Gopaul Estates Ltd v Board of Inland Revenue
| Jurisdiction | Trinidad & Tobago |
| Judge | Kelsick, C. |
| Judgment Date | 24 June 1968 |
| Court | Tax Appeal Board (Trinidad and Tobago) |
| Docket Number | I. 88 of 1967 |
| Date | 24 June 1968 |
Tax Appeal Board
Kelsick, C.; Burke, M.; Waterman, M.
I. 88 of 1967
W.J. Alexander and S.B. Dolsingh for appellant.
A.T. Warner (Assistant Solicitor General) and Cox for respondent.
Revenue law - Income tax assessment — Whether land sale an artificial transaction.
On 1st June, 1962, the appellant company, referred to as “the Company”, submitted their income tax return for the former year of assessment 1961, showing a loss of $45,220.11. $25,004.01 of this sum represented the alleged loss on the sale of 179,246 square feet of lands during 1960 as follows:–
| Land Sales | $124,666.40 |
| Less cost of sales | 149,670.41 |
| Loss for year | $ 25,004.01 |
On 29th December, 1966, the respondent (hereinafter called “the Revenue”) assessed the Company to tax in the sum of $13,618.40 on a chargeable income of $34,046 for the year of assessment 1961.
The Company has appealed against this assessment on the following grounds:–
(1) The assessment is excessive and cannot be supported having regard to “the evidence” (sic “the facts”);
(2) The assessment is arbitrary and erroneous, in point of law, in that the Commissioners exceeded their powers in disregarding the actual cost and/or value of the land.
A statement of case was filed by the Revenue, to which there was no answer by the Company. Paragraph 9 of the statement of case as amended by leave of the Court reads:
“The Commissioner deems the transactions referred to in paragraph 3 hereof to be artificial and is of opinion that they reduce the amount of tax which should have been payable by the Company for the following reasons:
(i) The transactions are non-arms length as (it is) between two related parties i.e. Mr. Gopaul controls the affairs of Gopaul Estates Ltd. (Note shareholdings and articles of association mentioned previously in this report).
(ii) The price for which the land was sold, $1,167,000, is in excess of what would have been paid if Mr. Gopaul had sold it to an unrelated person. The actual cost or fair market value of the two parcels of land at the dates they were sold was estimated to be $478,000 by an experienced government valuator.
(iii) The cost of the land, excluding development cost, sold in 1960 should have been 30.4¢ per square foot ($478,000 – 1,570,385 sq. ft.) and not 74.3¢ per square foot ($1,167,000 – 1,570,385 sq. ft.) which latter price reduces the amount of tax payable.”
When the appeal was called on for hearing, relevant documents, from the income tax return and supporting accounts, were admitted in evidence through counsel for the Company. Included among these were the memorandum and articles of association of the Company.
From the documentary evidence now before the Court the following material facts are apparent.
The Company is a private company, which was incorporated in December 1957, with an authorised capital of $1m. divided into $1,000 shares, 800 of which are ordinary, and 200 preferential. Among its objects are the trading in, and development of, lands for building purposes.
The original subscribers to the memorandum and articles of association, to each of whom was allotted one share, were Hubert Vincent Gopaul, referred to in this ruling as “Gopaul”, and Sylvia K. Gopaul; and Ramnarace Maharaj and Narine Baldeosingh. Under the articles of association of the Company Gopaul is the Chairman of the Board of Directors and Managing Director for life. As such, he is entitled to a second or casting vote at meetings of the Board of Directors and at general meetings of the shareholders.
A few days after the incorporation of the Company, Gopaul transferred to it 23 acres and 16 perches of land at Marabella, the consideration for which was, 567 fully paid up ordinary shares in the Company.
In March 1958, the authorised capital of the Company was increased by the addition of $500,000 divided into 500 ordinary shares; and in the following month Gopaul transferred to the Company another area of land at Marabella of the extent of 20 acres 1 rood 12 perches in return for 600 ordinary shares in the Company.
Without, or before calling any oral evidence, counsel for the Company made the following submissions:
(1) The Commissioner misconstrued the meaning and misconceived the purpose and intention of section 34(1).
(2) The Commissioner misdirected himself in law. He failed to address his mind to the legal form and nature of the transactions and to the legal principles involved; and if he did address his mind he misconceived the form and nature of the transaction and acted on erroneous principles.
