CIR v Ah Koy Civil Appeal No 3/1972

Fiji High Court – Appellate Jurisdiction

Tuivaga J. 5/10/82
On 2nd October, 1967 a Prospecting Licence (No. 1004) was granted pursuant to the provisions of
the Mining Ordinance to the taxpayer and five other persons in equal shares to prospect for
copper, zinc, gold, silver and associated minerals on the land therein described for a term of one
year. At the expiration of that term the licence was extended for a further term of one year and at
the expiration of that further term it was extended again for another year. During the currency of
the third term the taxpayer on 1st April, 1970, sold his one-sixth share in the licence for $12,500.
During each of the terms in which the respondent owned his one-sixth share in the licence
expenditure was incurred in connection with prospecting operations carried out under the licence.
In his return of income for the year ended 31st December, 1970, the taxpayer disclosed the sale of
his one-sixth share in the licence but claimed that the proceeds therefrom represented a capital
gain and were therefore non-taxable.

The CIR rejected the taxpayer’s claim and assessed him on the basis that the proceeds formed
part of the total income derived by him during the said year of income. The taxpayer objected to
the CIR’s assessment. The CIR decided to disallow the objection whereupon the taxpayer
appealed against his decision to the Court of Review.

On 28th February, 1972, the Court of Review upheld the appeal holding that the proceeds of the
sale of the taxpayer’s one-sixth share were not “total income” within the meaning of the Income
Tax Ordinance and were therefore not taxable.

Dissatisfied with the decision of the Court of Review, the CIR … appealed the matter to this
Court for hearing and determination. He stated the reasons for his dissatisfaction as follows:-
(1) The Court of Review erred in finding that money received by the appellant, in the
circumstances of this case, was capital and not income within the definition of
total income as set out in the Income Tax Ordinance.
(2) The Court of Review failed to consider inter alia, whether the taxpayer entered
into a profit making scheme which in itself was in the nature of a business or
trade.

Before me it was contended on behalf of the CIR that the sum in question came either within the
general definition of “total income” at the beginning of s.15 of the Ordinance or within the
extended definition given to that expression in paragraph (a) of the first proviso thereto. The
relevant provisions of s.15 read as follows:
“For the purpose of this Ordinance “total income” means the annual net profit or gain
or gratuity, whether ascertained and capable of computation as being wages, salary or
other fixed amount, or unascertained as being fees or emoluments or as being profits
from a trade or commercial or financial or other business or calling or otherwise
howsoever, directly or indirectly received by a person from any office or employment
or from any profession or calling or from any trade, manufacture or business or
otherwise howsoever …

1
 Provided that, without in any way affecting the generality of this section, total
income, for the purpose of this Ordinance, shall include:
(a) all profits or gains derived from the sale or other disposition of any real or
personal property or any interest therein, if the business of the taxpayer comprises
dealing in such property, or if the property was acquired for the purpose of selling or
otherwise disposing of the ownership of it, and all profits or gains derived from the
carrying on or carrying out of any undertaking or scheme entered into or devised for
the purpose of making a profit. ...”

I am satisfied that the sum in question does not fall within the general definition of “total
income”. That definition appears to me to be confined to income in the ordinary sense of the
word regardless of its source. If the sum concerned is to be treated as income it is because
paragraph (a) of the proviso classes it as income for the purposes of the Ordinance. In other
words it brings it within the expression “total income” by definition.

Paragraph (a) of the proviso classes as income profits and gains derived from the following
sources –
(1) The sale or other disposition of any real or personal property or any interest therein, if the
business of the taxpayer comprises dealing in such property or if the property was acquired for
the purpose of selling or otherwise disposing of the ownership of it;
(2) The carrying on or carrying out of any undertaking or scheme entered into or devised for the
purpose of making a profit;
The paragraph then goes on to provide that “nevertheless the profit or gain derived from a
transaction of purchase and sale which does not form part of a series of transactions and which is
not in itself in the nature of trade or business shall be excluded;”

There is nothing in the evidence before me to support a contention that the business of the
taxpayer comprises dealing in real or personal property or any interest therein or that he acquired
his interest in prospecting licence No. 1004 for the purpose of selling or otherwise disposing of
the ownership of it. I am satisfied that the predominant purpose for which the taxpayer and his
fellow shareholders acquired interests in the licence was to prospect for minerals pursuant to its
provisions. I am satisfied he first thought of selling his interest only when he received an offer for
it which he considered was too good to refuse.

I am also satisfied that, although the taxpayer and his colleagues entered into an undertaking or
scheme to prospect for minerals for the purpose of making a profit if they were fortunate enough
to discover any, the profit derived by the taxpayer was not derived by him from the carrying on or
carrying out of that undertaking or scheme but from the sale of his share in the licence under
which the undertaking or scheme was being carried out. In any case the profit or gain from the
sale of his share was not, in my opinion, derived from a transaction of purchase and sale which
formed part of a series of transactions and which was in itself in the nature of trade or business.
On the contrary the sale of his share in the licence was nothing more than the realisation of a
particular asset he owned for a consideration which he was pleased to accept. For the foregoing
reasons I think the Court of Review was correct in holding that the sum in question represented a
capital gain and was not “total income” within the meaning of the Ordinance. The appeal is
dismissed.