this was contemplated at the outset. The dominant purpose must be present at the time the scheme or undertaking is commenced: Duff & Ors. vs. CRI (1979) 4 NZTC 61, 420 at 61426.

(10) THE Learned Tribunal erred in law and in fact in failing to consider the application of the overriding exclusion to Section 11(a) which provides that income is not taxable where the gain or profit derived from the transaction of purchase and sale:

(a) does not form part of a series of transactions; and

(b) the transaction is not in itself in the nature of trade or business.

(11) THE Learned Tribunal erred in law and in fact in that he failed to properly apply binding authority, refer Commissioner of Inland Revenue vs. C Roose (Fiji) Limited [1962] FJCA 94, which authority requires that the circumstances giving rise to each sale must be considered individually on their merits.

(12) THE Learned Tribunal erred in law and in fact in that he did not consider whether the practice of requesting clearances can be a return of income for the purposes of Section 44 of the Act in respect of non-resident taxpayers who are not otherwise required to file a return under the Act.

(13) THE Learned Tribunal erred in law and in fact in therefore considering whether the time bar in Section 59(2) can apply to such clearances.

In the Alternative

(1) THE Learned Tribunal erred in law and in fact in determining, considering the appropriate cost base, rather than considering the taxable profit derived by the Appellants as he is required to do under Section 11.

(2) THE Learned Tribunal erred in law and in fact therefore in wrongly distinguishing the cases of Rangatira Ltd vs. CIR [1997] 1 NZLR 129) and Lowe vs. Commissioner of Inland Revenue (1981) 5 NZTC 61, 006 when determining the annual net profit or gain derived by the Appellants.

[3] The Appellant filed application for review in the Tax Tribunal relating to a decision by the Commissioner of Inland Revenue dated 9 June 2011 disallowing the objections by the Appellants dated 31 August 2009 for the assessments made for the years 2001, 2002, 2003 and 2008 as stated in the Notices of Assessments dated 31 July 2009 (pages 78-80; 170-172; 209-211 of the Copy Record).

[4] The Learned Tribunal delivered its decision on 24 September 2012 dismissing the Appellant's application for review (page 18 to 31).

[5] The Appellants were assessed by the Respondent by letter dated 9 July 2009 under Section 11 & 11(a) of the Income Tax Act Cap 201.

[6] The Respondent on 28 August 2009 issued the objection decision (in response the Notices of Objection to the assessments made on 28 August 2009) wholly disallowing the Appellant's objections.

[7] A summary of the relevant facts is set out in the judgment of the Tribunal at paragraph 7 [Record 68].

[8] Facts and Findings by the Tribunal

(a) Mr R Patel and Mr K B Patel were two brothers who established a family business in Fiji in the 1930's trading under the name R K Patel & Co.

(b) By the 1980's that business was operating through five companies which were owned and controlled by Mr R Patel and his four sons.

(c) In 1988, Mr R Patel, his four sons and their family members migrated to New Zealand.

(d) As at 31 March 1999, the four sons owned all the shares in the five operating companies through four New Zealand holding companies one for each son.

(e) On 1 April 1999, five Fijian operating companies undertook a corporate restructure under which the business and assets of those companies were transferred to RBG (referred to as "Company AB", in the Judgment) and two of the operating companies held essentially all the shares in RBG. Those two Fijian operating companies [RB Patel Ltd and RB Patel (Fiji Is) Ltd] were owned by the four sons in equal shares through their individual New Zealand holding companies.

(f) Around this time, the four sons established four Hong Kong holding companies ["HK Companies"], one for each of them, because they decided using a Hong Kong holding rather than a New Zealand holding company to own the Fiji companies were preferable for New Zealand tax reasons. Three of the HK Companies are the Appellants and the fourth was controlled by one of the four sons who retired from the business in 2004.

