Taxpayer D v Fiji Revenue and Customs Authority [2012] FJTT 11; Income Tax Appeal13.2006 (26 November 2012)

IN THE STATUTORY TRIBUNAL, FIJI ISLANDS
SITTING AS THE TAX TRIBUNAL

Income Tax Appeal No 13 of 2006

BETWEEN:

TAXPAYER D
Applicant

AND:

FIJI REVENUE & CUSTOMS AUTHORITY
Respondent

Counsel: Ms D Gandhi, Neel Shivam Lawyers for the Applicant
Mr S Vukica, FRCA Legal Unit for the Respondent

Date of Hearing: Monday 10 September 2012
Date of Judgment: Monday 26 November 2012

JUDGMENT

INCOME TAX ACT (CAP 201) – Section 11; Disposition of Property; Objective Purpose Test of Acquisition

Background

1. This an application for review against the decision of the Respondent Authority dated 4 September 2006, disallowing the objection of the Taxpayer to a tax assessment issued for the year ending 31 August 2006.
   
2. The Agreed Statement of Issues prepared by the parties is as follows:
   
   • The Applicant was the registered proprietor of Certificate of TItle No 9310 being Lot 29 on DP 2274.
     
   • The Applicant purchased that property on 14 May 2004, in consideration of the sum of $100,000.00.
     
   • The property was subsequently sold. The signing date of the transfer was 25 July 2006.
     
   • The Applicant was issued with a New Zealand residence visa on 17 August 2006.
     
   • The transfer of property was registered on 1 September 2006.
     

Issue before the Tribunal

3. The issue before the Tribunal is whether or not, the profit arising out of the sale of property, is income for the purposes of Section 11 of the Income Tax Act (Cap 201)?
   
4. The definition of total income commences at Section 11 of Act and that is the appropriate starting point when assessing whether gains secured by a taxpayer are captured within that definition.
   
5. It reads:
   

For the purpose of 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 wages, salary or other fixed amount, or unascertained as being fees or emoluments or as being profits from a trade or commercial 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, including the estimated annual value of any quarters or board or residence or of any other allowance or benefit provided by his employer or granted in respect of employment whether in money or otherwise, and shall include the interest, dividends or profits directly or indirectly accrued or derived from money at interest upon any security or without security or from stock or from any other investment, and whether such gains or profits are divided or distributed or not and also the annual profit or gain from any other source including the income from, but not the value of, property acquired by gift, bequest, devise or descent, and including the income from, but not the proceeds of, life insurance policies paid up upon the death of the person insured, or payments made or credited to the insured on life insurance, endowment or annuity contracts up the maturity of the term mentioned in the contract.

6. Further, Sections 11 (a) to (b)(b) of the Act, provide additional guidance as to what is and is not regarded as income, through the inclusion of more specific illustrations.
   
7. In cases of this type, Section 11(a) becomes relevant.
   
8. The first limb established within that provision states:
   

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; (my emphasis)

9. Section 2 of the Act provides assistance to interpreting this 'first limb', where it sets out a non-exhaustive definition of "dealing in property" and "dealing in real and personal property".
   
10. That definition was introduced into the legislation with the introduction of the Income Tax Act 1974[1] and includes:
    

(i) the acquisition (including a gift and transfer inter vivos or by inheritance) and sale or disposition of—

(a) any land scheduled for development under the Town Planning Act6 either before or after acquisition where any subdivision takes place;

(b) any land where permission for development is granted after acquisition;

(ii) the purchase of any land scheduled for development at the date of acquisition which is sold within 3 years of acquisition; unless the taxpayer can establish that one of the prime purposes of the purchase was not to make a profit [on]7 resale;

(iii) any transaction involving the sale or disposition [or] transfer of shares of a company to the extent that the transaction is a scheme or undertaking or part of a scheme or undertaking entered into with the intention of making a profit and the company is [the owner of any land, or of shares, either directly or indirectly, in another company which is the owner of any land, to which paragraph (i) or (ii) applies;]9

11. The Second limb as adapted, reads:
    

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 property was acquired for the purpose of selling or otherwise disposing of the ownership of it

12. Here in cases such as Steinberg [2], the case law dictates that there must be in place a purpose of resale to gain a profit and that purpose must be present at the time of the acquisition. The dominant purpose of the Taxpayer is therefore critical.[3]
    
13. Finally, the remaining category of case, deals with 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.
    
14. For the present purposes of this analysis, I need not venture further into the case law underpinning that limb.
    
15. It should also be kept in mind that there is further exclusionary provision to Section 11(a). The proviso is that none of these three illustrative examples shall be considered to contribute to total income, where the profit or gain derived from a transaction of purchase and sale does not form part of a series of transactions. Though it equally should be noted in McClelland v Commissioner of Taxation,[4] the Privy Council concluded that a single transaction can fall within the notion of assessable income, where the undertaking or scheme exhibits features that give it the character of a business deal.
    

General Provision of Section 11

16. Chief Justice Young in the case of Commissioner of Inland Revenue v Morris Hedstrom Ltd,[5] referred to the definition of income contained within the Fijian law, as being ".. of very comprehensive and sweeping nature".
    
