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IN THE TAX COURT

HIGH COURT OF FIJI

AT SUVA

Review Action No. 3 of 2012

High Court Action No. 8, 9 & 10 of 2012

IN THE MATTER of the Income Tax Act

Chapter 201 and/or the Tax Administration

Decree No. 50 of 2009

and

IN THE MATTER of Sections 17 and 82

of the Tax Administration Decree No. 50 of

2009

and

IN THE MATTER of an application for

review by SRP (Hong Kong) Limited (Tax

Identification Number 50-17602-0-9)

BETWEEN : SRP (HONG KONG) LIMITED

AND : FIJI REVENUE AND CUSTOMS AUTHORITY of National

Revenue and Customs Complex, Queen Elizabeth Drive, Nasese, Suva

Appearance : Ms Alexandra L with Mr Knight P; Counsels instructed by

Cromptons Barristers & Solicitors for the Applicant

Mr Ravono, Legal Officer of Fiji Revenue and Customs Authority

for the Respondent

Date of Judgment : 24 June 2015

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JUDGMENT

[1] The Appellant in this matter first made an application for review against the decision of the

Respondent to the Tax Tribunal and by the Interlocutory decision by the Tax Tribunal

dated 27 November 2012, the matter was referred to this court‟s jurisdiction pursuant to

Section 81 (2) (b) of the Tax Administration Decree after notifying the Respondent. Along

with this matter the Case Nos. 9 of 2012 and 10 of 2012 (Tax Tribunal Case Nos. 4 and 5)

was also referred to this court‟s jurisdiction under similar applications, as such the parties

agreed that the Judgment in this appeal shall be binding over Case Nos. 4 and 5 of 2012,

and High Court Case Reference is Case Nos. 9 of 2012 and 10 of 2012.

[2] Accordingly, the Applications filed for Review before the Tax Tribunal are the same

applications before me by the 3 Applicants namely ARP (Hong Kong) Limited, JRP (Hong

Kong) Limited and SRP (Hong Kong) Limited which are identical.

[3] When the matter was taken up, it was stated by the Applicants‟ counsel that this matter

should be heard only after the conclusion of the hearing of joint appeal filed by the 3

Applicants in the High Court Case No. 4 of 2012 in which the Judgment was delivered on

18 June 2015.

[4] The Applicant sought the following orders:

“1. To vary or set aside the decision of the Respondent dated 15 March

2012 (Objection Decision) wholly disallowing the Objection to

Assessment made by the Applicant dated 21 May 2010 and lodged

with the Respondent on 21 May 2010. The Objection to Assessment

was filed in relation to the Notice of Assessment for the income year

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ended 31 December 2009 issued by the Respondent on 17 December

2009 (Assessment) assessing the Applicant, as a partner of RB Patel

& Co. (RBC) for taxation on proceeds (Proceeds) received by the

Applicant, pursuant to Section 11(u) of the Income Tax Act Cap 201

(Act) and Section 11 of the Act in general including subsection 11(t),

for an assignment of its contractual rights under the management

agreement (Management Agreement) with RB Patel Group Limited

(RBG) to FHL Retailing Limited (FHLR);

2. That the Respondent pay to the Applicant the costs of this Application for

Review; and

3. Such further and other orders as the Tribunal may deem just”.

[5] THE GROUNDS of Application were as follows:

“1. THAT the Objection Decision was served on the Applicant‟s tax agent outside the

statutory time frame provided in Section 16(7) of the Tax Administration Decree

2009 (TAD).

