Industrial and Commercial Investment Ltd v Board of Inland Revenue

• Jurisdiction: Trinidad & Tobago
• Judge: Koylass, C.
• Judgment Date: 15 November 1984
• Court: Tax Appeal Board (Trinidad and Tobago)
• Docket Number: I 9 of 1980; I 35 – I 38 of 1983
• Date: 15 November 1984

Tax Appeal Board

Koylass, C.; Burke, M.; Julumsingh, M.

I 9 of 1980; I 35 – I 38 of 1983

Industrial and Commercial Investment Ltd.

and

Board of Inland Revenue

Appearances:

Bruce Procope, S.C. and S. Shivarattan for appellant

Mrs. M. Robinson-Walters for respondent

Revenue Law - Appeal vs. Assessment of corporation tax and unemployment levy — Whether sale of property should be treated as a disposal of stock in trade the profit of which would be subject to tax as being an adventure in the nature of trade — Evidence that appellant had acquired the property as an investment and only sold it after failure to rent on an acceptable basis — Profit on sale of property therefore a capital gain and not subject to tax.

Koylass, C.

1 These appeals are against assessments to corporation tax and unemployment levy for the years of income 1972, 1975 and 1976. The respondent had refused to accept the appellant's returns and had made best judgment assessments, as under –

Year of Income 1972

A total of $23,519 claimed as expenses incurred on two properties owned by the appellant had been disallowed, thus a loss claim of $13,486 had been converted to chargeable income of $10,033. The total of $23,519 is made up as under –

(a) Expenses of a property at St. Clair – $10,690

(b) Repairs to a property at Queen's Park West – $10,329

(c) Commission re property at Queen's Park West – $2,500

Year of Income 1975

The chargeable income of the appellant was increased by a total of $92,428, thus converting a loss claim of $17,431 to chargeable income of $74,997. The sum of $94,828 comprises –

(a) profit on sale of St. Clair property – 84,628

treated as chargeable income

(b) expenses disallowed – 7,800

Year of Income 1976

Expenses of $13,200 claimed had been disallowed, thus converting a loss claimed by the appellant to chargeable income of $9,760.

The issues we are to determine are as under –

Year of Income 1972

Whether the amounts claimed as expenses in respect of the two properties were in fact expended and, if so, whether they had been incurred in the production of income, and in the case of $10,329 for repairs and $2,500 for commission, both in regard to the property at Queen's Park West, whether the amounts repre– sented capital expenditure.

Year of Income 1975

Whether the sale of the St. Clair property was a transaction in the nature of trade, and whether the sum of $7,800 claimed as accrued expenses on that property had been properly disallowed.

Year of Income 1976

Whether the sum of $13,200 claimed as accrued expenses was an allowable deduction.

2 For the appellant, Alim Khan Juman testified that he had been its Managing Director from its incorporation in 1965. The appellant held no property and did no business until February 1972 when it acquired a vacant property at 2, Queen's Park West at the corner of Dundonald Street (hereinafter referred to as “the Dundonald Street property”) for $100,000. About the same time in 1972, the appellant acquired another vacant property at 9 St. Clair Avenue (referred to hereinafter as “the St. Clair property”) at a cost of about $70,000 to $72,000. Thereafter, the appellant arranged with certain real estate agents to secure tenants for both properties. The efforts of one Lyle Lashley resulted in the Dundonald Street property being rented to Trintoplan Consultants Ltd., about March or April 1972. According to the appellant's accounts, the rent received up to 31st December, 1972 was $11,700.

3 Before being tenanted, certain repairs had been effected to the Dundonald Street property. The walls, floors, doors and roof leaks had been repaired and the building was painted to render it suitable for renting. The glass panes had been cleaned and some replaced. According to the accounts, which had been prepared by the appellant's accountant, Paul Roopsingh, since deceased, the appellant had claimed $11,596.36 for repairs to that property. Also claimed were the following amounts –

House tax	$120.00
Water rate	$60.05
Sewerage rate	$48.00
Commission	$2,500.00

4 He expressed a belief that the commission had been paid to one Max Ferreira, a real estate agent, for services rendered.

5 The following amounts had been expended for the year of income 1972 on the St. Clair property –

Repairs	$6,343.85
House rates	$594.00
Insurance	$69.38
Mortgage interest	$3,600.00
Electricity	$82.80
Total	$10,690.03

6 The witness further stated as under –

7 The documents and books relating to the expenses claimed for both properties, including a general journal, had been destroyed in a fire during the year 1978 or 1979. Certain documents relating to the St. Clair property, which were in files kept by Roopsingh, were located after his death.

