Abed v The Commissioner of Inland Revenue
| Jurisdiction | Barbados |
| Judge | Husbands, J.,Belgrave, J. |
| Judgment Date | 15 June 1989 |
| Neutral Citation | BB 1989 CA 2 |
| Docket Number | Civil Appeal No. 18 of 1988 |
| Court | Court of Appeal (Barbados) |
| Date | 15 June 1989 |
Court of Appeal
Husbands, J.A.; Belgrave, J.A.; Husbands, J.A.
Civil Appeal No. 18 of 1988
Mr. J.S.B. Dear, Q.C., and Mrs. D. Williams for the appellant.
Miss J. Edwards and Mr. C. Greaves for the respondent.
Revenue law - Whether profit derived from appellant's sale of land is taxable as income derived from trading or an adventure in the nature of a trade.
On the 29th August, 1980, the appellant paid a deposit of $80,000 on a parcel of land to be purchased from Manning Wilkinson and Challenor Ltd. The Agreement for Sale was drawn up and dated 19th September, 1980. According to the Agreement the balance of the purchase money ($720,694.84) was to be paid on or before 30th December, 1980. It was in fact paid in February 1981. That same month the appellant accepted an offer of $1,050,000 from the Barbados National Bank for the said land. He made a profit of $204,418.00. He claims that the land was bought as an investment and was sold by him only because both the President of the Board of Directors and the General Manager of the Barbados National Bank led him to believe that the Government of Barbados would acquire the land compulsorily on the Bank's behalf if he refused to sell it. The Commissioner of Inland Revenue was not persuaded by this representation and assessed him on the profit as income derived from trading or an adventure in the nature of a trade. He appealed to the Income Tax Appeal Board. The Board heard evidence from the appellant and Mr. Lewis, the President of the Barbados National Bank and having heard counsel allowed the appeal. The Board's reasons for its decision were stated concisely and may with advantage be reproduced here —
“4. The facts are largely not in dispute (according to Mr. Dear), although it is the interpretation of those facts that gives rise to the dispute here.
5. The transaction here involved the purchase by the appellant from Manning Wilkinson and Challenor of the property in question located at Fairchild Street, Bridgetown, in September 1980 for the sum of $800, 000. Subsequently, the appellant was approached by Mr. Harcourt Lewis, the then President of the Barbados National bank in connection with the same property and accommodation therein for the Barbados National Bank. Later (about 1 month) Mr. Lewis informed the appellant that the Barbados National Bank wanted to buy the property, but the appellant was not interested, as he had plans for the property, that is, development as a block of offices. The Barbados National Bank told the appellant that the Government could use its compulsory acquisition powers under the law to acquire the property. After confirming same with his legal adviser, the appellant finally decided he had little opportunity but to agree to sell the property to the Barbados National Bank. The price was finally agreed at $1,050,000.
6. Hence the instant dispute arose re taxable profits from a trade or adventure in the nature of trade, and non-taxable gains from a realisation or conversion of an investment. The “badges of trade” are set out in paragraph 116 of the Report of the Royal Commission for easy identification (See O. P. Ltd. v. Board of Inland Revenue No. 12 of 1968, Trinidad and Tobago. Items 5 and 6 are relevant for our purposes, for example, (5) the circumstances responsible for the realisation, and (6) the motive.
7. It must be borne in mind however that no single test or combination of tests is conclusive. Each case must depend on its own facts and circumstances.
8. The appellant gave evidence on his own behalf, and was corroborated by Mr. Harcourt Lewis above mentioned. They were the only witnesses by the Board.
9. On the application of old principles to the particular facts of this case, and after carefully considering the evidence on behalf of the appellant and the documents bundle in support thereof, the Board is of the unanimous opinion, and we so hold, that the profit in question, that is, the $204 418, was not taxable because it was not income derived from trading or are adventure in the nature of trade, but was a capital accretion derived from the realisation of an investment, and orders that Re-assessment No. 85/R 416 made on the 25th July, 1985 be referred back to the respondent and that a new re-assessment be made in accordance with this decision.”