2. THAT the Respondent‟s assessment of the Applicant is incorrect and the Proceeds

are not taxable under Section 11(u) of the Act or Section 11 of the Act in general,

including subsections 11(s) and 11(t), and in particular:

(a) Section 11(u) of the Act should not apply to deem the Proceeds to be

included as “total income” under Section 11 of the Act because:

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(i) Section 11(u) provides that the following two types of

payments shall be included as “total income” under the

Act:

(A) Know-how payments; or

(B) Amounts paid for the management or supervision of

the carrying on of a business;

(ii) The Proceeds were not a know-how payment because

know-how payments require the passing of knowledge

rather than a mere contractual right. The Proceeds were

instead consideration for the assignment of contractual

rights (including the right to perform future services)

under the Management Agreement;

(iii) The Proceeds were not paid for the management or

supervision of carrying on a business because they were

not paid in consideration for any services performed by

RBC;

(b) Section 11(s) of the Act should not apply to deem the Proceeds to be

included as “total income” under Section 11 of the Act because:

(i) Section 11(s) deems “any royalty or other like payment

dependent upon production from, or the use of, any real or

personal property, whether or not such royalty or other

payment is an installment of the purchase price of any

property” to be income;

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(ii) The proceeds were received for the assignment of RBC‟s

contractual rights to provide management services under

the Management Agreement, and do not therefore come

within the scope of Section 11(s);

(c) Section 11(t) of the Act should not apply to deem the Proceeds to be

included as “total income” under Section 11 of the Act because:

(i) Section 11(t) applies to any payments received by a person

for improvements on land or to a building from another

person to whom a right to use or occupy has been granted

by that person;

(ii) The assignment of contractual rights that relate to the

Proceeds do not involve the right to use or occupy a land

or building;

(d) The Proceeds were consideration for the realization of a capital asset:

(i) The Act does not tax profits or gains or a capital nature;

(ii) Because the rights being surrendered under the

Management Agreement were a fundamental and intricate

part of the framework or structure from which RBC had

been deriving its income for the last 10 years, the

Management Agreement was a capital asset;

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(iii) The manner in which the amount payable for the transfer

of an asset is calculated should not affect or dictate the

nature of the payment itself;

(iv) The amount received is consideration for the realization of

a capital asset and therefore should be regarded as a

capital receipt;

(v) FHLR has treated the amount paid to RBC by way of

Proceeds as an affair of capital, and is understood not

have taken a tax deduction for or in respect of that

amount;

(vi) The services which were previously provided by RBC to

RBG under the Management Agreement continue to be

provided by FHLR with the fees paid by RBG for those

services being taxable in the hands of FHLR.

(e) No penalties should be imposed because the Proceeds are not taxable

under Section 11(u) of the Act or Section 11 of the Act in general

including subsections 11(s) and 11(t)”.

The Applicant also reserved the right, if required, to amend or provide additional grounds

of review in the event the Respondent serves on the Applicant a statement pursuant to

Section 83(1) (b) of the Tax Amendment Decree (TAD) and/or provides any other

documents pursuant to Section 83(1) (c) of the TAD, the Applicants stated. The

Respondent urged to include Section 11(j) after this application was made and I have made

my determination on this issue in the paragraph No. 7 of this Judgment.

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[6] This application is for review against the decision by the Respondent on the assessment of

the Applicant as a partner in RB Patel & Co (New Zealand Company) for taxation on

proceeds received by them in relation to the transfer of their contractual rights under a

management agreement with RB Patel Group Limited (RBG) by novation to FHL

Retailing Limited (FHLR) in the income year ended 31 December 2009.

[7] The Applicants were assessed by the Respondent by letter dated 17 December 2009. In the

notices of assessment, the Respondent stated that the proceeds are taxable under Section

11(u) of the Income Tax Act Cap 201 (the “Act”), but are also income under Section 11

and under Sections 11(s) and 11(t) of the Act. The Respondent no longer relies on

Sections 11(s) and (t) and so it is only Section 11(u) and Section 11 to be considered. The

Respondent subsequently pleaded Section 11(j) (on 17 September 2012). I have

considered the submissions made by both parties as to whether Section 11(j) which was not

considered at the time of the assessment could be brought in as a new ground. The

Applicants strongly objected to bringing in Section 11(j) as a new ground by the

Respondent. I considered the case of Federal Commissioner of Taxation vs. Australia

and New Zealand Savings Bank Ltd (1994) HCA 58; (1994) 181 CLR 466.

