Taxpayer S v Fiji Revenue and Customs Authority [2016] FJTT 3; Action 05.2015 (22 July 2016)

FIJI TAX TRIBUNAL
Decision
Section 83 Tax Administration Decree 2009

Title of Matter:	TAXPAYER S OF NADI (Applicant) V FIJI REVENUE AND CUSTOMS AUTHORITY (Respondent)
Section:	Section 83 (1) Tax Administration Decree 2009
Subject:	Application for Review of Reviewable Decision
Matter Number(s):	ITA Action No 5 of 2015
Appearances:	Mr B Singh, for the Applicant Mr. O. Verebalavu, FRCA Legal Unit for the Respondent
Date of Hearing:	Tuesday 2 February 2016
Before:	Mr Andrew J See, Resident Magistrate
Date of Decision:	22 July 2016

KEYWORDS: Income Tax Act (Cap 201) – Section 11 definition of income; Capital Gains Tax Decree 2011 sale of farming property;

Background

1. The Applicant Taxpayer is seeking a review of the Objection Decision of the Respondent dated 17 June 2015, in which the Respondent demands the payment of an outstanding amount of $39,678.00 as taxation imposed in accordance with Section 11 (a) of the Income Tax Act (Cap 201). A brief history of the facts that give rise to this dispute are as follows:
   
2. On 2 December 2014, the Applicant notified the Respondent in a Capital Gains Tax Return that it had purchased a property at Nasau, Nadi for the sum of $30,000.00.^[1] Within that same return, the Applicant indicated that the parcel of farming property had been sold for $450,000.00, giving rise to a net capital gain of $396,780.00. In compliance with that return, the Applicant computed a capital gains payment of 10% in the amount of $39,678.00. A Copy of a Capital Gains Tax Notice of Assessment in that amount was issued to the Taxpayer in correspondence dated 18 December 2014.
   
3. By a further letter from the Respondent dated 7 January 2015 ^[2], the Respondent advised the Taxpayer that he was required to pay an additional $39,678.00 by way of income tax arising out of the property sale and issued a Notice of Assessment on 30 January 2015 to that effect.^[3] As it transpired the Respondent ultimately withdrew its claim for any capital gains tax and viewed the proceeds as being income for the purposes of the Income Tax Act (Cap 201). The total amount due being $79,356.00 ^[4]. It is against that decision that this Application for Review comes about.
   

The Case of the Applicant

4. The Applicant himself was the first of two witnesses to give evidence in this matter. Mr S gave evidence of his schooling and employment for the past 30 years. He stated that whilst engaged within the sales industry he had for a long time been involved in farming land. According to Mr S, the land that he ultimately purchased was initially leased for approximate 20 years by his father. He said it lay idle for some time thereafter and in 1992, was purchased as 9 acres of freehold land by his father for the sum of $18,000 FJ. Mr S told the Tribunal that his father as the owner of the land passed away in 1995 and it was thereafter transferred to his mother. Mr S stated that his mother in turn transferred the property to him in 2011. He stated that “she wanted land to be in my name before her death”.
   
5. According to the witness, no money passed with the transferring of the land on 18 March 2011.^[5] He said he wanted to continue its farming, that it was land located in a flooding zone and that it could not be developed. Mr S stated that the only reason he sold his property was following the sale of the adjoining land that was owned by his friend and the persistent monthly phone calls he had received by a real estate agent on behalf of the ultimate purchaser. The witness provided the Tribunal with three colour photographs of the land^[6], though there was no evidence before the Tribunal as to the date in which the photographs were actually taken.
   
6. Upon cross examination by Mr Verebalavu, the Applicant reinforced his claim that no monies had passed with the transfer of the land from his mother to himself and that the reason why an amount of $30,000 was included with the Capital Gains Return was based on the advice of the Taxpayer’s lawyer.^[7] In terms of the usability of the land, Counsel for the Respondent showed the Applicant an aerial photograph of the prevailing area and the Applicant accepted and identified a hotel located approximately 1 kilometre from the said parcel of land.^[8]
   
7. The second witness to give evidence on behalf of the Applicant was a Sales Consultant Ms P. According to Ms P she had been approached by a company who was looking for more land in the area. Ms P stated she first made contact with the Taxpayer around May or June 2013 and approached him as to whether or not he would sell the land. The Witness states that she was advised by the Taxpayer at that time, that he was only interested in farming the land. She said finally he ‘came around’ and the parties came to an agreed sales price that equated to approximately $50,000 FJ per acre.
   

The Case of the Respondent

8. The first witness to give evidence on behalf of the Respondent was an Auditor, Mr R. It was Mr R who was responsible for the conduct of the initial audit relating to the transaction. According to Mr R, the issue uncovered as part of his audit was whether or not the proceeds from the transaction gave rise to assessable income for the purposes of Section 11 (a) of the Income Tax Act (Cap 201).^[9] The Second Witness for the Respondent was Ms D, who has had 20 year’s experience working in various capacities with the Respondent. Ms D advised the Tribunal that the assessment of profits and gains made as a result of land sales, was administratively governed by the Respondent’s Practice Statement No 25.^[10] The witness was shown the aerial photograph of the said land and surrounding area^[11] and identified within that, the road leading to a hotel. Ms D advised the Tribunal that in the subject transaction, the Capital Gains Tax Decree 2011 would not apply. She said that the application of Section 11(a) of the Income Tax Act came about after analysing the totality of the case, having regard to various factors. She said that the evidence suggested that the property was never inherited but that the Applicant paid $30,000 to acquire it.
   