(g) On 10 June 1999, RBG and RB Patel & Co (a partnership of the four sons established in New Zealand) entered into a Management Agreement which ensure that the family continued to maintain effective control over the affairs of RBG for a term of 15 years plus a further 15 years if an option to extend the agreement was exercised ["Management Agreement"]. Subsequently, the HK Companies became the partners of RB Patel & Co. As the Tribunal noted in the Judgment, the evidence was unclear as to when the HK Companies became the partners of RB Patel & Co., but it was certainly some time before March 2008 when the Appellant's disposed of the remainder of their shareholdings in RBG. The Tribunal inferred that it occurred by April 2000 given that this was the date when the HK Companies acquired their shares in RBG from the New Zealand holding companies. I find no mistake made by the Tribunal on this finding.

(h) On 10 April 2000, the shares held by the New Zealand holding companies in RB Patel and RB Patel (Fiji Is) Ltd were transferred to the four HK Companies, one for each son, for no consideration. The Appellants are three of those companies.

(i) In August 2000, the five Fijian operating companies [including RB Patel Ltd and RB Patel (Fiji Is) Limited] were wound up and their shares in RBG were distributed in specie to the four HK Companies giving each son a 25% interest in the RBG through their HK Companies.

(j) In July 2001, RBG was listed on the South Pacific Stock Exchange with 30,000,000 shares.

(k) Consistently with Government policy and the need to maintain market liquidity at a minimum of 10% of the issued shares, the four HK Companies sold down part of their shareholding in RBG both before and after the listing of RBG.

(l) A further quantity of shares were sold by the four HK Companies to key suppliers and employees during the period from 4 February 5 to 26 November 2002.

(m) In April and May 2003, the four HK Companies made further sales of shares in RBG.

(n) On 16 July 2004, all remaining shares in RBG held by HRP (Hong Kong) Ltd (a HK Company controlled by one of the sons) were sold, and same were acquired by the other three HK Companies now the Appellants in this matter.

(o) On 14 April 2008, the Appellants sold their remaining shares in RBG to FHL Retailing Limited for a price of FJD1.40 each.

(p) Notwithstanding the share sales in 2008, the Appellants continued to manage RBG's business under the Management Agreement until October 2009 when FHL took a transfer of the management rights in consideration for a payment of FJD$8.3 million to the Appellants.

[9] The Tribunal found that the sales of the shares in RBG by the Appellants in the 2001, 2002, 2003 and 2008 years amounted to a staged disposition of the shares by them which were acts done in the carrying on or carrying out of the business of the Appellants and therefore it is income according to ordinary concepts Judgment at Copy Record page 28 which states in paragraph 48:

"But in the context of their inter-relatedness to the Management Agreement that governed the operation of Company AB and the centrality of that arrangement to the staged disposition of shares, transformed the category from mere sale of share into an act done in the carrying on and carrying out of the business of taxpayers".

The Learned Tribunal stated in the paragraph 49 of the Judgment the profit derived from the sales covered under the Income Tax Act (Cap 201).

[10] It is clear from the evidence before the Tribunal that the decision to establish a listed entity to hold the Patel families' business interest in Fiji (RB Patel Group Limited) was made in 1999. It is important to note from the evidence that establishing of RB Patel Group Limited was before the execution of the Management Agreement and the acquisition by the Appellants of their shares in RB Patel Group Limited.

[11] It was established in the evidence that the reason for this decision was the desire of Mr R Patel's four sons who were in New Zealand wanted to broaden the share ownership of their Fijian business interests held by 5 separate companies in order to include indigenous Fijians. The evidence was that it was more urgent as a result of the civil unrest directed against their business in 2000, the Fijian Government policies which responded to that civil unrest and the fact that admitted the Patel families are now non-residents of Fiji.

[12] It was further submitted in the matter before Tribunal that several steps were taken by the Appellant for corporate simplification. In order to achieve this objective, the following steps were taken inter-alia:

(1) the transfer of the businesses of the give Fiji operating companies to RBG (a new company) in return for shares in RBG;

(2) the execution of the Management Agreement to preserve control and secure a significant management fee;

(3) the substitution of the HK Companies as holding companies in place of New Zealand holding companies for the tax purposes;

(4) the winding up of the five Fiji operating companies and the distribution in specie of their shares in RBG to the HK Companies for no consideration thus shifting material value from the Fiji operating companies to the HK Companies;

(5) the listing of RBG; and

(6) the sale of shares in RBG by the HK Companies to the public.

