KOUPATOU ν. REPUBLIC (1987) 3 CLR 975 THE CYPRUS LAW REPORTS

(1987) 3 CLR 975

[*975] 1987 August 29

 

[A. LOIZOU. J.]

IN THE MATTER OF ARTICLE 146 OF THE CONSTITUTION,

SOPHIA N. KOUPATOU,

Applicant,

v.

THE REPUBLIC OF CYPRUS, THROUGH

THE MINISTER OF FINANCE,

Respondent.

(Case No. 1037/85).

Capital gains The Capital Gains Tax Law52/80 - Section 4-There can be no gain, unless there is a disposal - Agreement to sell land made on 31.1.80 rescinded by a new agreement to sell the same as well as some other part of the same plot to the same as well as to an additional new purchaser made on 122.82- First agreement never put into effect-No gain derived therefrom - Respondent rightly concluded that the disposal of the land, subject-matter of the first agreement, took place on 12.2.82.

By an agreement in writing dated 31.1.80 the applicant agreed to sell part of her property (a field comprising of 15 donums and 3 evleks), of an extent of 5 donums and 2 evleks to Messrs. Ch. Tsintides and E. Eliades. On 12.2.82 the applicant entered into a new agreement with Armonia Estates Ltd. and Messrs. Tsintides and Eliades, whereby the said agreement of 31.1.80 was cancelled and the land was sold to Armonia Estates Ltd.

As a result the respondent charged the applicant with capital gains tax taking the view that there was a disposal of property as at 12.2.82, which was subject to tax.

Hence the present recourse. The dispute between the parties concerns the date of disposition of the aforesaid 5 donums and 2 evleks. In this respect counsel for the applicant submitted that the agreement of 12.2.82 is a mere consequence of the agreement of 31.1.80 and, in support of this submission, referred, inter alia, to clause 9 of the agreement of 31.1.80, arguing that Armonia Estates Ltd. were indicated by Messrs. Tsintides and Eliades in. exercise of their right under the said clause to indicate a new purchaser.

Counsel for the respondent argued that the agreement of 12.2.82 is new and self-subsisting its purpose was not to give effect to clause 9 of the first[*976]agreement, but rather to put an end to such agreement, which was never put into effect.

Held, dismissing the recourse: (1) In the light of all the material before the Court, the Court reached the conclusion that the respondent rightly decided that the disposal took place on 12.2.82.

(2)The submission that the gain was derived from the agreement of3l.1.80 is untenable. Indeed, from the wording of section 4 of Law 52/80 it is clear that there can be no gain unless there is a disposal and, as the agreement of 31.1.80 was never put into effect and was later rescinded, there was no disposal as at 31.1.80.

Recourse dismissed.

No order as to costs.

Recourse.

Recourse against the decision of the respondent to charge applicant capital gains tax amounting to £9,555.60 cent accruing to her on the disposal of part of a field situated at K. Paphos.

X. Xenopoulos, for the applicant.

Y. Lazarou, for the respondent.

Cur. adv. Vult.

A. LOIZOU J. read the following V judgment. By the present recourse .the applicant seeks a declaration of the Court that the decision of the Director of the Department of Inland Revenue contained in his letter dated 30th September, 1985, whereby capital gains tax amounting to £9,555.60 was charged on the applicant in respect of the gains accruing to her on the disposal of part of a field comprising of 8 donums and 3 evleks and situate at Vrisoudhia in Kato Paphos, is null and void and with no legal effect.

The facts of the case are not in dispute. The applicant who was the registered owner of the whole field under Registration No. 3036, Sheet/Plan 51/19 plot 5, comprising of 15 donums and 3 evleks entered into an agreement in writing Appendix A to the opposition - on the V 9th December 1978, to sell 7 donums to Armonia Estates Ltd., for £91,000. On the 3lstJanuary, 1980, she entered into a second agreement in writing - Appendix B to the opposition - whereby she agreed to sell a further 5 donums and 2[*977]evleks to Messrs Charalambos Tsintides and Elias Eliades in consideration of one house and twelve flats, ten of which were to be built by the purchasers on the said land and two at a place called Sweet Water (Γλυκύν Νερό).

On the 12th February, 1982, the applicant entered into a new agreement with Armonia Estates Ltd., and Messrs Charalambos Tsintides and Elias Eliades whereby the previous agreement between the applicant and Messrs Tsintides and Eliades was cancelled and the land was sold instead to Armonia Estates Ltd., together with the remaining 3 donums and 1 evlek in consideration of one house and an apartment building which were to be built on the land by Messrs Tsintides and Eliades in consideration of six building plots from Armonia Estates Ltd., - Appendix C to the opposition.