It is specifically stated in the said case, The Commissioner will be required to give

proper notice to the taxpayer and where appropriate, will be directed to furnish

particulars……..In this matter, assessments were made on a different basis and now the

Respondent cannot bring in Section 11(j) as a new alternative ground since it will be pre-

judicial to the Applicants‟ case. All arguments were based on Section 11; 11(u); 11(s) and

11(t) later the Respondent submitted that it do not rely on Section 11(s) and 11(t). In

support of my finding, I cite Kettleman vs. Hansel Properties Limited [1987] AC 189 at

pg. 220 which was referred in Fiji case Suva Fork Lift Hire Limited vs. Sun Insurance

Company Limited [2012] FJHC 1328; HBC 354 of 2009 (unreported decided on 23

August 2012). In Kettleman case House of Lords stated:

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“who have no longer afford to show the same indulgence towards the

negligence conduct of litigation as was perhaps possible in more leisured

aged. There will be cases in which justice will be better served by allowing

the consequences of the negligence of the lawyers to fall upon their own

heads rather than by allowing an amendment at a very late stage of the

proceedings”.

In this matter the objection decision was made on 15 March 2012 on the objection made by

the Applicant on 21 May 2010. There was adequate time for the Respondent to raise this

issue at the early stages before the assessments were made. In fairness to the Applicants, I

deny to allow the Respondent to rely on in Section 11(j) as a new alternative ground for the

determination and I hold in favour of the Plaintiff.

[8] The Applicants lodged their Notices of Objection to the assessments with the Respondent

on 21 May 2010. The Respondent issued its Objection Decision wholly disallowing the

objections, on 15 March 2012. There are no material differences in fact pleaded by the

Applicants in this case.

[9] The Respondent‟s objection decision states that the payment received by the Applicants for

the transfer of their rights and interests under the Management Agreement is:

(a) income under Section 11 generally (ordinary concepts);

(b) a “know-how” payment, or a sum paid or credited for the

management of or supervision in connection with the carrying on a

business under Section 11(u) of the Act as a management fee.

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[10] This court has to look into the background of the Management Agreement before

considering the issues raised by the Applicants which was addressed in the paragraph

hereinafter. These proceedings are the culmination of a long running income tax dispute

between the applicants and the Respondent. This case arises out of the same set of facts as

the Share Sale Case No. 4 of 2012 heard before this Court in October of 2013 and the

Judgment was delivered on 18 June 2015, and findings of this court on Section 11 is

relevant to this case.

History

(a) The Patel family business was established in the 1930s by Mr Ranchhodbhai Patel

(RB Patel). Initially it was a family partnership between RB Patel and his brother Mr

Keshavhai Patel. The brothers separated out their business interests in the 1970s and

RB Patel established RB Patel (Fiji Is) Limited to hold his wholesaling and retailing

business. The company also had investment properties in Fiji.

(b) From 1972 on RB Patel established a number of supermarkets throughout Fiji, he

also acquired other investment properties. His older sons Jayantilal, Ambalal and

Hematlal joined him in the business. As each son came into the business RB Patel

established different companies to hold their respective interests. The sons had

varying shareholdings in the different companies to reflect the work they were

actually doing.

(c) RB Patel‟s youngest son Surendra had joined the business by about 1979. His older

brothers had interests in companies established before he joined and as such he did

not have an equal interest in the companies.

(d) After the first two coups in Fiji, in around 1987 or 1988, the Patel brothers moved

their families (wives and children) to New Zealand. The brothers came back to work

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in Fiji. RB Patel moved to New Zealand in 1989 but he did not like it. He came

back to Fiji and stayed here until he died in 2004.

(e) On moving to New Zealand, the brothers each established a New Zealand holding

company to hold their individual family interests in the Fiji business (at this time still

held by the various trading companies). It was stated by the Applicants that the

holding companies were set up in New Zealand simply because the family was now

based in New Zealand. Later, for New Zealand tax reasons the holding company

structure moved to Hong Kong, who are the Applicants in this matter and the 4 Hong

Kong Companies established a Partnership in New Zealand as RB Patel and Co.

