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Vassie v Commissioner of Inland Revenue [2009] FJCOR 1; Appeal 14.2006 (29 January 2009)

IN THE COURT OF REVIEW
OF FIJI ISLANDS
AT LAUTOKA

(Appeal No. 14 of 2006)

IN THE MATTER of an appeal to the Income Tax Court of Review

BETWEEN:

GLEN WARREN VASSIE
Appellant

AND:

THE COMMISSIONER OF INLAND REVENUE
Respondent

E. Maopa for the Appellant
Ms S. Takilai for the Respondent

Date of Hearing: 2nd October 2008
Date of Judgment: 29 January 2009

JUDGMENT

This is an appeal against the decision of the Commissioner of Inland Revenue to assess the appellant income tax on the sale of his property described as CL4824, Lot 2, on Plan S, 1372 Subdivision of CL993. This property is situated in an area known as Domain in Suva.

A statement of agreed facts was filed by the parties on 3rd September, 2008. This statement has been helpful to understand the chronology of events but in some crucial areas, relevant to the appeal, not consistent with the "facts" discernible from the "Agreed Bundle of Documents", also filed on 3rd September 2008. In any case the said property was acquired sometime in June/July 2002. It was sold about June 2006. The basic issue for determination, as both counsels have - submitted, is "whether income tax is payable on the proceeds of sale of the appellant's property under the Income Tax Act (Cap 201)?"

The Evidence:

As stated earlier a "Statement of Agreed Facts" was filed by the parties. Much of the statement contains formal evidence and need not be repeated. The property was held for about 4 years before it was sold. The court has a. problem with para 4 of the "Statement of Agreed Facts" which states: "The appellant occupied the house upon the land with his family from 1 June 2002 to 1 June 2006 when he re-sold it." This varies from the documents provided in Annexure "H" of the "Agreed Bundle of Documents". In annexure "H" there is a letter/ memo dated 05/07/06 KIND (Sic)? It reads, as far as is relevant, as follows:

"To: Fiji islands Revenue and Customs

Att: Mrs Laisani Kabakoro

Re: Sale of Property 23 Duncan Road; Domain, Suva.

The above is the first property my wife and I have owned in Fiji. It was purchased as a primary residence as my directors wanted me to live in Suva as the bulk of our sales where (sic) down there. I never ended up moving my family to Suva as the sales tide swung and the bulk of the sales came from the west. However as I have an office in Valelevu and commuted every week for one to three nights I used the Property for my accommodation".

This letter is signed by Glenn Vassie. This information is relevant to the issue of the intention of the appellant in purchasing the property.

The Law:

It is perhaps pertinent to state at this stage that this court had considered the relevant principles, including the question of onus and the issue of intention and purpose, in its judgment in the case of Warren Williams & Vanessa Williams -v- CIR (Appeal No 10 of 2007, judgment dated 6 June 2008). The authorities relevant to the issues submitted by the parties before this court were also dealt therein. It is quite clear from the submissions that the relevant limb of Section 11(a) of the Income Tax Act which is applicable to this case is "..... if the property was acquired for the purpose of selling or otherwise disposing of the ownership of it ......"

As was stated in CIR v- National Distributors Ltd (1989) NZTC 6346, it is the taxpayer who must establish "on the balance of probabilities that the property in question was not acquired for the purpose of sale of other disposal" (at p. 6351). This case also has a succinct discussion on the question of "purpose" in relation to the critical issue of "for the purpose of selling or otherwise disposing of the ownership of it". The National Distributor's case, together with K.R. Latchan - v- CIR (Court of Review No 6 of 1986) and Kelton Investments Ltd -v- CIR (Court of Review No 1 of 1979) were discussed in the case of Warren Williams & Vanessa Williams -v- CIR by this court in its judgment referred to earlier. They provide a comprehensive treatment on the law relevant for the question of purpose and need not be repeated here.

In his submissions, paras [8] to [18] Counsel for the appellant has dealt extensively with the question of the purpose at the time of acquiring the property and the appellant's intention. The Court states with regret, that it found much of the submissions of appellant's counsel rather haphazard and without an attempt to discern the ratio of the cases cited. He concludes his submissions thus (at para [23]):

'In the present case the appellant now resides permanently in Fiji. He decide (sic) to settled (sic) in Fiji before acquiring the property. It is submitted that the sale of property is a single transaction and that the second limp (sic) of section 11(a) applies. The proviso provided under section 11(a) also applies. In considering the authorities mentioned above and the agreed document (sic?) as per agreed bundles, it is submitted that there ought to be judgment with cost in favour of the appellant'.