(3) The Commissioner misdirected himself in law in formulating his decision on the basis, as he alleges that the price is high, and the transaction was therefore, and must be, necessarily artificial.
(4) The Commissioner erred in law in coming to the conclusion that if the price, as he alleged, was inflated, he had power merely on that ground to disregard the transaction as being artificial within the meaning of the section. The Commissioner misused his powers under the section by disregarding the price and substituting his own arbitrary valuation of the property.
(5) This purports to be an assessment for the year of assessment 1961 based on income received in the year 1960. He said he was making the submission for what it was worth that the Commissioner cannot go back to 1957 or 1958 to consider any transaction that took place then.
(6) Despite the provision of s.43E(2) of the Ordinance the onus is on the Revenue to show that the transactions are artificial.
It is convenient here to draw attention to the following aspects of the procedural law governing this anneal.
The onus of proving that the assessment (or other decision complained of) is excessive is on the appellant (s.43E(2) of the Ordinance); so that any facts relied on by the Company must be affirmatively established by it.
As no answer was filed by the Company the statement of case is not conclusive as to the matters therein set forth, either against the Company or Revenue (rule 29(2) of the Appeal Board Rules, 1967).
Counsel for the Revenue emphasised that he was insisting on his procedural rights, including the right to call evidence on behalf of the Revenue; which he was not prepared to waive; and that it was for the company to make out its case and to take objection to the valuation by the Revenue when it is submitted.
Besides the facts outlined above, there are other material allegations of fact made in the statement of case, and though these are not conclusive against either party, we must, for the purpose of ruling on the submissions made on behalf of the Company, assume that these allegations could be substantiated by evidence and that they are true. These allegations are:–
(a) that the original subscribers to the memorandum, and articles of association of the Company were related to Gopaul as follows: Sylvia K. Gopaul was his wife, Ramnarace Maharaj, his father-in-law, and Narine Baldeosingh, his son-in-law;
(b) that the saleable area of the land acquired from Gopaul was 1,570,385 sq. ft.;
(c) that the cost of developing this area was $145,684.05 or approximately 9.24 cents per sq. ft.;
(d) that while the face value of the shares of the Company for which the two parcels of Gopaul's lands were exchanged was $1,167, 000 or 74.3 cents per sq. ft., at that time the fair market value thereof was $478, 000 or 30.4 cents per sq. ft.;
(e) that 179,246 sq. ft. of land were sold by the Company in 1960, and in arriving at its profit for these sales the Company deducted the cost to it of the said land when undeveloped at 74.3 cents per sq. ft., which amounted to $133179.78.
On these facts the Revenue claimed to be entitled to alter the actual expenditure incurred by the Company in respect of the land sold in 1960 from $133,179.78 to the figure of $54,490.78, representing a cost of 34.4 cents per sq. ft. In so doing they relied on s. 34(1) of the Income Tax Ordinance, Ch. 33. No. 1 which reads:–
“34.(1) Where the Board is of opinion that any transaction which reduces or would reduce the amount of tax payable by any person is artificial or fictitious, …… the Board may disregard any such transaction …… and the persons concerned shall be assessable accordingly.”
The Revenue were of opinion that the purchase of the two parcels of land from Gopaul were artificial transactions which reduced the amount of tax payable by the Company for the reasons that –
(a) the transactions were not at arms length since Gopaul exercised control over the Company;
(b) the purchase price of the lands was in relation to their fair market value, as established by an experienced valuer, highly inflated and unrealistic;
(c) by claiming an outgoing or expense based on the value of the shares exchanged for the land and not on their fair market price, the amount of tax payable by the Company was reduced.
It will be convenient first to gave a ruling on the Company's fifth submission which is tantamount to a contention that the Revenue are estopped from contesting the value of the shares accepted by them in making assessments on the Company in previous years. We need look no further to reject this argument than the leading case of I.R.C. v. Sneath 17 T.C. 149, in which the Court of Appeal decided that a decision, even of the Special Commissioners on appeal, in respect of a previous year of assessment, did not operate as an estoppel or res judicata in relation to an assessment of the same taxpayer in a later year. There, on an assessment to super tax, deductions, which had in previous years been allowed, were held to have been lawfully disallowed by the assessing commissioners and, on appeal, by the Special Commissioners.
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