(f) The sons of Patel wanted to bring their children into the business as their father had

done. On 10 June 1999, RB Patel Group entered into a management agreement with

a New Zealand based partnership RB Patel & Co.:

(i) The Management Agreement provided that the New Zealand

Partnership to provide managerial services for the businesses carried

on by RBG “Supermarkets and wholesaling and retailing of

merchandise in several centers in Fiji” as stated by the Applicant.

However, as I found in my Judgment in Case No. 4 of 2012 it was not

for this purpose but for the purpose of carrying on and carrying out the

business in Fiji with a view to make maximum profits for the partners

of RB Patel & Co. in New Zealand;

(ii) The Management Agreement gave the Partnership, control over the

business and practically running of those businesses, in other words

carrying on and carrying out of the business of RB Patel Group

Limited, in its entirety.

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Evidence and Conclusions

11. At the outset, I state the evidence and the documents before me are considered together

since the evidence basically supported by the documents. Surendra Patel sworn an

Affidavit and gave oral evidence before this court which I summarise as follows including

the documentary evidence. Patel explained the history of the company. Copy of the New

Zealand Partnership agreement and the variation of the Partnership Deed was tendered as

Exhibit P(A) and P(B):

(i) The witness stated that the Management Agreement allowed him and

his brothers the opportunity to bring their New Zealand based children

into the business and that was the purpose of the Management

Agreement;

(ii) He stated that due to the riots in Suva in 2000 – Patel family decided it

needed to share the ownership of the company to protect the company,

specifically considering the Blueprint issued by the Government for

the Protection of Fijian and Rotuman rights and interests and the

advancement of their development dated 17 July 2000. This

document was tendered by the witness as Exhibit „D‟. However, I

don‟t agree that there was threat to the company by the Blueprint and

that was the reason for transfer of shares. The inference this court

can make is that the main reason for sharing the ownership was to

make a profit on the share sale and continue the business under

the Management Agreement with New Zealand Partnership

Company. I have given my conclusions on this in my Judgment of

Case No. 4 of 2012 on 18/06/2015;

(iii) The two of the witness‟s brothers decided to retire and the family

made the decision to sell down its majority interest in RBG the

witness stated;

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(iv) The witness stated decision was made to list RB Patel Group Limited

(RBG) on the stock exchange in order to broaden its share ownership

to include indigenous Fijians. RBG was listed on the South Pacific

Stock Exchange in 2001. The management fees received from RB

Patel Group Limited for the year ended 31 December 2000 was

tendered by the witness marked Exhibit P(C);

(v) Fijian Holdings Limited became the majority shareholder of RBG in

April 2008. Shortly before that occurred on 26 March 2008, FHLR

entered into an option agreement with the Partnership where the

Applicants were the partners. This agreement proves that the through

the Management Agreement the Manager (RB Patel Co.) was not only

entrusted in the management, they had the full control over the

business. I specifically refer to Clause 3.4 of the agreement and

reproduce the same:

“3.4 Option Price – The Option Price shall be determined as follows:

(a) If the Option Exercise Notice is served on or before the

third anniversary of the Acquisition Completion Date, then

the Option Price shall be FJ$7,000,000.00 (plus VAT, if

any);

(b) If the Option Exercise Notice is served after the third

anniversary of the Acquisition Completion Date but on or

before the fifth anniversary of the Acquisition Completion

Date, then the Option Price shall be FJ$8,000,000.00

(plus VAT, if any); and

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(c) If the Option Exercise Notice is served after the fifth

anniversary of the Acquisition Completion Date, then the

Option Price shall be FJ$10,000,000.00 (plus VAT, if

any);

plus, in each case, the Incentive Amount (if any) calculated in

accordance with Clause 3.5.

3.5 Incentive Amount – The Incentive Amount will be agreed

between the Manager and the Purchaser in writing, acting in good

faith, within two years of the Acquisition Completion Date, and will

be added to and payable as part of the Option Price provided that:

(a) If the Option Exercise Notice is served pursuant to Clause

3.4(a), that the Purchaser has received or is entitled to

receive at least a 13% per annum dividend yield on its

Total Investment in respect of the financial Year of the

Company ending closest to the third anniversary of the

Acquisition Completion Date (the “Third Year post-

Acquisition”); and

(b) If the Option Exercise Notice is served pursuant to Clause

3.4(b), that the Purchaser has received or is entitled to

receive at least a 13% per annum dividend yield on its

Total Investment for the Third Year post-Acquisition; and

(c) If the Option Exercise Notice is served pursuant to Clause

3.4(c ), that the Purchaser has received or is entitled to

receive at least a 15% per annum dividend yield on its

Total Investment in respect of the financial Year of the

Company ending closest to the fifth anniversary of the

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Acquisition Completion Date (the “Fifth Year post-

Acquisition”).

