Decision to request additional tax is turned down

The Administrative Review Tribunal decided on 22 May 2014 that the Income Tax Department were wrong to expect more tax for the sale of an apartment. 

This was held in a case Pender Ville Limited –v- Director General (Income Tax).

The plaintiff appealed a decision taken by the Director General on 4 April 2013, which had turned down an objection on the additional tax that the plaintiff company was to pay.

Magistrate Dr Doreen Clarke examined the facts of the case in that the company had sold an apartment to a non-Maltese person at Pender Gardens in St Julians for the price of €285,000 on 9 December 2011. Upon signing contract they paid all the taxes. 

A government architect Hector Zammit valued the property at €360,000 on 19 September 2012. The company objected to this valuation, since the Income Tax Department asked for a further €3750 in taxes. This action was instituted on 16 April 2013 and on 6 February 2014 this particular apartment was sold again for the price of €330,000. 

The Company rose to grounds of appeal. The first that the price mentioned in the sale contract was the correct price. The Company further held that the Duty on Documents Act violates their fundamental human rights because it precludes them to obtain access to the law courts. 

This second ground of appeal was not followed through, since no submissions were in fact made on this point. The Tribunal pointed out that it is the Constitutional Court that could decide on this point and it had no jurisdiction to decide on matters concerning human rights.

The Tribunal then moved on to examine the substance of the case and see whether the Income Tax Department were correct to charge additional tax upon the sale of the apartment.  Article 3 of Legal Notice 98 of 1993 states: 

“The value of any property subject to duty under the Act, transferred inter vivos or transmitted causa mortis, shall be the value of such property on the date of the said transfer inter vivos.”

The same legal notice states that the value should be the average value that the property may have on that date.

From the evidence produced, Pender Gardens is being built in phases. Phase one has been built and totally sold. At the moment, the second phase is being built. Apartments were sold on plan or else when they were built and finished. The plaintiff company has a website indicating the prices up for sale.

The Tribunal pointed out that it had no jurisdiction to decide on matters concerning human rights

Michael De Maria, the sales and marketing manager testified that the price is established on the area of the apartment and on which floor it is found and on the level of the finishing.  

He confirmed that the apartment in question was sold by the owner for €330,000. When the contract was signed, the Director had authorised that the provision tax would be at a preferential rate of 1% and this is because the owner did not manage to make a good profit.

On the other hand the department rested on the architect’s valuation. Perit Hector Zammit testified that he had entered the apartment and applied the usual criteria. However, there was a doubt whether he actually attended and then it resulted that another architect had gone on site.  

This other architect had valued the property to €310,000. He also admitted that he had seen the website but only before testifying. Magistrate Clarke commented that his comparison was not like with like since the apartments had different levels of finishing.

The Tribunal held that these prices were approved by the Inland Revenue Department when the same apartment was sold for €330,000. Furthermore the Tribunal was convinced that the value in 2011 was €310,000. The selling price of €285,000 is not less than 85% of the real value when purchased and therefore, upheld the company’s request for the additional tax to be revoked.

Dr Malcolm Mifsud is a partner at Mifsud & Mifsud Advocates

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