[13] This plan was clearly implemented for a profit making purpose, I agree with the Tribunal ie. profit for the HK Companies as the ultimate owners of RBG through a combination of share sales to new Fijian shareholders in RBG, dividends and management fees paid by RBG. In totality the Appellants had taken steps to earn the profit of the trading in Fiji by entering into the Management Agreement.

[14] The main contention by the Appellant was the Management Agreement was executed for the purpose of the listing of RB Patel Group. However, on careful perusal of the Management Agreement it reveals the objectives (page 116 of the Copy Record):

"WHERE AS-

A. THE COMPANY (RB PATEL GROUP LIMITED) carries on business of supermarkets and wholesaling and retailing of merchandise in several centers in Fiji;

B. The Managers (RB Patel & Co. – Partnership in New Zealand) is a firm of Professional Managers.

C. The company has requested the Manager to provide managerial services for its said businesses and the Manager has agreed to do so upon the terms and conditions hereinafter appearing".

The paragraphs 1 to 6 clearly gives all powers to the RB Patel New Zealand Partnership in Clause 10 of the Agreement further strengthen the Manager on the payments. The conclusions made by the Tribunal that the partnership in New Zealand where the partners are the Appellants had taken full control of the business for the purpose of taking the profit. I reproduce the Clause 10 of the Management Agreement:

"10. (a) The Company shall pay to the Manager-

(i) Basic Management fee at the rate of not less than 15% and not exceeding 2.5% of the gross revenue (VEP) as approved by the Directors of the Company;

(ii) Incentive management fee at the rate of 10% of opening profit before tax of any profits over $4 Million and 20% of any profits over $5million. This incentive management fee shall be payable within 60 days of the completion of the audited accounts;

(iii) Out of pocket expenses reasonably incurred by the Manager such as (but not limited to) travelling, communication and accommodation;

(iv) Reimburse such reasonable fees as is paid to any persons appointed or engaged pursuant to Clause 2 hereof to fulfill the Manager's functions under this Agreement and to protect or enhance the interest of the company"

[15] It is abundantly clear that the Management Agreement was drafted on the basis and with a view to repatriate the maximum profit to the New Zealand based Management Company for the benefit of the partners. I draw the attention to the finding of the Learned Tribunal in paragraphs 21, 22, 23 and 24 of the decision and agree with the Tribunal that the Business of the Appellants were to operate the businesses of the RB Patel; without creating any liability towards the Management Company in New Zealand.

I further state that the purpose of the Management Agreement was drafted in a way to take out significant proportion of the pre-tax profit of the RB Patel Group Limited to RB Patel Co. Partnership in New Zealand where the 4 partners are the Hong Kong based companies (3 Appellants).

It is also noted that the agreement was for a period of 30 years having absolute control by the Management Company with regard with unfettered control over the RB Patel Group Limited. In my view, the Appellants wanted to list the RB Patel Group in the stock exchange without losing control and management of the business. It appears that the final control was with the 4 sons of RB Patel through the management company in New Zealand. I agree with the findings of the Tribunal that the rationale behind selling of the shares to the public was to make a profit.

[16] I too agree that the Appellants were not adversely affected by diminution of the ownership of RB Patel Group Limited, the Management Agreement gave them full control of the business and to take out significant pre-tax profit as income by way of management fees and other reimbursements. The sale of the shares had taken place in 2008 when the Appellants were effectively operating the business and the Tribunals conclusion that Appellants were conducting the business was correct.

[17] Although, Appellants had urged for several grounds of appeal all the grounds can be summarized into two issues:

(1) As to whether the Respondent applied the Section 11 of the Income Tax act correctly and as to whether the Tribunal erred in law or in fact?

(2) As to whether the Respondent applied the principles in the case authorities referred to in the grounds correctly and as to whether the Tribunal erred in law or in fact when it considered the review?

Other grounds of the appeal are inter-related to the above two issues.

[18] Section 11 provides:

"11. For the purposes of this Act, "total income" means the aggregate of all sources of income including the annual profit or gain gratuity......as being profit from a trade or commercial or financial or other business or calling or otherwise, howsoever, directly accrued to or derived by a person.......from any trade, manufacture or business......