Analysis of the Issues

9. One of the critical issues that needs to be considered in the analysis of the application, is to determine the respective roles that the Income Tax Act and the Capital Gains Tax Decree have when considering what taxation should apply to the transaction. As set out in Taxpayer A v Fiji Revenue and Custom Authority,^[12] the historical development and purpose of the Income Tax Act (Cap 201) can be traced in time by the starting point which is the Inland Revenue (Income Tax) Ordinance 1920.^[13] Insofar as the capital gains tax regime has been a part of the taxation laws of this country, the Capital Gains Tax Decree 2011 came into force on 1 May 2011.^[14] What now needs to take place is an assessment of the relationship of these two laws and a view formed as to whether they apply concurrently, exclusively or in a complementary fashion.
   
10. As has been mentioned frequently within this Tribunal, the scope of the taxing power that is provided for within Section 11 of the Income Tax Act (Cap 201) has long been recognised as having a “very comprehensive and sweeping nature”.^[15] The formation of that provision and how it can be interpreted is set out within Taxpayer S.^[16]
    
11. In matters of this type the approach that has been adopted within Fiji^[17] requires a consideration of the framework for assessment as provided for within Californian Copper Synd v Harr Harris^[18], where Lord Je Clerk, formulated the lone long accepted test:
    
    1. “where the owner of an ordinary investment chooses to realise it, and obtains a greater price for it than he originally acquired it at, the enhanced price is not profit in the sense of ...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 what is truly the carrying on or carrying out of a business..."
       

Has the Taxpayer Been Carrying on a Business?

12. Paragraph 24 of the Applicant’s Closing Submissions makes clear that the farming land that is the subject of this dispute had been used for the purposes of the operation of a business, of which there were at least two employees. There was no evidence of any substance in this regard. The photographs of a small cane field that formed Exhibits A1(a) to (c) had no date identifier. The claim that the Taxpayer had engaged two labourers to work the fields, was also made without any documentary evidence. There was also no evidence of any sales for harvest yields, to provide any demonstration whatsoever that there was an operating concern prior to the sale. Having said that, the Respondent concedes that the Applicant had been receiving ‘sugar cane proceeds’ as confirmed by the Fiji Integrated Taxation System.^[19] It is worth keeping in mind that the burden of proof so as to justify whether the decision of the Respondent should be disturbed, rests with the Applicant.^[20] As part of that analysis, one needs to assess the earlier documentary evidence submitted by the Applicant on 17 December 2014 to the Respondent, in which it was indicated that the Taxpayer had purchased the land for the sum of $30,000.00.^[21] While the evidence given at trial by the Taxpayer is that this ‘nominal amount’ was provided based on advice that he had received, such advice or the person who gave it were not put forward as evidence before the Tribunal. The Tribunal is no clearer as to why then the nominal value of the transfer could not be $1.00. The rationale provided by the Taxpayer against the documentary evidence is simply contradictory. The Tribunal does not accept that the Taxpayer discharged the evidentiary onus in that respect.
    

What are the Implications of the Sale of the Farm: Is the Realisation or Conversion Part of the Carrying out of the Business?

13. It should firstly be noted that the Taxpayer has not provided the Tribunal with any documentary evidence pertaining to the sale of the farming land, outside of the Transfer of Certificate of Title. The Tribunal takes the view that the sale of the farm is akin to the sale of a business. In part this conclusion draws from the Taxpayer’s submission that states that the land is
    
    1. “a flood prone area. The hotel is in isolation and independent with no charisma to attract development”.^[22]
       
14. The best conclusion that can be drawn based on the combined effect of the photos of farming land provided and the claim made, that the property is fit for no other commercial purpose, was that at the time of sale the sugar cane farm remains a going concern. ^[23] That is, that it was sold as farming land for that purpose. The question then is whether the proceeds arising out of the sale of the land in that context were income for the purposes of Section 11 of the Act.
    

Conclusions of the Tribunal

15. As has been mentioned in many reported cases of this Tribunal, the starting point for any analysis of the way in which income tax should be assessed under the Act, is in the commencement of Section 11.^[24] The definition of total income at Section 11 provides inter alia:
    
    1. For the purpose of this Act, ―total income means the aggregate of all sources of
    2. 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 employment income 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 upon the maturity of the term mentioned in the contract:
       
16. For the reasons set out in the 2012 decision of Taxpayer S v Fiji Revenue & Customs Authority^[25], the Tribunal is satisfied that the words being profits from a trade or commercial or financial or other business or calling, would capture the sale of the farming land in question. The sugar cane farm must be seen as a commercial business. It was sold and income received out of that sale. For the sake of completeness though, it may also be possible (even if unnecessary) to rely on Section 11 (a) to secure an illustration and reinforcement for reaching such a result.
    
