030-NLR-NLR-V-67-LILIY-H.-RAM-ISWERA-Appellant-and-THE-COMMISSIONERO-F-INLAND-REVENUE-Responde.pdf
[In the Privy Council]
Present: Lord Reid, Lord Morris of Borth-y-Gest, Lord Pearce,Lord Donovan, and Lord PearsonLILY H. RAM ISWERA, Appellant, and THE COMMISSIONER OF
INLAND REVENUE, Respondent
Privy Council Appeal No. 31 oe 1964
8. C. 3 of 1962— Income Tax Case Stated BRA 303
Income tax—“ Adventure or concern in the nature of trade ”—Purchase of land—Subsequent blocking up of the land and sale of the blocks—Reservation of oneblock for purchaser—Profits derived from such transaction—Assessabrilityto income tax.
The appellant wishad to put up a house naar a Convent School which herchildren were attending. She found a building site of about 2 acres for saleaaid tried to buy a part of it. But the owner was only willing to sell the siteas a whole. The appellant therefore entered into negotiations with the vendorfor the purchase of the whole land for Rs. 450,000. A.s the full sura was nobimmediately available, she divided the land into twelve building lots (excludingsites for the necessary roads). She sold nine lots to sub-purchasers andkept two lots for her own houso and one for reconveyance to the vendor. Itwas arranged that each of the nine sub-purchasers would get a direct conveyanceof his lot from the vendor. The gross profit made by the appellant in respectof the site which she acquired for her own house was R3. 71,765—the differencebetween the price which she actually paid for it and its market value. Onthe not profit she was assessed to income tax for the years 1050/51 and 1951/52on the basis that the whole transaction was “ an adventure or concern in thenature of trade ”.
Held, that the facts and circumstances justified the inference that thetransaction was an adventure or concern in the nature of trade. No doubtthe assessee acquired the part of the site which she retained as a capitalinvestment, but in order to acquire it she had to buy, divide, and immediatelyresell tho rest of the site.
“ If, in order to get what he wants, the taxpayer has to embark on anadventure which has all the characteristics of trading, his purpose or objectalone cannot prevail over what ha in fact do9s. But if his acts are equivocalhis purpose or object may be a very material factor when weighing tho totaleffect of all the circumstances. ”
f PPEAL from a judgment of the Supreme Court reportedin (1962) 65 N. L. R. 393.
E. F. N. Qratiaen, Q.C., with Neil Ellis and Sir Learie Constantine,for the Assessee-Appellant.
H. H. Monroe, Q.C., with R. K. Handoo, for the Respondent.
Cur. adv, vult.
LX vii—6R 6846—1,855 <6/ 5)
March 30, 1965. [Delivered by Lord Reid]—
This is an appeal from a judgment of the Supreme Court of Ceylonwhich answered in the affirmative the question in a case stated by theBoard of Review under section 78 of the Income Tax Ordinance. Thequestion was whether in the facts and circumstances proved in the casethe inference that the transaction in question was an adventure orconcern in the nature of trade was justified. The case arises out ofassessments to income tax for the year 1950/51 and 1951/52 made onthe late Mr. Ram Iswera in respect of profits made by his wife, thepresent appellant.
The facts are set out in the case stated and their Lordships need onlyset out briefly those which are important. In and after 1950 the presentappellant, her late husband and their five daughters were living atHulftsdorf, Colombo. Four of their daughters were attendingSt. Bridget’s Convent School in Alexandra Place, and the appellantwished to move to a house nearer the school. She found out that therewas a building site of about acres for sale in Alexandra Place closeto the school and tried to buy a part of it. But the owner was onlywilling to sell the site as a whole.
The appellant then entered into negotiations for the purchase ofthe whole site but she did not have large sums immediately available.She owned certain houses in Colombo but they could not be readilysold as she could not give vacant possession. But on 3rd March 1951she made an agreement with the owner of the site to buy it for Rs. 450,000.She had to pay immediately a deposit of Rs. 45,000 and to pay thebalance of Rs. 405,000 on or before 20th April 1951, and it was providedthat, in the event of her failing so to pay the balance, the deposit ofRs. 45,000 should be forfeited to the vendor as liquidated damages.Under the agreement she was further bound to reconvey a site of60 perches to the vendor and to make the necessary roads at her ownexpense.
The appellant borrowed the amount of the deposit by two loans andshe then caused a plan of the site to be prepared. This showed twelvebuilding lots as well as sites for the roads and she or her husband foundpurchasers for nine of these lots. She kept two lots for her own houseand one for reconveyance to the vendor. It was arranged that eachof the nine sub-purchasers would get a direct conveyance of his lot fromthe vendor.
The prices paid by the nine sub-purchasers amounted in all toRs. 434,725 and out of this the balance of Rs. 405,000 was duly paid,so the result was that the appellant only had to find Rs. 15,275 of herown money and that she got the site for her house. The market valueof that site at the time was Rs. 87,040. The assessments under appealare based on the view that the whole transaction was an adventure orconcern in the nature of trade, and that the site purchased by theappellant for her house must be brought into the computation of profit
from such adventure at its market value. A gross profit of Rs. 71,765was thus brought out. It was agreed by the appellant without prejudiceto the question of liability, that the net profit was Rs. 66,331. Theground of appeal is that this transaction was not an adventure orconcern in the nature of trade.
