Ranchhod Morar Mistry v Commissioner Of Taxes (Appeal No. 11 of 1970) [1971] ZMHC 17 (3 March 1971)

RANCHHOD MORAR MISTRY v COMMISSIONER OF TAXES (1971) ZR 104 (HC) HIGH COURT BARON J I 3RD MARCH 1971 20 (Appeal No. 11 of 1970) Flynote Income tax - Tax Review Board - Finding of fact - Whether High Court can interfere on appeal. Income tax - Adventure in the nature of trade - Block of flats built and sold 25 at profit - Intention of developer at time of committing capital - Onus. ■ Headnote The appellant was assessed to income tax on profit made on the sale of three blocks of flats built on two adjoining plots. The assessment was confirmed by the Commissioner and the appellant's appeal to the Tax Review Board was dismissed. He appealed to the High Court on the 30 ground that the Board had failed to take into consideration the change in the intention of the appellant from renting to selling the property. Held: ■ I (i) A transaction is "an adventure in the nature of trade", even though isolated. 35 (ii) A developer is liable to tax on profit, if, at the time he committed his capital, he had formed the intention to resell at a profit. (iii) If a taxpayer claims that the purchase or development of property was for the purpose of investment and that his decision to sell was made subsequently, the onus is on him to show such 40 change of intention. ■ (iv) The finding by the Tax Review Board about the intention was a finding of fact with which an appellate court could not interfere unless the finding was reached without evidence or on a view of the facts which could not reasonably be entertained. BARON J (v) An appeal to the High Court from the Tax Review Board under s. 109 of the Income Tax Act 1966 is not by way of re-hearing; the board should make any necessary findings of fact and such findings are not appealable; a fortiori the court has no power to make a I finding of fact even if the parties so require. 5 1971 ZR p105 Cases cited: (1) Thew v South West Africa Co. Ltd 9 T. C. 160. (2) Edwards v Bairstow [1955] 3 All ER 48 . (3) CIR v Hepker 1933 AD 192. I (4) Ochberg v CIR 1931 AD 215. 10 (5) CIR v Milstein 11 S. AT. C. 279. Legislation referred to: Income Tax Act, 1966, ss. 17, 109, 110 (1). Tax Review Board Regulations, 1967, s. 15. AWW Cobbett - Tribe, Peter Cobbett - Tribe & Co., for the appellant. 15 R L. Williams, Assistant Senior State Advocate, for the respondent. Judgment Baron J: The appellant was assessed for the year ended 31st March, 1969, on, inter alia, the profit made on the sale of three blocks of flats built on two adjoining plots. He objected to the assessment, which was however confirmed by the Assistant Commissioner of Taxes; his 20 appeal from this confirmation to the Tax Review Board (to which I will refer hereafter as the board) was dismissed, and he now appeals to this court. ■ ■ ■ An appeal by a taxpayer to the board is governed by s. 109 of the Income Tax Act 1966 (the Act) and the Tax Review Board Regulations 25 1967 (the Regulations); the latter set out the procedure on the hearing and determination of an appeal, and include provisions concerning the calling of witnesses, the admissibility of evidence and the power to require the attendance of witnesses and the production of books and documents. Section 110 (1) of the Act provides that either party to an appeal to the 30 board may appeal to the High Court "on any question of law or question of mixed law and fact but not on a question of fact alone". Neither the Act nor the Regulations says in terms that the board must make findings of fact and record them, reg. 15 merely says that the board shall give the grounds of its decision. But it is clear from s. 110 (1) 35 of the Act that an appeal to the High Court is not by way of re-hearing, and the intention of the legislature expressed in the Act and the Regulations was equally clearly that the board should make any necessary findings of fact and that such findings should not be appealable. The record of this hearing is an account of the submissions made on 40 behalf of the parties, and of answers to questions put by the board to the appellant and his representative. The record concludes with the statement that the board decided to reject I the appeal, while the order under reg. 15 10 ■ ■ ■ 1971 ZR p106 I ■ ■ BARON J gives the grounds for the dismissal of the appeal as "change of intention not satisfactorily proved". There is no other finding of fact, and no other ground given for the decision. The appeal to this court was first argued before Magnus, J, as he 5 then was, but before he was able to deliver judgment he was appointed to the Court of Appeal and ceased to have jurisdiction in this matter; however, I have the benefit of the notes taken by the learned judge of the argument before him. It was assumed by counsel on both sides that the board had made no findings of fact, and it was suggested that this court, 10 rather than send the matter back to the board, should make findings of fact for the purpose of determining the appeal. I will refer to this suggestion again later; suffice it to say at this stage that in the new I take of the case the question of further findings of fact does not arise. Certain undisputed facts emerge from the correspondence and 15 submissions presented to the board. The appellant, who was at all material times a draper, and for whom this was an isolated transaction, purchased two adjoining plots of land, on the 17th May and the 31st August, 1966, respectively, for the purpose of building blocks of flats; he paid a total of £1,158. Building operations commenced on the 15th November and were 20 completed on about the 12th April, 1966. Ten flats were built, in three blocks, two containing three bedrooms and eight containing two bedrooms. The appellant's total outlay, including the cost of the land, was £36,568. On the 8th March, 1967, negotiations for the sale of the whole property to the Central Electricity Supply Corporation were commenced and the 25 sale was completed on the 26th April, 1967, at ■ a price of £47,500. Three nephews of the appellant purchased their own properties and went into occupation thereof in or about October, 1966; a saleswoman employed by the appellant acquired her own property and refused to move into one of the appellant's flats. These 30 facts are common cause. The issue between the parties is what was the appellant's intention at the relevant time, because this intention affects (although it is not conclusive of) the question whether this was an adventure in the nature of trade. In his written objection to the assessment, and in his submissions to the board, the appellant stated that his intention 35 in building the flats was to provide accommodation for his three nephews (who all worked in his