036-NLR-NLR-V-58-COMMISSIONER-OF-INCOME-TAX-Appellant-and-C.-S.-DE-ZOYSA-Respondent.pdf
1956Present: Basnayake, C.J., and K. D. de Silva, J.COMMISSIONER OF INCOME TAX, Appellant, and C. S. DE ZOYSA
Respondent
S. G. 175—Income Tax Case No. 53j22U0jBHA. 236
In the Matter of a Case Stated under Section 74 of the IncomeTax Ordinance (Cap. 188)
Income Tax Ordinance {Cap. 1$8)—“ Trade ”—” Jin-sin ess ”—acquirement of repe-tition of activity—Sections 2, G (I) (a), C (I) (/<).
An isolated transaction does not amount to carrying on or exercising a tradeor business within the meaning of section 6(1) (a) of the Income Tax Ordinanceso os to render the profits of the transaction liable to taxation.
A land owned by the assessee’s wife was requisitioned during fho war, andthe Admiralty erected ten hangars thereon. After tho war, availing himselfof the concession granted by the Admiralty to owners of requisitioned land ofpurchasing the buildings erected thereon, the nssessoe bought nine of the hangarsand mado a profit by re-selling them.
Held, that tho purchase and re-sale of tho hangars did not coino within thoexpression “ trade ” or “ business ” in section 0 (1) (o) of tho Income Tax Ordi-nance. Tho sum, therefore, earned by tho assesses was not liable to tax asbeing profits within tho meaning of section 0(1) {»).
Case staled under Sect ion 74 oi’ Hie Income Tax Ordinance.
31. Tiritclrclitnn, Deputy Solicitor-General, with A. Mahendrarajah.Crown Counsel, and II. L. de Sifra, Crown Counsel, for Appellant.
No appearance for Respondent.
Cur. ado. null.
May 29, 1956. Basnayake, C.J.—
The assessee’s wife owned a four-acre block of land at Boosa and alsoundivided shares in other surrounding lands. These lands had beenrequisitioned during the war and the Admiralty had erected 10 hangarsand some buildings thereon. By the end of 1947 it became known thatthe Admiralty was about to move out of the land. As the policy of theAdmiralty was to give the owners of land on which it had erected buildingstho option of purchasing them, the assessee approached the Senior Sur-veyor of Lands with a view to buying the hangars. He obtained thepermission of the other co-owners of the lands surrounding the four-acre» block to negotiate on their behalf with the Admiralty for the purchase6EVrn
2—J. N. B 61296-1.593 (12/56)
of the hangars, and he also paid them certain sums of money for the surren-der of their option to purchase and the right to damage compensation.His negotiations with the Senior Surveyor were conducted through oneH. W. Gunatilleke of H. W. Gunatillcke & Company Limited, whosebusiness was the purchase and sale of surplus war materials and supplies.
After the assessee had commenced negotiations with the Admiralty,the Ceylon Government acquired the land for the use of the Railway.Thereafter the assessee continued negotiations with the Railway andagreed to purchase 9 of the hangars at R.s. 90,000. The tenth was soldto a third party later. The assessee himself had no money to purchasethe hangars, and H. V. Gunatilleke agreed to arrange the finance oncondition that he received one-third share of the net profits. As hangarswere in great demand in India, Gunatilleke. advertised in the Indianpapers and visited India along with the assessee. 31 any offers werereceived from India but no sale was concluded as the highest, tendererwithdrew his offer after inspection. Ultimately Gunatilleke found aCeylonese purchaser, one T. B. Beddcwela, who agreed to buy the 9hangars for Rs. 28S,000. An advance of Rs. 5,000 was paid and heundertook to pay the balance in instalments but failed to do so. Unableto find the money Gunatilleke gave up the quest retaining for Iiimself thesum of Rs. 5,000 which Beddcwela had paid him as an advance. As theRailway was pressing the assessee for payment, he sought the aid of hisfather, from whom he obtained Rs. 45,000, and the balance Rs. 45,000he obtained from Senator Cyril de Zoysa. He paid the Railway the fullsum of Rs. 90,000 on 15th June 1954. The assessee advertised the saleof the hangars once more, and Beddcwela. the previous defaulting pur-chaser, made a second offer of Rs. 279,000 for a purchaser from Pakistan.The offer was accepted and the sale concluded. A profit of Rs. ISO,000accrued to the assessee out of which he paid Senator Cyril de Zoysa one-fourth share amounting to Rs. 47,250 for the advance made by him.The Assessor agreed to fixing the assessee’s share of the profit atRs. 144,000. It was made up as follows –
Rs.
fth Share of Profit-…141,750
Sale of Corrugated Sheets. .. .20,250
162,000
Its.