Provided that, without in anyway affecting the generality of this section total income for the purpose of this Act shall include-

(a) any profit or gain 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 transactions and which is not in itself in the nature or trade or business shall be excluded".

[19] I refer to the Tribunal decision (in page 25 to 28 of the Copy Record) was that the sale of the shares by the Appellants in RB Patel Group was income according to the Section 11 and not coming within the purview of the Section 11(a) of the Act. I agree with the finding since the scheme the Appellants initiated was to have control of the company by way of the Management Agreement and derive income of the business as the Managers. As such the findings of the Tribunal are correct.

[20] Now, I will consider the case law with regard to the present matter.

[21] Both parties relied on the statement made by Lord Justice Clerk in Californian Copper Syndicate vs. Harris [1904] 5 TC 159 at 165-166 that:

"It is quite a well settled principle, in dealings with questions of Income Tax, that where the owner of an ordinary investment chooses to realize it, and obtains a greater price for it than he originally acquired it at, the enhanced price is not profit....assessable to Income Tax. But it is equally well established that enhanced values obtained from realization or conversion of securities may be so assessable where what is done is not merely a realization or change of investment, but an act done in what is truly the carrying on, or carrying out, of a business. What is the line which separates the two classes or cases may be difficult to define, and each case must be considered according to its facts; the question to be determined being – Is the sum of gain that has been made a mere enhancement of values by realizing a security, or is it a gain made in an operation of business in carrying out a scheme of profit-making?" (underlining added)

The above statement is clear, that when the owner of an ordinary investment chooses to realize it at the enhanced price for it that the original price the profit is not assessable for income tax. However, the profit made by the Appellant in this case cannot be considered as a capital gain considering the facts of the present case. The Appellants motive was to have the control and derive income from the business and the Sale of the shares not to be considered for income tax. As stated by Lord Clerk in the above statement "But it is equally well established that enhanced value obtained from realization or conversion of securities may be so assessable where what is done is not merely a realization or change of investment, but an act done in what is truly the carry on, or carrying out of a business.......". This clearly in favour of the Respondent's assessment for the reasons set out in the preceding paragraphs by analyzing the terms of the Management Agreement; and the Appellants' acts are not merely realization or change of investments and it is for the purpose of carrying on or carrying out of the business of RB Patel Group Limited. I also considered the case of FCT vs. Myer Emporium Ltd [1987] HCA 18; (1987) 163 CLR 199 at 209 and hold that Learned Tribunal correctly applied the principles enumerated in this case.

[22] The Appellants argued that they were not in the business of buying and selling of the shares. This position cannot be simply applied to decide on a case where the taxpayers conducting the business by themselves, under a cover of the subject Management Agreement. Then it becomes ordinary income. As submitted by the Respondent's counsel it derived from Californian Copper Syndicate vs. Harris which was later explained in several other case authorities covering various situations:

(i) where the profit or gain was made from a transaction which formed part of the ordinary course of the taxpayers business. FCT vs.Myer Emporium Ltd [1987] HCA 18; (1987) 163 CLR 199 at 209;

(ii) where the profit or gain made by the taxpayer from a transaction that was not part of the ordinary course of the business but was an ordinary incident of the taxpayer's business (FCT vs. Cooling [1990] FCA 297; (1990) 22 FCR 42 at 56; and several other case authorities);

(iii) where the profit was made from an extra ordinary transaction which was a business operation or commercial transaction for the purpose of profit making by the means giving rise to the profit [FCT vs. Myer Emporium Limited [1987] HCA 18; (1987) 163 CLR 199 at 210-213].

The Appellants transactions covers all of the above, situations and the Appellant's submissions fail. The Appellants' counsel made lengthy submissions and stated Myer Emporium case is contrary to Californian Copper; and Fiji case Roose. As submitted by the Appellants' counsel referring to Myer Emporium and Commissioner for Inland Revenue vs. C. Roose Fiji Limited [1962] FJCA 94 stated that circumstances giving rise to each sale must be considered individually on their merits. I do not see the Tribunal made any mistake on this issue. The Tribunal had found the application of the principles depend on the facts of the case. Certainly the decision of the Tribunal is in line with the circumstances of this case for the following reasons:

(i) The realization of the assets in this case is not a mere realization or change hands of the investment, since the Appellants carried out the business;

(ii) The gain made by the Appellants' was income and cannot be categorized differently.

