Arbico Limited V Federal Board Of Inland Revenue (1968)

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LEWIS, J.S.C.

Arbico Limited (hereinafter in this judgment referred to as ‘the Company’) were assessed for tax for the year ending the 31st of March, 1964, inter alia, for the sum of £7,211.12.0d, being tax payable at the rate of 8/- in every pound on profits of £18,029, after deducting capital allowances, arising out of the sale for £87,500 of 213A Igbosere Road, Lagos, to the Federal Government of Nigeria for the purposes of a Law School. Against that assessment the Company appealed to the body of Appeal Commissioners (hereinafter called the “Appeal Commissioners”) contending that they were not liable to pay any of such sum assessed as the transaction did not fall within the provisions of section 17 (a) of the Companies Income Tax Act, 1961 which reads:-

“17. The tax shall, subject to the provisions of this Act, be payable at the rate hereinafter specified for each year of assessment upon the profits of any company accruing in, derived from, brought into, or received in, Nigeria in respect of:-
(a) any trade or business for whatever period of time such trade or business may have been carried on.” The Appeal Commissioners held that the transaction was a profit by way of trade within the meaning of that section, rejected the appeal and confirmed the assessment. The Company then appealed to the Lagos High Court where Sowemimo J. in suit LD/87A/65 on the 12th day of December, 1966, dismissed the appeal with 10 guineas costs, and against that decision the Company has appealed to this court.

Chief Davies for the Company has argued two grounds of appeal before us namely:-
1. The learned judge of appeal erred in law in not holding that the word trade as used in the Companies Income Tax Act No. 22 of 1961 is different from the extended definition given to it in the English Act.
2. The learned judge of appeal erred in law when he held that the solitary trans-action on the facts of this case was trading so as to render the proceeds liable to Companies Income Tax.”

Now the facts of the case as established from the record of the evidence given before the Appeal Commissioners were that Arbico Limited were incorporated in 1958 with a Memorandum of Association which inter alia included the following objects:-

“(a)To submit tenders, contract for and execute public or private works, eg., aerodromes, aqueducts, breweries, bridges, buildings, dredging, drains, electricity supply, harbours, hydro electric systems of power stations, rail-ways, stations, roads, stores, swamp drainage and reclamation, township layout, tunnels warehouses, water supply, wharves and any engineering constructions for commerce, mining and industry.
(d) To purchase, take on lease, or to exchange, hire subscribe for or otherwise acquire and to hold and deal with any property, real or personal, including patents, patent rights, inventions and concessions and shares stocks debentures or obligations of any such property amongst the members of this Company in specie.
(1) To sell, exchange, let, develop, dispose of or otherwise deal with the undertaking or all of any part of the property of this Company, upon such terms and for such price or other consideration of any kind as the Company in general meeting may think fit.”

At the end of 1961, the Company was approached to see if it was willing to sell 213A Igbosere Road to the Federal Government and after a specific offer to purchase the property was made by the Federal Lands Officer on the 5th of March, 1962 for £87,500 the Company on the next day accepted. It is not disputed that, notwithstanding the powers in the objects of the Memorandum of Association of the Company, this was in fact the first sale of property by the Company. The managing director of the Company gave evidence that the Company was fundamentally building contracting firm and that 213A Igbosere Road was erected for residential purposes to put their expatriate staff in. He stated that they had some 10 expatriates to house and that the Company had in fact in 1961 two other plots, one at Ikorodu Road and one at Obalende, but these had not been developed. According to the Managing Director, the sale to the Federal Government was solely because they were asked to do so by the Federal Government, though it was not suggested that they had been compelled to make the sale, and they had been offered in July 1961 a plot at Ijora Causeway which they wished to develop as his evidence went on:-