Less Retained by* Gunatiiicke . .5,000
Expenses including payment
to co-owners at Boosa . .13,000
18,000
144,000
'J'he assc-ssce’s income was assessed for the i iicomc tax year of assessment194S-.J-9 at Rs. 200,000 and for the. year 104-0-50 at Rs. 200.000. Hewas also assessed for profits tax for the year 1949 at Rs. 200,000. Theassessee appealed against- these assessments on the ground—
{n) that the profits sought to he taxed were in fact capital accretionsand not liable to lax, and
(/,} that (he profits were of a casual and non-recurring nature and there-fore not liable to tax.
The Commissioner of Income Tax fixed the statutory income from thesale of the hangars for the year 194S-49 at. Rs. 144,000 and the profitstax assessment for the year 1949 at the same amount. He allowed theappeal against the assessment for 1949-50. Thereupon the asscssceappealed to the Board of Revic-w. The Board by a majority of two toone decided that the appeal against the income tax assessment for 1948—49should be allowed. The Board also decided that the appeal against theprofits tax assessment for 1949 should be allowed. Thereupon the Com-missioner of Income Tax, who was dissatisfied with the decision of theBoard, applied for a case stated.
The question of law stated for the opinion of (his Court is as follows :—
“ On the facts established in this case, is the sum of Rs. 144,000earned bv the assessee by the purchase and re-sale of hangars liableto tax as being profits falling within the meaning of section G (1) (a)of the Tiic-omo Tax Ordinance ? 55
It. was urged by counsel for the Commissioner that the assessee hadengaged in a trade or business oven though it was one act. of purchaseand sale, and that therefore the profit he made on the sale of the hangarsfell within the ambit of section G (l) (a) of the Ordinance.
It will be convenient, before proceeding further, to examine the relevantprovisions of the Income Tax Ordinance. Section 5 of the Ordinanceprovides that income tax shall subject to the provisions of the Ordinancebe charged in respect of the profits and income of every person for the-year preceding the year of assessment wherever arising in the case of aperson resident in CVylon. Section G (1) defines the expressions " profitsand income5’, “profits”, and “income”. Among other meanings, -these expressions also mean the profits from any trade, business, pro-fession, or vocation for however short a period carried on or exercised.Paragraph (A) of section G (1) excludes profits of a casual and non-rceurringnature from the definition of profits.
“ Trade ” includes every trade and manufacture, and every adventureand concern in the nature of trade ; “ business ” includes agriculturalundertaking. The expression “ trade ” is generally' used in connexionwith the activity of buying and selling Trade is a term of the widestscope. In its widest sense it indicates a way of life or an occupation.It may in certain contexts have an extended meaning so as to includemanufactures as in a law which prohibits offensive or dangerous trades.In ordinary usage it may mean the occupation of a small shopkeeperequally with that of a commercial magnate. For buying and selling tocome within the ambit of the expression “ trade ”, there must be someamount of repetition in the acts of buying and selling. In this connexionit would be appropriate to quote the words of Scrutton L.J. in BrightonCollege v. Marriott
rt In my view, when any person habitually7 and as a matter of contractsupplies money’s worth for full money payment, he ‘ trades ’ withinthe meaning of Schedule D. ”
This idea is elaborated by7 Rowlatt J. in the case of Bickford v. Commis-sioners of Inland Revenue . He say7s :
“ Now of course it is very7 well known that one transaction of buyingand selling a thing does not make a man a trader, but if it is repeatedand becomes systematic, then he becomes a trader and the profitsof the transaction, not taxable so long as they remain isolated, becometaxable as items in a trade as a whole, setting losses against profits, ofcourse, and combining them all into one trade. ”
This view of the meaning of the expression “ trade ” in the IncomeTax Acts runs through the decisions. Here we have something morethan the mere expressions trade ” and ” business ”. These expressionsare used in association with the expression <c carried on or exercised ”.The expression carried on ” implies a repetition of acts®. When theexpression “ trade ”, which even when used by itself implies the conceptof a repetition of acts of buying and selling, is coupled with such wordsas “ carried on or exercised ”, then it is beyrond question that there shouldbe a repetition of acts of buying and selling to constitute trade ”.
