088-NLR-NLR-V-59-C.A.-SPELDEWINDE-Commissioner-of-Income-Tax-Appellant-and-C.S.-DE-ZOYSA-Res.pdf
Spcldcwinde v. De Zoysa
391
[In the Privy Council]
1958 Present:Lord Reid, Lord Tucker, Lord Somervell of Harrow,Lord Denning and Mr. L. M. D. de SilvaA. SPEL.DEWlNDE (Commissioner of Income Tax), Appellant,and C. S. DE ZOYSA, RespondentPrivy Council Appeal No. 3 of 1957
S. C. 175—Income Tax Case No. 53J2260JBRA. 236
Income lax—Income of married woman—Capital accretion—Liability to income tax—
“ Trade ”—Isolated transaction—Taxability of profits therefrom—IncomeTax Ordinance {Cap. 1SS), 55. 2, 6 (1) (a), 21.
Tho facts aro summarised in the judgment ns follows :—
“ Tho respondent’s wifo was owner of a four aero block of land at Boosa, andhad an undivided share in some surrounding Idnd with other co-owners. Theselands wero requisitioned during the war and tho Admiralty erected ton hangarsand other buildings thereon. It was the policy of tho hfaval and Military autho-rities to give owners of requisitioned land tho option of ‘ purchasing ’ buildingserected thereon. If this option was not exercised tho requisitioning authoritycould themselves remove the buildings and pay compensation for any damagedono to tho land.. The respondent came to an arrangement with tho Co-ownersfor surrendering to him their rights in tho option above referred to and theirrights to condensation fordamages. Having this authority as also tho authorityof his wife, for tho land which she owned and for tho other land ho negotiatedwith the authorities and an agreement was coiuo to on 26tli April, 194S, for thohanding over to tho respondent of nine of tho ten hangars for Its. 90,000. About. this timo tho Ceylon Government decided to acquire tho lands for tho uso of a.railway but at tho timo of the agreement tho land was still under requisitionand thoreforo tho property of tho respondent’s wifo and the other co-owners.There was a demand "for thes6 hangars in India and after some troubles thorespondent received Hs. 279,000 for the nino hangars. After agreed deductions ■- this loft a profit of Es. 144,009. ”
302- LORD SOMERVELL OF – HAR R O W~r Speldewinde v. He Zoysa ..
■ Held, that" the eum of Bs. 144,000 was not liable to income tax. Under section – 21 of "the Income Tax Ordinance the*assessable income of a mamed woman’shall'".. be deemed to" be a part of the assessable income of her husband. The assessee’s .wife owned the larger portion of the land on which tho hangars were built.The option to purchase .was an’ accretion^ to the land of the assessee’s wife. „If the assesses had not exorcised tho option arid purchased the hangars ho wouldhave received compensation for tho damage to tho land. Such compensationwould Dot be taxable. The fact that by exorcising tho option he received morothan what he would have received by way of compensation could not renderwhat he received taxable.-.
Obiter : An isolated transaction con, in appropriate circumstances, bo anadventure in the nature of trade within the meaning of section 6 (1) (a) of theIncome Tax Ordinance..
y-
^tPPEAL from a judgment of the Supreme Court reported in 5S N.L.R.
121.
John Senter, Q.C., with R. K. Handoo, for the Commissioner of Income
Tax, appellant.
Sirimevan Amerasinghe, for the assessee-respondent.
Cur. adv. vult.
March 19, 195S.[Delivered by Lord Somervell of Harrow]—
This is an appeal from a judgment of the Supreme Court of Ceylondated 29th May, 1956, dismissing an appeal on a Case Stated by theBoard of Review under section 74 of the Income Tax Ordinance (G. 1SS).Under that section the decision of the Board of Review is final with aproviso that either party may apply to the Board to state a case on aquestion of law.'
The question before .the Board was whether a sum of Rs. 144,000 isliable to income tax as profits within the meaning of section 6 (1) (a) ofthe Ordinance :—
Section 6 (1). For the purposes of this Ordinance, “profits andincome ” or “ profits ” or “ income ” means
(a) the profits from any trade, business, profession, or vocation forhowever short a period carried on or exercised. .
Trade is defined by section 2 :."•.
“ trade ” includes every trade and manufacture and every adventureand concern in the nature of t ade.:
Section C (1) (h) was at one time relied oh but the Case Stated raises only .the issue under 6 (1) (a).– ~— —’ ~-
LORD SOMERVELL OF IT A R R O V—Spci <Jcu-hide v. Dtt Zoysa
393
The position of a court in an appeal by way of Case Stated by the Boardof Review is sufficiently similar to the position of a court here on a CaseStated by Special or General Commissioners to make the English decisionshelpful.•■.
This matter has been recently considered by the House of Lords hiEdwards v. Bairstow That case also dealt with an isolated transaction.The Commissioners had found that the transaction was not an adventurein the nature of trade. A case was stated ; under section 149 of the IncomeTax Act as under section 74 of the Ordinance the appeal could onlysucceed if the court was satisfied that the finding was erroneous in pointof law. The House of Lords reversed the decision of the Commissioners.
Lord Simonds said that the court should interfere if the Commissionershad acted without any evidence or upon a view of the facts which couldnot reasonably be entertained. Lord Simonds in that case failed to findin the facts any item which pointed to the transaction not being anadventure in the nature of trade.
