H. N. G. FERNANDO, 8.P.J.—Casie Chitiy v. Commissioner of
1966 Present: H. N. G. Fernando, S.P.J., and Abeyesundere, J.J. G. CASIE CHITTY and 4 others, Appellants, andTHE COMMISSIONER OF INLAND REVENUE, Respondent
S. C. 2jG4—Income Tax Case Stated I BRA 327
Income tax—Profits made from buying and selling estates—Assessability on basis of asingle “ trade ”—Income Tax Ordinance [Cap. 242), s. 73 (6).
Where an assesses carries on a “ trade " in the purchase and sale of estates,the profits made by him from the transactions relating to the purchase andsale of a particular estate and the transactions relating to the purchase and saleof other estates are the profits made from a single trade. In such a case, if,at the stage of the assessee’s appeal under section 73(1) of the Income TaxOrdinance, the income from the purchase and sale of a particular estate iaadded for the first time to the income already assessed in respect of otherestates, there is no necessity to decide whether section 73 (0) doe3 or docs notenable the increase of an assessment on the ground that income was derivedfrom a source not contemplated in an assessment under appeal.
GaSE stated under section 78 of the Income Tax Ordinance.
C. Ranganalhan, Q.C., with S. Ambalavanar, for the executors-appellant.
R. S. Wanasundera, Crown Counsel, with P. Naguleswaran, CrownCounsel, for the respondent.
Cur. adv. wit.
May 8,1966. H. N. G. Febnando, S.P.J.—
According to the case stated under Section 78 of the Income TaxOrdinance, the questions of law for the opinion of this Court are asfollows :—
“ (a) Whether the Commissioner of Inland Revenue or an AuthorisedAdjudicator has the power under Section 73 (8) of the IncomeTax Ordinance to increase an assessment by adding the incomefrom a source not included in the assessment made by theAssessor;
!•—II 8073 (8/87)
H. N. G. FERNANDO, S.P.J.—Caste Chitty v. Commissioner of
(b) Whether the profits made by the late Mr. A. P. Casie Chitty fromthe transactions relating to the purchase and sale of NorthMatale Estate and the transactions relating to the purchaseand sale of Craigingilt Estate, Benveula Estate, BeverleyEstate and Ragala Bazaar are the profits made from a singletrade.”
In the aforesaid question (a) the reference to Section 73 (8) of theIncome Tax Ordinance, hereinafter referred to as the Ordinance, appearsto be erroneous and intended to refer to Section 73 (6) of the Ordinancewhich enables the Commissioner of Inland Revenue to increase anassessment on an appeal.
It is convenient to deal firstly with the question (b) set out in the casestated, and to refer to some of the facts which have given occasion foran answer to that question.
The Appellants in this case are the Executor's of the Estate of oneA. B. Casie Chitty. The deceased had made a return of income for theyear of assessment 1949/50. After his death in November 1952 twoadditional assessments for Profits Tax and Income Tax were madewithin the time limit then applicable under Section 65 of the Income TaxOrdinance. In the second of these assessments the Assessor has statedthat “the trade income of the late Mr. Casie Chitty had beenrecomputed”. The Appellants then appealed against these additionalassessments.
Under Section 73 (2) of the Ordinance the Commissioner referred theAppeals to the Assessor for further inquiries. During this inquiry theappellants agreed that the deceased had carried on a “trade” in thepurchase and sale of four estates, namely, Craigingilt, Benveula, Beverleyand Ragala Bazaar, and that profits therefrom had been Rs. 62,184.During this inquiry also information received by the Assessor led him toconclude that another series of transactions relating to the sale of NorthMatale Estate had also been effected by the deceased, but the appellantsdid not agree with the Assessor’s view of the matter. The Appeal,which after this stage only related to the dispute about the North Mataletransactions, was then referred by the Commissioner to an authorisedadjudicator. The adjudicator then held that the deceased had madeprofits from the transactions of the sale of North Matale Estate andthat the income derived by the deceased from these transactions wasRs. 149,306.
It is common ground that at the stage when the additional assessmentswere made the Assessor was not aware of the North Matale transactionswhich came to his notice only after the appellants had appealed against
H. N. Q. FERNANDO, S.P.J.—Casie Chitty v. Commissioner o]
the additional assessments. The main contention of the appellantsbefore the Board of Review, which contention has necessitated an answerto the question (b) set out in the case stated, has been that the powergiven by Section 73 (6) of the Ordinance for an assessment to be increasedon appeal can be exercised only in respect of sources of income taken intoaccount in the assessments under appeal. On this ground it has beenurged that the transactions relating to North Matale Estate were not asource of income which were subject under the additional assessmentsunder appeal and could not be the basis for an increase of those additionalassessments.
It cannot now be disputed that the deceased did carry on a “trade”in the purchase and sale of estates : indeed this was conceded by theappellants in connection with the transactions concerning CraigingiltBenveula, Bevereley and Ragala Bazaar. In regard to North Matale,the deceased did not in fact purchase the estate. But he had securedan option for the purchase of it by himself or by his nominees, and thefinding of fact by the adjudicator was that although the transactions forthe sale of the estate were not in his name the deceased had in fact, inpursuance of the option secured by him, made profits through the saleof that estate. The North Matale transaction therefore was in factthe fifth transaction (the other four being those relating to the otherfour estates) which the deceased had effected in the course of his “ trade”in the purchase and sale of property. In carrying on such a trade theremay be several transactions but each of those transactions is not aseparate trade, just as each transaction of purchase and sale of groceriesby a grocer is not a separate trade of the grocer. The profits from all thetransactions relating to the five properties were profits from one trade,namely, the trade of purchase and/or sale of property. Accordingly Iwould answer the question (b) in the affirmative, namely, that theprofits from the transactions relating to North Matale, Craigingilt,Benveula, Beverley and Ragala Bazaar are the profits made from asingle trade.
Having regard to the opinion I have just expressed this is not a casein which the authorised adjudicator has in the course of an appealincreased an assessment by taking into account income or profits derivedfrom a source which was not a subject contemplated in the assessmentunder appeal. The “trade” in the purchase and sale of property hadbeen in fact contemplated in the assessments under appeal and it wascommon ground that the deceased had carried on that “ trade
Accordingly there is no necessity in this case to decide whether Section73 (6) does or does not enable the increase of an assessment on the groundthat income was derived from a source not contemplated in an assessment
TAMBIAH, J.—Mvruguu v. Sub ramaniam
under appeal. I do not propose therefore to consider the question (a)set out in the case stated although the Indian decisions referred toin the order of the Board of Review appear to lead to the conclusion thatthat question should receive an answer in the negative.
The appellants will pay to the Respondent a sum of Rs. 525 aacosts.
Ajbbyesundebe, J.—I agree.
E. J. G. CASIE CHITTY and 4 others, Appellants, and THE COMMISSIONER OF INLAND