8 The mortgage interest of $3,600 had become due on the St. Clair property under a deed of mortgage (exhibit A.K.J.1) in respect of a loan of $48,000 from one Dalton Michael Sinanan, with interest at the rate of 10 per cent per annum from 1st March, 1972. Interest had been paid at the end of June, September and December 1972.

9 Regarding the St. Clair property, he held receipts for –

$594 paid on 5th June, 1974 for house rates for 1972 Exhibit A.K.J.2.

$1,200 paid on 19th September, 1972 for mortgage interest due on 1st September, 1972 – Exhibit R.K.J.3.

$10 paid to Trinidad and Tobago Electricity Commission on 17th February, 1972 for electricity — Exhibit A.K.J.4.

$500 and $450 paid to one Akow for sanding, filling and varnishing floor — Exhibits A.K.J.5 and A.K.J.6, respectively.

10 The floor of the St. Clair property had been repaired, cleaned, filled, sanded and varnished. He also remembered that carpenters, John Broomes, James Smith and several other persons had worked for the appellant. He could not remember who had done the painting or had issued receipts for $400, $250 and $100 for painting done on the building — exhibits A.K.J.7, A.K, J.8 and A.K.J.9, respectively. A balance of $200 had been paid for the painting, but the receipt could not be located.

11 A sum of $7,800 had been paid to Roopsingh in 1975 or 1976 for supervising the building and for keeping the books of the appellant, and the sum of $13,200 had been paid in 1976 or 1977 for the same reasons.

12 Interest in renting the St. Clair property had been displayed by Government, and Mrs. Mohammed, an official of the Organisation and Management Department, had had a look at the property, From a discussion with her, he realised that she had been aware that the City Council had objected to properties in the area being used as offices. At the time of acquisition, the appellant had been unaware of any restriction against the use of the property. We here observe that in cross-examination the witness conceded that he had been aware of the restrictions, but had decided to take a chance with the hope of getting it rented as commercial offices in the course of time.

13 The property had been sold in 1975 for $200,000, as the appellant had not been able to attract a tenant, was earning no income from it, and was experiencing difficulty in maintaining it.

14 In cross-examination he stated as under –

15 At a meeting in 1972, the appellant had taken a decision to start business by purchasing properties for renting. Having purchased two properties, it was decided to rent them for some time before acquiring others. It was important to the appellant that the properties should be rented for commercial use, In answer to a question as to whether the appellant did not, at the time of purchase, have the alternative reason of purchase for re-sale at a profit, his reply was “anything you buy you can sell”.

16 The sum of $2,500 paid to Max Ferreira could have been paid for negotiating the purchase of the Dundonald Street property. He did not recall if one Yussuf Baksh had performed work for the appellant in 1975 or 1976, or whether as at 31st December, 1975, the appellant had owed him the sum of $7,800. Nor did he recall whether one Ashford Khan had worked for the appellant.

17 His daughter, Narissa Juman, had worked full-time for the appellant.

18 She had checked the buildings, collected the rents from the Dundonald Street property and done “general things”. He was not aware that on 31st December, 1976, the appellant had owed her $6,000.

19 If it had become necessary he would pay expenses and instruct Roopsingh of the payments he had made so as to reimburse himself.

20 In re-examination, the witness stated that when the St. Clair property had been purchased in 1972, several buildings in the same locality were being used as offices. of these, one was used as offices by the Organisation and Management Department. Another property was used as a nursing home.

21 Johnson Ramtahal testified that he was a builder and that during the months of March and April 1972, he had done repairs to the Dundonald Street property. He had plastered broken walls, repaired the roof by replacing a few galvanised sheets and applying mastic cement to stop leaks. He had replaced a few rotted flooring boards and doors, repaired wooden windows, fitted new locks and hinges and had done a certain amount of plumbing by way of repairing mal-functioning toilets and leaking water lines, all at a cost of about $4,300, which had been paid to him. He had also done similar repairs to the St. Clair property for which he had charged and had received payment in the sum of $3,500.

22 In cross-examination, he stated that it had taken about four days to repair the roof of the Dundonald Street property and about two months to complete the repairs to the property. He had used sand and gravel in the course of resurfacing a cracked floor in one of the toilets. The floor had been lifted and a new toilet bowl had been fitted.

23 Lyle Lashley, a real estate agent, testified that it was about early 1972 when he had been...