| 20/5/2012 |
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| Board of Special Commissioners - Cases |
| Case No. 20b/84 |
Decided: 17 September, 1991 |
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Whether isolated transactions are taxable; badges of trade (size and nature of the property; processing; interval of time between purchase and sale); profit-making motive; whether transaction was "a transmutation of one item of capital into another" - article 5(1)(a), now 4(1)(a) Income Tax Act
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Appellant claimed that a surplus made from the sale of a plot of land was not taxable. He contended that the Commissioner had already invoked article 57A(b) - now 36, ITMA - on the grounds that appellant had not delivered the trading records within the prescribed time. In its preliminary decision the Board had rejected the Commissioner's request and the Commissioner had lodged an appeal, that was later withdrawn. Appellant claimed that in withdrawing the appeal the Commissioner had thereby accepted appellant's contention and therefore the onus of proof had now shifted onto the Commissioner, something not done to date.
Appellant quoted from Court of Appeal No. 136 where it had been decided that a similar surplus was deemed to be "a transmutation of an item of capital into another". Besides, appellant had never carried on a trade or business: this had been an isolated transaction, made possible only by the issue of a building permit occurring before appellant's acquisition of the property. The fact that an architect had been asked to prepare a site development plan was completely irrelevant.
The Commissioner contended that the withdrawal of the appeal to the Court had been made because it had become departmental policy not to exact any tax on merely procedural grounds. Anyway, such withdrawal had not shifted the onus onto the Commissioner.
The Commissioner contended that: (A) the words for whatever period of sub-article 5(1)(a) indicated that the duration of the trade is of no importance; the fact that various badges of trade attached to the transaction had rendered the profit therefrom taxable; (B) the words any property acquired for the purpose of profit-making by sale prove that profits made from the sale of any property acquired with the intention of profit-making by sale (and appellant had admitted to this in his witness) are profits arising from trade or business, even where transactions are isolated; (C) profits arising from a profit-making undertaking (appellant had divided the plot into 37 smaller parts) are deemed to arise from trade or business.
Case no. 136 cited by appellant was irrelevant because it concerned a company that was forced to sell immovable property acquired by datio in solutum. The present case was not "a transmutation of one item of capital into another" because it concerned a plot that had been acquired with the purpose of making a profit.
The Board held that the transaction was indeed an isolated one, however enough badges of trade attached to it (the size and nature of the property; the processing involved; the very brief interval of time between purchase and sale), rendering it taxable
Appellant had also admitted that the transaction had been entered into with the purpose of "doing business".
The merits of the case were not the same as those in Court case no. 136 because appellant had not been forced in any way to sell the property in question. The surplus was not simply "a transmutation of one item of capital into another".
The withdrawal of the appeal by the Commissioner had been explained to the Board's satisfaction and this fact could not impinge on the decision whether the transaction was of a trading nature or not.
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