As a result the Director of Inland Revenue charged the applicant with capital gains tax taking the view that there was a disposal of property as at 12th February, 1982, comprising of 8 donums and 3 evleks which was subject to tax.

This imposition of tax was made by virtue of the, provisions of sections 4 and 13 of the Capital Gains Tax, Law 1980 (Law No.52 of 1980) which read as follows:

«4. Subject to the provisions of this Law and the exemptions contained therein, on any gains accruing from a disposal of property, there shall be levied and paid a tax at the rate of twenty per centum on such gains.

13. The Director may at any time, whether the declaration of a disposal of property has been delivered or not, assess the tax payable with regard to the disposal of property and send to the disponer thereof a notice of such assessment.»

The dispute: between the applicant and the respondent concerns the date of the disposition of the 5 donums and 2 evleks of the immovable property described above.

It is the case for the applicant that the agreement of the 12th February 1982 (Appendix C), is the: consequence of the agreement of the 31st January 1980 in accordance with its Clause 9, which provides:

«Upon the signing of this agreement and if asked by the Purchaser the Seller is obliged to transfer and register the said[*978]property except the part in which the flats under items 1A, 1B and 1C and the house will be erected, in the name of the purchaser or any other person or company he might indicate. Concurrently with such transfer the purchaser will furnish a guarantee for the construction and delivery of the flats and house given as consideration of a total area of about 800 sq. m. gross to the seller by way of mortgage of the rest of the property in favour of the seller for the sum of £100,000.

If the purchaser were to ask the cancellation of the mortgage in order to be able to mortgage same as a first mortgage to a financing Bank, then at the same time he will enter into a second mortgage with the seller for a corresponding sum as the initial one. In such a case the height of the mortgage loan by the bank at any time will not exceed 70% of the value of the work performed at the corresponding dates.

Omission or refusal of the seller to lift the first mortgage gives to the purchaser the right to ask from the Court by summary proceedings the immediate issue of an Order cancelling the first mortgage (first mortgage that exists until that moment).»

It was argued that in exercise of their rights under the said clause the purchasers indicated to the applicant the new purchaser as it is set out in the agreement of the 12th February 1982, named therein as Armonia Estates Ltd., and that the applicant signed the latter agreement without making any profit. Moreover she was bound to sign the second agreement because of Clause 14 of the first one as she would have been considered as breaching a fundamental term of that agreement.

It is the submission of the respondent that the subject property was disposed by the agreement of the 12th February, 1982, which as it is evident from its terms, is a completely new and self- subsisting agreement the object and purpose of which was not, as is alleged, to give effect to clause 9 of the agreement of the 31st January 1980, but rather to put an end to such agreement since clause 9 could have been complied with without the need of entering into the agreement of 12th February, 1982, by simply transferring the subject property to Armonia Estates Ltd. The fact that the parties entered into a new arrangement which, apart from being substantially different from the old agreement also introduced a new party to the contract, shows their clear intention[*979]to rescind the old agreement, which was never put into effect -the land remained in the ownership of the applicant and no buildings were ever erected by the other party - and so treat same as abandoned or non-existent. That such was indeed the clear intention of the parties is evident from clause 9 of the new agreement which expressly rescinded the agreement of 31st January 1980. The suggestion by the applicant that clause 9 is irrelevant cannot stand. Clause 9 of the second agreement reads:

«9. The contracting parties shall withdraw from the Lands Office of Paphos the lodgment of the agreement of sale between the seller and themselves regarding the property subject of the sale simultaneously with the signing of this agreement.»

On the basis of the above I have come to the conclusion that the Director rightly concluded that the disposal took place on the 12th February 1982. And also that the suggestion that the gain was derived from the agreement of the 31st January 1980, is untenable. It is clear from the wording of section 4 of the law hereinabove set out that there can be no gain unless there is a disposal and there was no disposal on the. 31st January 1980, as the agreement by which the subject property was to be disposed was never put into effect and was subsequently rescinded by the new agreement which as it is clear from its terms was the Teal instrument through which the property in question was disposed.

For all the above reasons, I have come to the conclusion that the sub judice decision is in law correct and consequently should be affirmed and the present recourse should and is hereby dismissed with no order as to costs.

Recourse dismissed.

No order as to costs.


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