This was an isolated transaction and it is not disputed that in orderto determine its nature it is necessary to have regard to all the relevantfacts and circumstances. The case is unusual in that on the one handthere are here many of the ordinary characteristics of trading whileon the other hand the result was that the appellant, in addition tomaking a profit, obtained what she had been seeking—an opportunityto reside near her daughters’ school. There appears to be little authoritydealing with a case of this kind and the appellant relied on the judgmentof Centlivres, C. J. in Commissioner of Inland Revenue v. Paul. In thatcase the taxpayer had been looking for a small holding of 30 or 40 acres.He found a suitable place but the owner was not willing to sell lessthan 167 acres. In 1946 he bought and paid for this larger area. TheSpecial Court for Income Tax Appeals in a case stated accepted thetaxpayer’s evidence that he intended to sell off the land which he didnot want to best advantage—at a profit if he could. At various timesduring the next seven years he sold twelve lots and he was assessed toincome tax on a profit of £758 in respect of three sales in 1953. TheSpecial Court held—“ There seems no room for reasonable doubt that theappellant’s intention in acquiring the property originally was what hestated in evidence, and, that being so, we are unanimously of the viewthat he intended to make a capital investment. We are also satisfiedthat at all relevant times his object was to sell the surplus over andabove his own requirements and to do so at a profit if he could. Itseems to us that, had he been in a position to sell the surplus in oneblock in a single transaction, such a transaction would probably not haveattracted the notice of the Receiver of Revenue. But the fact that hehas seen fit to divide the land and sell it off in parcels, and to variouspeople, over a number of years not unnaturally gives rise to the notionthat he is making a business of it. It seems to us, however, that thisidea is sufficiently rebutted by his own evidence and also by . . . (factswhich the Appellate Division held to be irrelevant)”.
Centlivres, C.J. said after citing these findings “ There is no evidence toshow that when the respondent bought the 167 acres he did so becausehe had decided to embark upon the business of a land-jobber . . . Thereal question in this case is whether no reasonable person could havearrived at the finding of the Special Court that the respondent * intendedto make a capital investment ”… there is no right of appeal froma Special Coud on a question of fact. The question whether a personbought a property for a specific purpose is a question of fact and inno sense a question of law . . . The evidence read as a whole showsthat the respondent bought the whole of the 167 acres because he wishedto carve out of those acres a small holding for himself of about 30 to40 acres and not because he had a speculative purpose of reselling thesurplus land at a profit
Their Lordships do not doubt the correctness of that decision butit does not assist the present appellant. Clearly she did not buy thewhole site as a capital investment . It was an essential part of her planthat the greater part of it should immediately be sold to sub-purchasersbecause without the money paid by them she could not have found themoney to pay the balance due to the vendor. No doubt she acquiredthe part of the site which she retained as a capital investment but inorder to acquire it she had to buy, divide, and immediately resell therest of the site.
The Board of Review, after setting out in their decision facts whichthey considered relevant, said “ in these circumstances, it seems necessaryto determine the dominant motivation, and ascertain whether thismotivation connotes an adventure in the nature of a trade Thenthey examined the facts from that point of view', and they concluded :“ We therefore feel that although Mrs. Ram Iswera may have beenmotivated by a desire to leave her home at Hulftsdorf and reside ina house near St. Bridget’s Convent, nevertheless the dominant motivationof the transaction w'hich she ultimately undertook appears to us tobe a blocking up of the premises and the selling of these blocks so asto make a profit on the transaction and obtaining a block for herselfbelow the market value ”.
The judgment of the Supreme Court was delivered by Sri SkandaRajah, J. Having said that it is the total effect of all relevant factorsand circumstances that determines the character of the transaction,he said : “ What is the * total impression ’ or c picture ’ that these factswould leave on the mind of any reasonable person ? Having consideredall these matters in conjunction with the evidence that Mrs. Ram Iswerahad a desire to live near St. Bridget’s Convent for the sake of educationof the four girls attending that institution, the Board of Review arrivedat the conclusion that the dominant motive or intention was not thisdesire of hers and that the transaction presented a * picture ’ of anadventure in the nature of trade He then dealt with matters whichdo not appear to their Lordships to be relevant and concluded thatthe order of the Board of Review indicated that they had applied therelevant legal principles correctly.
It may seem that too much emphasis has been put on motivation,but that is probably due to the nature of the argument submitted forthe appellant. Before their Lordships, Counsel for the appellant camenear to submitting that, if it is a purpose of the taxpayer to acquiresomething for his own use and enjoyment, that is sufficient to showthat the steps w hich he takes in order to acquire it cannot be an adven-ture in the nature of trade. In their Lordships’ judgment that is goingmuch too far. If, in order to get what he wants, the taxpayer has toembark on an adventure which has all the characteristics of trading, hispurpose or object alone cannot prevail over what he in fact doe3.
But if his acts are equivocal his purpose or object may be a verymaterial factor when weighing the total effect of all the {circumstances.
In the present case not only has it been held that the appellant’sdominant motive was to make a profit, but her actions are suggestiveof trading as regards the greater part of the site which she bought. Shehad to and did make arrangements for its subdivision and immediatesale to the nine sub-purchasers before she could carry out her contractwith the vendor of the site. The case may be a borderline one in thesense that the Board of Review might have taken a different view ofsome of the evidence. But, on the facts as found by the Board, theirLordships find it impossible to hold that in law they were not entitledto reach their conclusion.
Their Lordships will therefore humbly advise Her Majesty that thisappeal should be dismissed. The appellant must pay the costs ofthe appeal.
Appeal dismissed.