The Appellants' counsel submitted that Myer Emporium case was not followed in Fiji. However, in number of cases in Fiji, the principles laid down in FCT vs. Whitfords Beach [1982] HCA 8; (1982) 150 CLR 355 was followed in Samji vs. The Commissioner of Inland Revenue [1993] FJHC 41. The Myer Emporium principles are similar to Whifords and there is no merits in the submissions of the Appellant that Myer Emporium principles are not referred to in Fiji cases. As submitted by the Respondent's counsel the principles in Myer Emporium is not disapproved by the Fiji Courts; as such there is no restrictions for the Tribunal to make its findings referring to Myer Emporium and I find that the Tribunal had not made any errors by considering the principles laid down in Myer Emporium, case.

[23] The Appellants further submitted that Myer Emporium has not been followed in New Zealand in case of Wattie vs. Commissioner of Inland Revenue (1997) 18 NZTC 13 but I agree with the submissions by the Respondent's counsel referring to page 211:

"..........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 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".

I agree with the submission that in this matter the Tribunal found that the Appellants entered into a management agreement to make profits by carrying on and carrying out the business of RB Patel Group which constitute an income and it falls within the ambit of Section 11 of the Income Tax Act.

[24] The Wattie's case was appealed to the privy Council [1998] UKPC 43; [1999] 1 WLR 873 and the Privy Council had referred to the decision of Myer Emporium and stated "..........the general terms, the Court of Appeal's interpretation of the Myer Emporium case as contemplating a profit arising from what is commonly referred to as an adventure in the nature or trade, of the kind illustrated by the decision in Californian Copper Syndicate vs. Harris (1904) 5 TC 159".

It is abundantly clear that the Privy Council made this observation since there is no contrary of the principles in Myer Emporium and Californian Copper case. As such the Tribunal's decision is in par with the principles adopted in both cases, I conclude. I further conclude that as stated in preceding paragraphs in this case, the Appellants made profit on the sale of the shares in RB Patel Group Limited which is ordinary income assessable under the Section 11 of the Income Tax Act.

[25] It was further argued by the Appellants' counsel that Tribunal's decision was correct if the Appellants were only carrying on the business of dealing in shares, does not have merit considering the facts of this case.

[26] The Tribunal decided the Appellants were each conducting the business of RB Patel Group Limited and the Appellants argued it was not correct. This argument does not carry any merits since the partnership is not a separate legal entity outside of partners. It is the individual partners carry on the business, albeit in common with other partners as illustrated in the case of Memec Pic vs. Inland Revenue Commissioners [1998] STC 754 at 754"

"The relevant characteristics of an ordinary English partnership are these: (1) the partnership is not a legal entity; (2) the partners carry on the business of the partnership in common with a view to profit....(3) each does so both as principal and.....as agent for each other, binding the firm and his partners in all matters within his authority; (4) every partner is liable jointly with the other partners for all debts and obligations of the firm....and (5) the partners own the business, having a beneficial interest, in the form of an undivided share in the partnership assets ....including any profits of the business".

[27] The Appellants' argument that the Section 11(a) applied to the transaction independently is not correct. The Section 11(a) is not a limitation to Section 11 since it was stated in the section before 11(a) without in any way affecting the generality of the section. As such I conclude the Tribunals decision that the income from Sale of shares to be applied to total income including profits from a trade or commercial or financial or other business is well within law.

[28] The first limb of Section 11(a) applies for the profit or gain derived from disposing of property by person conducting and in the circumstances of this case, it is an ordinary income and the Tribunal is correct in its decision.

[29] I agree with the Respondent's counsel that the 2nd and 3rd limbs of the Section 11(a) do not affect the decision made by the Tribunal under Section 11.