Lord Radcliffe after saying that it was for the courts to lay down themeaning to be given to the words “ trade, manufacture, or concern in thenature of trade ” continued : “ But that being said, the law does notsupply a precise definition of the word ' trade much less does it prescribea detailed or exhaustive set of rules for application to any particular setof circumstances. In effect it lays down the limits within which it wouldbe permissible to say that a ‘ trade ’ as interpreted by section 237 of theAct does or does not exist. But the field so marked out is a wide one andthere are many combinations of circumstances in which it could not besaid to be wrong to arrive at a conclusion one way or the other.” In suchcases the decision is final unless it is clear from some statement in the caseitself that the commissioners have misdirected themselves.
There is some difference of wording between the United Kingdom codeand the Ordinance but the above principles are, in their Lordships’ opinionapplicable and it remains to consider how to apply them to the presentcase. The facts as found may be summarised as follows :
The respondent’s wife was owner of a four acre block of land at Boosa,and had an undivided share in some surrounding land with other co-owners. These lands were requisitioned duringthe war and the Admiraltyerected ten hangars and other buildings thereon. It was the policy of theNaval and Military authorities to give owners of requisitioned land theoption of “ purchasing ” buildings erected thereon. If this option was notexercised the requisitioning authority could themselves remove thebuildings and pay compensation for any damage done to the land. Therespondent came to an arrangement with the co-owners for surrenderingto him their rights in the option above referred to’and their rights tocompensation for damages. Having this authority as also the authorityof his wife for the land which she owned and for the other land honegotiated with the authorities and an.agreement was come to on 2GthApril, 194S, for the handing over to the respondent of nine of the tenhangars for Rs. 90,000. About this time the Ceylon Government decided
[jSoG] A. O. 14.
334. LORD SOMERVELL OF. HARROW—SpMtwinde. v. De Zoysa
to acquire the'lands for the use of a railway but at the time of the agrees– ment the land was still under requisition and therefore the property .of”the respondent’s wife and the other co-owners. There was a demand forthese hangars'in India and after some troubles the respondent receivedIts. 279,000 for the nine .hangars. After agreed deductions this left a' profit of Rs. 144,000. – '’‘-
The respondent .was assessed on this sum and appealed to theCommissioner under section 71 (2) of the Ordinance. The respondent-contended—-'.■
There was really no buying and selling—the improvements accruedto the soil and what’the appellant got was compensation,
>2. This was an isolated transaction and the profits are of a casual and
non-recurring nature.
3.' If 1 and 2 fail, the profit is a capital accretion.
Contention (2) is based on the wording of section 6(1) (a) which no longerhas to be considered although argument was based as will appear on thetransaction being an isolated one. The first contention of the Assessordealt with this point. His second was :.
This was definitely an adventure in trade—the appellant set himself todo this business : section 6 (1) (a) applies. The Commissioner decided thatthe transaction was an adventure in the nature of trade and dismissedthe appeal. In considering the contention that this was a capital accretionthe Commissioner said this could only be based on the respondent’sownership of the land and he wras not the owner. The respondent appealedto the Board of Review which by a majority reversed the Commissioner’sdecision. The Board of Review attached to the Case Stated their reasons.
The majority thought the Commissioner had not given sufficient impor-tance to the fact that the assessee’s wife owned the larger portion ofthe land on which the hangars were built. They referred to section 21 ofthe, Ordinance which provides that the assessable income of a marriedwoman shall be deemed to be part of the assessable income of her husbandexcept rmder certain conditions which did not exist in the present case.
Later they say this :—.
“ the option to purchase was an accretion to the land of the assessee’s
wifeIf the assessee had not exercised the option and purchased
the hangars he would have received compensation for the damage tothe land. Such compensation would not be taxable. The fact that by. exercising the option he has received more than what he would havereceived by way of compensation cannot render what he has received■. taxable.”'.
The word adventure ” suggests a man going out to seek the fortune 'sought to be taxed. Here the materials disposed of had been placed on his :wife’s land and something had to be dono about them. The majority ofthe Board of Review accepted English decisions to wliich they refer as .establishing that an isolated transaction could be an adventure in the -nature of trade. The Supreme. Court disagreed with this and upheld the
BASXAYAKE, C’.J.—Sanuii'twccra c. Jtaiiuytngke
395
decision of the Board of Review on the ground that an isolated trans-action could not be within section 6 (1) (£). On this issue their .Lordshipsprefer the view taken by the Board of Review, although the Board waswrong in so far as they held that for an isolated transaction to be such anadventure, it must relate to an ordinary article of commerce,—linen,brandy, paper and so on. (See Edwards v. Eairslow.) It is however the -other circumstances relied on by the Beard of Review which have ledtheir Lordships to their conclusion that the appeal should be dismissed.They are not deciding that they would necessarily have come to the sameconclusion if they had been sitting as a Board of Review but that there ishere a combination of circumstances in which it could not be said to bewrong to arrive at the conclusion appealed against-
Their Lordships will humbly advise Her Majesty that the appeal bedismissed and the appellant will pay to the respondent the costs of theappeal.
Appeal dismissed.