The Commissioner of Inland Revenue felt aggrieved by the decision of the Board and appealed therefrom to the High Court on the sole ground that the Board had erred in holding that the profit in question, that is to say the $204 418, “was not taxable because it was not income derived from trading or an adventure in the nature of trade.” The appeal was heard by the learned Chief Justice who reviewed the evidence and counsel's submissions and having reminded himself of the provisions of section 60(8)(b) of the Income Tax Act, Cap. 73, which provide that the burden of proof is on the appellant, allowed the appeal. It is from this decision that the appellant appeals to this Court, pursuant to section 61 of the said Income Tax Act.
The background to the matter was summarised by the learned Chief Justice as follows —
“(1) In 1980 Manning Wilkinson and Challenor Ltd. (“the Company”) owned 15,042 square feet of land at Fairchild Street, Bridgetown;
(2) By letter dated July 3, 1930 the respondent, through a firm of estate agents, offered to purchase the land for $601,680.00;
(3) By letter dated August 28, 1980 the Barbados National Bank (“the Bank”) offered to purchase the land from the Company for $850,000 the offer being made subject to Town and Country Planning permission to erect a four storey building on the site;
(4) By letter dated August 29, 1980 the Bank withdrew the offer and gave as its reason that, since issuing the letter dated August 28, one of its clients called the Bank, and indicated that he himself had made an offer to purchase the same land and had recently been informed of the Bank's bid. The letter went on to state that this presented an embarrassing situation for the Bank since it would not wish to be seen to be outbidding any of its own clients;
(5) By letter dated August 29, 1980 the Company wrote to the respondent stating that it had on that date received on his behalf a cheque for $80,000 representing a 10%o deposit on the land which it had agreed to sell to him for $800,000.00. The letter went on to state that the Company would forward the cheque to its attorneys-at-law on Monday morning September 1 with instructions that they draw up the legal agreement for sale;
(6) The amount of the deposit was borrowed by the respondent from the Canadian Imperial Bank of Commerce;
(7) By an Agreement in writing dated September 19, 1980 the Company agreed to sell the land to the respondent for $800,000.00. The Agreement was made conditional on the respondent obtaining permission from the Chief Town Planner to develop the land by the construction thereon of a building to be used for the purposes of a bank and offices. The respondent undertook to make an application to the Chief Town Planner to develop the land as aforesaid immediately after the execution of the Agreement and to pursue the application with all due diligence. The Agreement provided that if no decision was made on the application by December 15, 1980, either party had the right to cancel the Agreement by giving notice in writing to the other at any time after December 15, 1980 and until such notice was given the provisions of the Agreement were to continue to have full force and effect;
(8) By letter dated February 5, 1981 Mr. Dear, Q.C., the respondent's attorney-at-law, wrote to the Bank confirming that the respondent was willing to sell the land to the Bank for $1,075,000 and asked the Bank to let him know as soon as possible if the Bank accepted the offer;
(9) Between February 17 and 18, 1981 a cheque for $720,694 drawn by the respondent on his account at the Canadian Imperial Bank of Commerce and representing the balance of the purchase price due to the Company for the land was presented to that Bank but dishonoured;
(10) On February 19, 1981 another cheque drawn by the respondent on the same account, for a like sum and for the same purpose was debited by the Canadian Imperial Bank of Commerce against that account;
(11) On February 20, 1981 the Bank wrote to Mr. Dear in response to his letter of February 19 confirming that the Bank was willing to pay the respondent $1,050,000 for the land, subject to formal contract. The letter requested Mr. Dear to have the necessary Agreement and documents sent to Mr. King the Bank's general counsel;
(12) On February 24, 1981 there was deposited at the Canadian Imperial Bank of Commerce, to the credit of the same account as that on which the cheques for $720,694.00 had been drawn, a Barbados National Bank cheque for $700,000. The respondent borrowed this amount from the Bank and gave his guarantee and collateral to support the loan.
(13) On March 18, 1981 the respondent agreed in writing to sell the land to the Bank for $1,050,000.
The respondent's story is that he had an arrangement with the Canadian Imperial Bank of Commerce for a loan of $4 million to buy the land and erect a four storey office building. It was, he said, an investment and he intended to keep the building and let out the offices. After he agreed to buy the land he made a plan and submitted it to the Chief Town Planner. He exhibited an undated plan in support of his evidence. The Chief Town Planner indicated his acceptance. He went on to see the officer in charge of rentals for the American Embassy who indicated that the location would be suitable and that the Embassy could rent the two upper floors. Later Mr. Lewis, the Bank's Chairman and President, came into his store and spoke to him. He showed Mr. Lewis the plan and told him...
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