[30] The Appellants acquired the shares in RB Patel Group Limited at FJD 0.52 per share for the purpose of subsequent listing in 2001; thereafter, the Appellants acquired shares of RBG Group just before listing in 2003. The price sold was FJD 0.80 per share making a profit of FJD 0.30 approximately. It was 60% profit above the purchased price within few years or some shares within a year. The Appellants argued they wanted to have 10% public ownership and that was the reason Appellants were selling their shares. This is a primitive baseless argument. The motive behind was to make a substantive profit in short term by disposing the shares, whilst conducting the business between the period 2001 to 2003. If the genuine intention of selling the shares was to give 10% for the public then it would have been more appropriate to issue new shares to the public which would have increased the capital of the company to develop its business. The sale of the shares of the Appellants clearly did not have any benefit to the company since it was done only for the purpose of making profit by the Appellants. I conclude the sale in 2008 was the final stage of selling of the investment of the Appellants and made the significant profit and had the management and control over the business carry on and carrying out the business for the purpose of enhancing the value of their shares. Accordingly, the Tribunal's finding that the sale of the shares is part of the business is correct.

[31] The Appellants also argued that the sale of the shares to Fijian Holdings Limited was less than the price it was traded. There is no basis for this argument since it was a private sale. When large parcel of shares are sold, it's on a negotiated price and on various conditions. There is no merit on this argument and I deny.

[32] I have already found the Tribunal's decision was on the basis of Section 11, treating the sale of shares was ordinary business making profits which I agreed and I have already concluded that the sale of the shares do not fall under Section 11(a) in favour of the Appellants.

[33] The Appellants argued that the Respondent should reconsider with regard to the cost of the shares acquired by the Appellants in RB Patel Group Ltd. The Respondent had made submissions with regard to the calculation in terms of the evidence tendered and I agree that cost of shares to be fixed at FJD 0.52 not at FJD 0.50 for the purpose of calculation.

[34] The argument on time bar has no relevance in this matter since the Commissioner carries out the statutory duty to ascertain the amount on which tax is payable for that year and the process is completed only after issuing of the Notice of Assessment; the tax clearance certificate is not based on an assessment and the Appellants cannot rely on letters sent to Reserve Bank of Fiji providing clearance to remit the funds.

[35] My final conclusions are:

(1) The Tribunal did not erred in law or in fact by applying Section 11 of the Income Tax Act.

(2) The Learned Tribunal properly considered the Californian Copper Syndicate vs. Harris (1904) 5 TC 159 adopted in Fiji case Commissioner of Inland Revenue vs. Roose (Fiji) Limited [1962] FJCA.

(3) Ground 3 of the appeal fails.

(4) Principles in Commissioner of Taxation vs. Whitfords Beach (1982) 12 ART 692 is correctly applied as I concluded in the preceding paragraphs.

(5) Having concluded that the Section 11 applies in this matter, Grounds 6, 7 and 8 fails.

(6) With regard to Ground 9 as concluded in preceding paragraphs the totality of the evidence being considered by the Tribunal and found although the transfer occurred after several years of the agreement the facts in totality proves the main purpose of the Management Agreement was to derive maximum profit for the Manager in New Zealand where the Appellants were the partners who were actively involved in the business of the RB Patel Group Limited and the income of sale of shares cannot be considered under Section 11(a) and the Appellants fails.

(7) I have already made conclusion on Ground 10, and denied.

(8) The Tribunal had correctly applied the Commissioner of Inland Revenue vs. Roose (Fiji) Limited [1962] FJCA 94 and Ground 11 fails.

[9] The Grounds 12 and 13 fails as concluded in the preceding paragraphs of this Judgment.

[10] Having concluded that the Section 11 applies in this matter. Alternative Grounds 1 and 2 fails and I hold in favour of the Respondent.

I will now answer the issues raised in the paragraph 17 of this Judgment:

(1) The Tribunal did not erred in law or in fact by applying Section 11 of the Income Tax Act.

(2) The Tribunal did not erred in law and in fact by applying the case authorities cited by the parties.

Orders of the court:

1. The Appeal is dismissed.

2. The three Appellants are ordered to pay $5,000.00 each, costs assessed summarily totaling to $15,000.00 to the Respondent within 30 days of this Judgment.

Delivered at Suva this 18th Day of June 2015.

.........................

C. KOTIGALAGE

JUDGE