It is not clear to this Court what is the crux of his argument. If the proviso to section 11(a) applies then the appellant is not liable to tax under the second limb. Is the appellant's counsel arguing that his client is not liable to tax on the second limb or is he exempt?

In his oral submissions in reply counsel for the appellant distinguished the case of Warren and Vanessa Williams from the appellant's. He stated that the Williams purchased their property in a well developed area, that is, Denarau which was still developing. This could be seen as speculative if no house was built on the site. He argued that the appellant had bought his property at Domain, a residential area and lived in it. As the court has stated earlier the issue of "purpose" of the acquisition is the relevant question and the facts remain unclear on this. In Gauci and Masi –v- FCT [1975] HCA 54; (5 ATR 672) it was stated that the length of time the property is held is a relevant consideration. If it is resold within a short period from acquisition there is a presumption that it was bought for the purpose of disposal.

In Gauci and Masi the Court ruled in favour of the tax payers because there was a forced sale since their land was compulsorily acquired by the state. The appellant in this case was not subject to a forced sale, as the submissions by the Commissioner state. A change in business, such as "the booming business in the West" is not considered a forced sale. No authorities were submitted, nor could this court find any authorities to suggest otherwise. In the National Distributors Ltd case, cited earlier, it was also stated that "...... the length of time the property was held and the circumstances of the use and disposal of the asset" were relevant considerations.

The submissions on the case of CIR -v- Pacific Mercantile Ltd [1990] FJCA 18, [1990] leaves much to be desired. In this case the Court of Appeal dismissed all three (3) grounds of appeal submitted by the Commissioner of Inland Revenue. This included the 2:"d limb as argued in this case. The Court of Appeal also ruled that the transaction in the Pacific Mercantile case fell within the exception contained in the proviso at the end of Section 11(a), namely that it did not form part of a series of transactions and was not in itself in the nature of trade or business. In that case air transaction concerned what may be simply called a "book debt". How this relates to the selling of a house by the appellant is not explained in the submissions.

The same can be said of the submissions regarding the case of the Commissioner of Inland Revenue -v- Weller [1982] 28 FLR 46 (see paras [14] to [18] of appellant's submissions, dated 1 October, 2008). The Wellers' case was also considered by this Court in the Williams' case referred to earlier. In that case, the Respondents, Mr and Mrs Weller, had erected a Villa in their property and resided in it. However, Mrs Weller found it difficult to live there due to the climate, lack of friends and loneliness. The couple then rented out their villa and left Fiji. Subsequently, they accepted an offer and sold the property. In this case the appellant's family did not live in the property but it was only used as temporary accommodation.

The Court is concerned that certain matters were put before the Court via the "Agreed Bundle of Documents" but not fully argued, especially by the appellant's counsel. The Court notes in particular the issue of renovations (see annexures "M", "N" and "O" of the Agreed Bundle of Documents). Respondent's counsel did make submission regarding the renovations and/or improvements to the property. Her argument was that those were done with "the intent of buffering or increasing the value of the property at point of resale". (see para 4.13 of Respondent's submissions filed on 25/09/08). Nor was there any response to the allegation that the actual price the property was sold was $800,000.00 and not $600,000.00 as declared initially. Her submissions suggest that this showed that "the Respondent intended to benefit from the sale of this property, that there was a purpose at the point of acquisition to sell and dispose of ownership for a profit (para 4.8). These were interesting arguments which the Court did not see it necessary to deal with in the absence of submissions by appellant's counsel. It did not see these as critical in considering the law and evidence relevant to its decision.

The Court has considered the totality of the relevant evidence and the applicable law. It is grateful to the submissions of Counsel. In concluding, it is guided by the dictum of Casey J in the National Distributors case: "Unless the taxpayer could show that the main or dominant purpose which led him or her to acquire the property was not to sell or otherwise dispose of it, then the profits or gains will be taxable" (at p. 6,355).

The appeal is dismissed. Each party is to bear its own costs.

JAYANT PRAKASH
COURT OF REVIEW

29 January, 2009