In Grainger <0 Son r. Gough ®, Lord Morris said :
“ There can be no definition of the words ‘ exercising a trade ’. Itis only another mode of expressing ‘ carryung on a business but itcertainly carries with it the meaning that the business or trade must bohabitually or systematically exercised, and that it cannot apply7 toisolated transactions. ”
The expression business ” also in a context such as section G (1) (a)means an activity continuously carried on. Hero we have an isolatedtransaction of sale. The appellant sought to take advantage, as he wasentitled to do, of the concession granted to owners of requisitioned land ofpurchasing the buildings erected thereon. It has been repeatedly held in'England that an isolated transaction docs not amount to carrying on or.exercising a trade or business. The decisions on the point aro toonumerous to bo quoted hero ; but I shall content myself with citing thedicta from two of the better known cases.
In tho case of Co mm is-s ione rs of Inland Revenue v. Livingston, and othersVLord Blackburn said :• ■
“ It is well settled that an isolated trading transaction of a simple'character outside a man’s ordinary business does not amount to thecarrying on of a trade within tho meaning of the section so as to renderthe profits of the transaction liable to taxation. They aro casualprofits which do not form part of his regular income. ”
In Pickford v. Commissioners of Inland Revenue (siijira), Sargant L.-J.said (at page 275) :
“ It seems to me perfectly simple and straightforward to come tothe conclusion that one transaction was not in itself a carrying on ofa trade or business, ….”
Learned counsel for the Commissioner of Income Tax urged that if thetransaction in question was not a trade or business it was an adventureor concern in the nature of a trade as contemplated in the definition oftrade. For anything to be in the nature of a trade it must have thocharacteristics of “ trade ”. As I have said earlier “ trade ” involves arepetition of activity, and an adventure or concern in which there is norepetition of acts cannot be said to be in the nature of trade.
, In the case of G'ommissio?iers of Inland Revenue v. Livingston <0 others(supra), Lord President Clyde said (at page 542) :.
“ I think the profits of an isolated venture, such as that in whichthe respondents engaged, may be taxable under Schedule D providedtho venture is ‘ in the nature of a trade I say ‘ may be’ becausoin my view regard must be had to the character and circumstances ofthe particular venture. If the venture was one consisting simply inan isolated purchase of some article against an expected rise in priceand a subsequent sale it might bo impossible to say that the venturewas ‘ in the nature of “ trade ” * ; because the only trade in the natureof which it could participate would be the trade of a dealer in sucharticles, and a single transaction falls as far short of constituting a 'dealer’s trade, as the appearance of a single swallow docs of making asummer. ”
i 11 T.C. o-3S at 5 tO.
•It 13 clear from the decisions I have quoted that the purchase and saleof the hangars in the instant case does not come within section 6 (1) (a). –
There is another fact that must not be overlooked in a considerationof section 6 (I) of our Ordinance and that is that paragrapli {h) excludes-“ profits of a casual and non-recurring nature ” from the definition of“ profits ” or “ income
•I am of opinion that the Board of Review is light in their decisionthat the asscssee’s profit is not liable to tax, and I would accordinglystate my opinion in answer to the question that on the facts establishedin the case the sum of Rs. 144,000 earned by the assessee by the purchaseand re-sale of hangars is not liable to tax as profits coming within theambit of section 6(1) (a) of the Income Tax Ordinance.
There will he no costs as there- has been no appearance for therespondent.
K. D. he Sir.VA, J. — I agree.
Appeal dismissed.