‘Ijora Causeway Plot – single storey building – like warehouses – we intend to develop it – it is in fact being developed at the present time. Offices down and flats up. Rent houses for most of the staff. But one or two live in company’s owned houses. I want to build houses at Agora Causeway for my staff. I have not been able to develop Ijora Causeway because of the L.E.D.B ruling restricting buildings on the Causeway to one flat. I got to know about this ruling after getting the plot. I got the plot at Ijora Causeway In 19. Letter dated 28th July, 1961 – Plot No.5C, an area of 2 acres allocated to you – exhibit ‘R’. I got to know that I could only develop one flat on the land in July 1962. Company’s Memorandum and Articles of Association tendered and marked exhibit “S”. In selling the property at 213A Igbosere Road, the Company was not acting against its Memorandum and Articles of Association. Memorandum – Object Clause 3 (1) – read out. Clause 3 (d). Money realised from the sale has been included in the Company’s capital. Money has been used to develop Ijora Plot.”

The issue throughout has been whether the sale of the property was a realisation of capital or whether it was a trading activity and both the Appeal Commissioners and the learned judge on appeal had found that it was the latter. In giving their decision the Appeal Commissioners directed themselves as to the approach they must adopt in the following terms:-

“What the Commissioners have to consider is where profit has been made from one single transaction of this nature, could such profit be regarded as taxable income or should it be regarded as an accretion to capital?”

And it has not been submitted that they were in any way in error in so doing. When dealing with the facts, however, the Appeal Commissioners stated:-

“We are further strengthened in our view by the fact that on the receipt of the proceeds of sale no development of the Ijora Causeway plot to provide for alternative staff accommodation was undertaken by the appellant. On the contrary the evidence before us was that the proceeds of sale went to swell the appellant’s working capital. Questions were put to the witness for appellant as to the suitability of the Igbosere Road land for occupation by expatriate staff of appellant Company. In our opinion this is a location which in 1962 would be difficult to justify as suitable for the type of staff accommodation contemplated by appellant and the reason for its development by appellant could not be wholly dissociated from speculative purposes.”
and concluded:-

‘We agree therefore with the submission of counsel for respondent that the development of Igbosere Road having been undertaken and the appellant found an opportunity to sell at profit did not hesitate to do so in pursuit of the profit-motive underlying its incorporation. We are satisfied that although this sale is an Isolated transaction, it nevertheless constitutes part of the trading activities of the appellant Company and that as such the profit realised from the sale is not a capital profit but a trading profit liable to taxation under section 17(a) of the Companies Income Tax, 1961.”

Now In determining what approach must be adopted on appeal it was conceded, when it was put to him by this court, by Chief Davies that the onus was on the appellant to establish that the Appeal Commissioners were wrong in coming to the conclusion that they did on the facts as they found them. In Edwards (Inspector of Taxes) v. Bairstow, [1956] A.C. 14 Viscount Simonds at page 29 set out the law in this regard when he said:

“For it is universally conceded, that, though it is a pure finding of fact, it may be set aside on grounds which have been stated in various ways but are, I think fairly summarized by saying that the court should take that course if it appears that the commissioners have acted without any evidence or upon a view of the facts which could not reasonably be entertained.”

Chief Davies further conceded that, having regard to Lily Harriet Ram Iswera v. Commisioner of Inland Revenue [1965] 1 W.L.R. 663 where Lord Reid in the Privy Council had said at page 668:-

“It may seem that too much emphasis has been put on motivation, but that is probably due to the nature of the argument submitted for the appellant. Before their Lordships, counsel for the appellant came near to submitting that, if it is a purpose of the taxpayer to acquire something for his own use and enjoyment, that is sufficient to show that the steps which he takes in order to acquire it cannot be an adventure in the nature of trade.

In their Lordship’s judgment that is going much too far. If, in order to get what he wants, the taxpayer has to embark on an adventure which has all the characteristics of trading, his purpose or object alone cannot prevail over what he in fact does. But if his acts are equivocal his purpose or object may be a very material factor when weighing the total effect of all the circumstances.”

if the acts of the appellants were equivocal then it is their intention that must determine the matter. Finally Chief Davies conceded that notwithstanding that this was only a

Other Citation: (1968) LCN/1582(SC)