business) and the saleswoman, but that after completion of the flats they all decided that it would be better for them to own their own property. He said that for this reason he changed his original intention of renting the property and decided to sell it. In answer 40 to questions by members of the board the appellant said that he had built ten flats rather than four because it was more economical to do so, that no attempt had been made to obtain tenants for any of the ■ ■ ■ I flats because light and water were still to be installed, and that his nephews and saleswoman decided when they saw the flats that they were too small; 45 but he admitted that they had all seen the plans. The board dismissed the appeal on the ground: "change of intention not satisfactorily proved". Although on the face of it this is not expressed as a finding of fact, it cannot be anything else in the particular circumstances. It would, of course, have been better if the board had set out its ■ 1971 ZR p107 BARON J findings in clear and explicit terms, but the fact that it has not done so does not prevent what has actually been said from being a finding of fact. In Thew v S. W. A Co. Ltd (1) Pollock, M. R said: "The facts are not for us; the facts are for the Commissioners who had the case before them. The I Commissioners found the facts in their paragraph 21. I wish myself that the Commissioners had found it possible to find the facts more explicitly so as to indicate what their determination was that the Company had done. I have to read that decision and to find in it what their determination was It is implicit rather than explicit." The 10 board's reference to "change of intention" can only be a reference to the appellant's contention that he had originally intended to accommodate four members of his staff and retain the flats as an investment, but had later changed his intention. It is common cause that the appellant later sold the flats; if he did not prove a change of intention this means that 15 he did not prove that to sell was not his intention at an earlier relevant time. Since the onus was on the appellant (s. 105 of the Act) this finding necessarily means that at the relevant time the appellant was found by the board to have intended to sell at a profit. There is today abundant and overwhelming authority in England 20 for the proposition that an isolated transaction may still be an adventure in the nature of trade. In Edwards v Bairstow (2) Lord Radcliffe says at p.58, letter I : ■ ■ ■ "There remains the fact . . . 'this was an isolated case'. But, as we know, that circumstance does not prevent transaction which 25 bears the badges of trade from being in truth an adventure in the nature of trade. The true question in such cases is whether the operations constitute an adventure of that kind, not whether they by themselves, or they in conjunction with other operations, constitute the operator a person who carries on a trade." 30 ■ The Act has given specific effect to these principles. "Income" is defined in s.17 as including "gains on profits from any business for what ever period of time carried on"; and "business' is defined in s. 2 (1) as including "any adventure or concern in the nature I of trade, whether singular or otherwise". 35 If the appellant had admittedly bought the plots in question with the intention of developing them and then selling at a profit, this would incontrovertibly have been transaction which "bore the badges of trade"; and the fact that he had never before dealt in land would not alter the nature of the transaction. The crucial question therefore is the 40 intention of the appellant at the relevant time. On this question there is a finding by the Board, and this finding is one of fact; in CIR v Hepker (3), at p. 196, Stratford, J A, quoted with approval a dictum of Watermeyer, J, in Ochberg v CIR (4): "The question here is whether the appellant bought this land as 45 an investment or with a view to selling it at a ■ profit . . . What his intention was seems to me to be entirely a question of fact. It is to be determined by inference from proved facts and the inference is one of fact and not of law, " ■ 1971 ZR p108 BARON J Notwithstanding the provisions of s. 110 (1) of the Act a finding of fact must be set aside if it was reached without evidence or on a view of the facts that could not reasonably be entertained: Edwards v Bairstow (2). I am however satisfied that In the present case there is ample evidence 5 on which the board could reasonably have reached its conclusion. I observe in particular that, whatever may have been the appellant's intention in May and August, 1966, by the time he started building in November his nephews had already acquired their own properties; hence it was, to put it at its lowest, reasonable for the board to infer that certainly 10 by that time he had already formed the intention to sell. If this were so, it would not help the appellant to prove an intention in May or August to hold the property as an investment; in CIR v Milstein (5) Millin, J, held ■ I I ■ (at p. 293) that the relevant intention was that which the taxpayer had when for the first time he embarked his capital and acquired any legal 15 rights he could turn to profit. In the present case the appellant embarked all but a very small portion of his capital only after October, 1966. If at that time the appellant did not intend to develop his plots for the purpose of making a profit by re-sale he would presumably have re-sold the plots as they stood and avoided risking the very substantial sums he invested in 20 the buildings. It cannot in my view be said that the board "took a view of the facts that could not reasonably be entertained"; the finding of the board is therefore not appealable, and it follows that this appeal must be dismissed with costs. If 25 I be wrong in this view of the case, I see no alternative to sending the case back to the board for the necessary findings of fact to be made The legislature has expressed its intention very clearly that questions of fact are for the board to determine; the reason for s.110 (1) of the Act and similar provisions in other countries has been given in a number of 30 cases, it being said that the members of tribunals such as the Tax Review Board are particularly well versed in matters of commerce and trade. Many judges have questioned the validity of reasoning which suggests that such tribunals are better equipped to come to correct conclusions of fact in these matters than are the courts; nevertheless it remains the 35 expressed intention of the legislature that the court should not intervene on a question of fact; a fortiori, therefore, the court has no power to make a finding of fact even if the parties so request. Appeal dismissed ■ ■ ■