17. Yet on this occasion, it would seem useful to explore further the specific illustrative examples given within Section 11(a) of the Act as a means of isolating the intent of the legislature in relation to matters of this type.
    
18. There are certain matters that need to be considered when we do this.
    

Properties of the Taxpayer

19. At first instance this case appeared to be a matter relating to the sale and disposition of a Suva Property (CT 9310 Lot 29 No DP2274).
    
20. Though in the evidence in chief given by the Principal Tax Auditor for the Authority, she stated, that despite the Taxpayer indicating to her that the Suva property was his only property, as it transpired, she later discovered that he in fact had a property at Lautoka.[6]
    
21. It is noted within the Further Submissions On Behalf of the Respondent that the Taxpayer sold another property with sub lease No 422084, situated at Lot 10 on DP 7372, Vitilevu, Natasiri.
    

Determination of the Tribunal

22. On 6 September 2012, the Registry of this tribunal received communications from the Taxpayer's lawyers, seeking that he give evidence by way of video conferencing arrangement, as he resided in New Zealand.
    
23. That request was refused given its late stage and parties were required to make further submissions in relation to that issue.[7]
    
24. During the course of those submissions, Counsel for the Taxpayer indicated that he was unable to attend the hearing in Suva, due to the fact that there was presently in place a Departure Prohibition Order(DPO). Subsequent submissions made by the Respondent, indicated that a previous DPO had been revoked in concert with the Taxpayer.
    
25. Despite further submissions made by Counsel for the Applicant that her client was under a misapprehension of the relevant facts pertaining to the DPO, I am simply not prepared to accept those submissions as justifying the further delay of these proceedings.
    
26. This matter relates to proceedings commenced in 2006. I do not accept that only four days before trial, that it would occur to the Taxpayer whether rightly or wrongly, that he was not able to attend the hearing because of the existence of a DPO.
    
27. On that basis and given the adequacy of the material before me, I am content to reach a decision on the application without any direct evidence provided by the Taxpayer.
    
28. Ms Gandhi has more than adequately advocated the arguments that fall part of her instructions. The evidence of the Authority is that the Taxpayer had misled the Principal Auditor in deliberately withholding the identity of other properties owned by him.
    
29. In light of the above, I am prepared to conclude that the conduct of the Taxpayer is caught within the first limb of Section 11 (a) of the Act.
    
30. That is that the sale of the said property has amounted to a profit or gain accrued or derived from the sale or other disposition of real property, in the circumstances where the business of the taxpayer comprises dealing in such property.
    
31. I have previously indicated that the definition of dealing in property provided at Section 2, is not an exhaustive one. The fact that the Applicant had various properties that he was involved with apparently for speculative purposes, leads me to conclude that he was dealing in property. This was part of the business of the taxpayer.
    
32. This was not the sale of a property that took place following the Applicant having a visa approved in order that he could work elsewhere. The property was sold prior to that time.
    
33. There is no relationship that needs to be drawn between the Applicant's departure and his relinquishment of the property on that basis.
    
34. This was the conduct of a person whose business[8], comprised dealing in such property.[9] The word 'dealing' in this context could include more broadly, the act of buying or selling real property.
    
35. And even if such a wide interpretation of the first limb is incorrect, the conduct of the Taxpayer would nonetheless satisfy the second limb. Multiple properties acquired and disposed of in this context, in such a short time period, are suitable for classification under that example of Section 11 (a). On balance and given the evidence before me in relation to the Taxpayer's lack of disclosure, together with his instructions to Counsel regarding his inability to personally appear before the Tribunal,[10] leads me to prefer the view of the Respondent to that of the Applicant, that the intent of the Taxpayer was clear. The objective was one of acquiring the property so as to dispose of it in pursuit of profit or gain.
    
36. I am content to dismiss the application of the Taxpayer on that basis.
    

DECISION

(i) That the Application be dismissed.
(ii) That the Respondent be free to make application for costs within 28 days.

The Tribunal orders accordingly.

Mr Andrew J See
Resident Magistrate

---

^[1] See Act No 6 of 1974

^[2] See Steinberg and Others v Federal Commissioner of Taxation[1975] HCA 63; (1975) 7 ALR 491 at 495

^[3] See Richardson J in Commissioner of Inland Revenue v National Distributors Ltd (1989)11 NZTC at 6352

^[4] (1970)120 CLR 487

^[5] [1937] FJSC 1

^[6] The view of the Principal Auditor was that she had been deliberately misled.

^[7] It should be noted that the matter had been set down for hearing on 19 June 2012. The Applicant had 3 months in which to have expressed any requests of such nature. It was unacceptable two business days before trial.

^[8] Here the term business is used to describe the livelihood and pursuit of personal income by the Taxpayer.

^[9] The use of the term comprise, does not imply that the activity needs to be the full time endeavour of the Taxpayer, it may simply be one aspect of the Taxpayer’s vocation.

^[10] Note the submissions of the parties on this point.