Commissioner of Inland Revenue v Abed

• Jurisdiction: Barbados
• Judge: Williams, C.J.
• Judgment Date: 24 May 1988
• Neutral Citation: BB 1988 HC 44
• Docket Number: No. 940 of 1986
• Court: High Court (Barbados)
• Date: 24 May 1988

High Court (Civil Jurisdiction)

Williams, C.J.

No. 940 of 1986

Commissioner of Inland Revenue

and

Abed

Miss J. Edwards for the Commissioner of Inland Revenue.

Mr. J.S.B. Dear, Q.C. for the Defendant in association with Mrs. Dorothy Williams.

Revenue law - Taxable income — Sale of land — Whether profit made by sale of land is taxable as being income derived from trading or an adventure in the nature of trade.

Williams, C.J.

1 In this summons the Commissioner of Inland Revenue appeals to the Court from a decision of the Income Tax Appeal Board of June 13, 1986 in which they held that the profit of $204, 418.00 made by the respondent Shouket Abed on the sale of a parcel of land at Fairchild Street, Bridgetown, St. Michael, was not taxable because it was not income derived from trading or on adventure in the nature of trade.

2 The appeal is made pursuant to section 60 of the Income Tax Act Cap. 73 subsection (8) (b) of which enacts that the burden of proof is on the appellant.

3 The respondent and Harcourt Lewis testified before the Board and a number of documents were exhibited. These facts are clear:–

• (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, 1980 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 % 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 dishonored;

• (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.

4 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 that he had just purchased the property and was going to build four floors. Mr. Lewis indicated that it was the ideal headquarters for the Bank and later Mr. Lewis and Mr. Symmonds, also from the Bank, said that they would take the lower floors. One month later they told him that they wanted to buy the land. He told them that he was not interested in selling, that A.A. Laquis Ltd. from Trinidad had offered $1,300,000 for the property and he had refused to sell. Mr. Symmonds told him that the Government could ask him to surrender it and offered $950,000 which he refused. He took legal advice and was told that the Government could acquire the property compulsorily and subsequently negotiated a price of $1,050,000 at which he agreed to sell to the Bank.

5 The evidence of Mr. Lewis is that sometime in 1980 he mentioned to the respondent that the Bank was looking for accommodation to relocate its Fairchild Street Branch and the respondent told him about his intention to make office accommodation available to the United States Embassy. He enquired about the possibility of the Bank leasing accommodation in the same building. He asked the Board of Directors to agree to the leasing of this accommodation if it became available. He spoke to the United States Ambassador to try to discover the extent of the commitment of the United States Embassy to leasing the accommodation and she confirmed that the Embassy was interested in accommodation that might become available. The Board was not happy about a Government agency sharing accommodation with a foreign government because of the possibilities that might exist for the foreign government to obtain privileged information from the Bank and it authorised him to examine the possibility of purchasing the land. The Bank had been looking at the land across the road from its Fairchild Street branch for a number of years but when he first spoke to the respondent about office accommodation the respondent did not identify the land about which he was speaking; when he discovered that it was the land across the road from the Bank's Fairchild Street branch, the respondent had already entered an agreement to I purchase the land from the Company. Mr. Lewis stated that the Bank then negotiated with the respondent to purchase the land and in conversation with the respondent he pointed out to him that it was better to co-operate with the Bank and sell the land because if Government really wanted the land they could acquire it.

6 The nature of the problem before the Court is stated in paragraph 109 of the Final Report of the Royal Commission on the Taxation of Profits and Income, C md. 9474:–

“the law has established a distinction between the profit that arises when property has been committed to a trade or “an adventure or concern in the nature of trade” as part of its merchantable stock and is then realised in the course of trading operations and the profit that arises from a realisation of property not so committed. The one is taxable income, the other not. The one is regarded as a detachable surplus arising from a source of income which is one of the sources listed by the tax code, namely, the trade, adventure or concern: the other has no source unless it be the mere fact of realisation and is spoken of as “an accretion of capital”. The conception causes no difficulty in the...