17. When disassembled,^[26] Section 11 (a) of the Act states:
    
    1. Provided that, without in any way affecting the generality of this section, total income, for the purpose of this Act, shall include -
       
    2. 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
       
    100. 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, and
         
    4. 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;
       
18. The proviso thereafter provides that “the profit or gain derived from a transaction of purchase and sale (and) 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. But keep in mind, these limbs and exclusions that make up Section 11(a) of the Act, still must be read in the broader context that is Section 11. As this Tribunal has previously pointed out in Taxpayer A,^[27] the Privy Council noted in McLelland v Commissioner of Taxation, that for a single transaction to fall within the notion of assessable income, the undertaking or scheme must exhibit features that give it the character of a business deal.^[28] The Tribunal finds that such features would likely exist in any event. As mentioned earlier, this appears to be nothing more than the sale of a business interest that was likely to yield a good return to the Taxpayer. Alternatively, based on the questionable tax and land transfer records filed by the Taxpayer coinciding with the time of acquisition of the property from the mother, it could also be viewed as property acquired by the Taxpayer at the time for “the purpose of selling or otherwise disposing of the ownership of it.” There is certainly no documentary evidence before the Tribunal that the property was a gift or part of an inheritance. Against the Taxpayer’s own documentary evidence, the Tribunal is not moved by the contrary submissions that have been made in this regard. Had the proceeds not been deemed to be ‘income’ for the purposes of the Act, then it is feasible that the Capital Gains Tax Decree 2011 would then have some work to do. But once the proceeds from the sale are identified as ‘income’ that is the end of the matter. This was not assessable revenue derived out of the sale of a capital asset. This was revenue from the carrying on or carrying out of a business. For the above reasons, the application must fail.
    
20. There is one final issue that the Tribunal feels compelled to make some comment about and that is in relation to the manually created Notice of Assessment that was issued by the Respondent on 30 January 2015.^[29] The Notice of Assessment has deducted from its calculated income tax claim, the Capital Gains Tax Paid in the amount of $39,678.00. That entry in some ways confuses the issue and it would have been more assisting had that amount been withdrawn and then the full income tax claim reapplied. There cannot be any taxation under the Capital Gains Tax Decree in the present circumstances and a clearer correction of that issue would have made that point easier for the Taxpayer to understand.
    

Decision

The Tribunal orders:-

(i) That the Application be dismissed.
(ii) The Respondent is free to apply for costs within 28 days hereof.

Mr Andrew J See

Resident Magistrate

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^[1] See “Annexure SCS1” to the Respondent’s Section 83 Documents filed on 12 August 2015.
^[2] See “Annexure SCS6” of the Respondents Section 83 Documents (Exhibit R1).
^[3] See “Annexure SCS9” of the Respondents Section 83 Documents (Exhibit R1)
^[4] Even though in some ways, this change of position by the Respondent appeared to be somewhat of a ‘moveable feast’.
^[5] In effect what he purports to say is that the information provided in the Transfer of Land Title Form and the Capital Gains Tax Return is false.
^[6] See Exhibits A1(a)(b) and (c).
^[7] It is a matter of record that no such corroborative evidence was called.
^[8] The inference here being that the land was capable of being used for other than farming purposes.
^[9] The inquiry should always be first and foremost, whether it is assessable income for the purposes of Section 11 of the Act, not Section 11(a) of the Act.
^[10] See Exhibit R4.
^[11] Exhibit R2

[12] Taxpayer A v Fiji Revenue & Customs Authority [2012] FJTT 3

^[13] See also Taxpayer S v Fiji Revenue & Customs Authority [2012]FJTT 18
^[14] See Decree No 23 of 2011.
^[15] See Young CJ in Commissioner of Inland Revenue v Morris Hedstrom Ltd [1937] FJSC1.
^[16] op cit.
^[17] See for example Company L v Fiji Revenue & Customs Authority [2012] FJTT 17.
^[18] (1904) 5 T.C. 159
^[19] See Paragraph 12(a) of the Respondent’s Closing Submission.
^[20] See Section 21(1)(a) of the Tax Administration Decree 2009.
^[21] See Capital Gains Tax Return at “Annexure SCS1” of the Respondents Bundle of Documents; See also the Transfer of Title document at “Annexure SCS2”.
^[22] See Paragraph 39 of the Applicant’s Closing Submissions filed on 29 April 2016.
^[23] At least insofar as the land appeared still fit for that purpose.
^[24] See Taxpayer A v Fiji Revenue & Customs Authority [2012]FJTT3; See also Taxpayers S and G v Fiji Revenue & Customs Authority [2012] FJTT 2012.
^[25] [2012] FJTT 18 at [14] to [23].
^[26] Note this is not the precise extract of that provision but the isolation of the critical ‘limbs’ for the purposes of easing the interpretative task.
^[27] op cit
^[28] [1970] HCA 39; (1970) 120 CLR 487 at 27.

^[29] See “Annexure SCS 9” of the Respondent’s Section 83 Documents.