For the purpose of this clause, the dividend yield shall be deemed to

include ninety five percent (95%) of all profits earned in the relevant

financial year that are available for distribution, whether or not they

have been paid or declared as a dividend. I find the Management

Agreement and Option Agreement both are for the benefit of the

Manager (RB Patel & Co. New Zealand) to carry on the business and

entitling to the significant amount of the profits of RBG by the

Applicants‟ partners;

(vi) The witness told the Court that, after Fijian Holdings Limited (Retail)

(FHLR) acquired its interest in RBG. In early 2009, the FHLR board

was taken over by military appointees wanted to undo everything the

previous board had done, including getting rid of the management of

RBG. Patel told the Court that this was a difficult time, with threats,

deportation orders and a departure prohibition order being made

against him. This evidence is unfounded. This court is of the view,

having noted the Management Agreement was one sided which was

drafted for the purpose of controlling the business of RBG by Patel

family, being the largest shareholder the board of FHLR wanted to get

control over the management of the business which is a justifiable

decision. I am surprised to note when the shares were purchased by

FHLR why they did not inquire into the Management Agreement,

which shows the caliber of the Board. Although this issue is not

before the court and the relevant authorities should make inquiries in

this regard and find out the wrongdoers who assisted in the purchase

putting FHLR in quandary. It is abundantly clear that the Applicants‟

sale of shares whilst keeping the Management Agreement intact is to

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earn considerable profit by way of Management fees and other

disbursements. On what grounds FHLR decided to purchase the

shares of RBG; which was not a viable venture to earn profits is a

question to be asked. This is a clear violation of using public funds to

cater the Applicants needs of a business. As such the FHLR Board in

2009 whether it was a military or otherwise made a decision to correct

the decision of the previous board who acted against the interest of

FHLR cannot be blamed by the witness. The only alternative

available for the Board in 2009 was to exercise the rights under

Optional Agreement to safeguard the interest of FHLR. The witness

tendered the correspondence between FHLR and the RBG as Exhibits

P(G) to P(J) which were taken into consideration by this court;

[vii] On 22 October 2009, FHLR gave formal notice to the Partnership that

it wished to exercise its rights under the Option Agreement to acquire

the Partnership‟s rights under the Management Agreement and

tendered the said letter as Exhibit („J‟). Patel told the Court in oral

evidence that the Partnership could not refuse to sell the Management

Agreement, when FHLR required the Partnership to sell the

Management Agreement. I do not believe on this evidence since it

was not substantiated, final outcome was the Manager received what

they wanted in terms of Clauses 3.4 and 3.5 of the Management

Agreement as stated in the paragraph 11(v) of this Judgment;

(vii) The Option price was fixed but there was to be an incentive amount

that needed to be agreed between the parties. The witness stated

FHLR came up with the incentive price and the Partnership accepted

this as they thought it was fair. The total price paid was FJD 8.3

million. The Management Agreement 15 year term with the right to

review for further 15 years since they wanted to get away from a

profitable business witness stated. However, in the Clause 14 of the

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Management Agreement, it was for 15 years the witness admitted in

cross examination and I note the witness‟s evidence that FHLR

suggested the price of 8.3 million is unfounded; without any request or

negotiations is unsubstantiated;

(ix) On 29 October 2009, the Partnership‟s rights and interest under the

Management Agreement were transferred to FHLR by way of a

novation;

(x) At the option exercise date, the Management Agreement still had 5

years to run. It also included a right to renew, by agreement between

the parties, for a further 15 years. The Management Company

continued to receive management fees under the Management

Agreement. The witness expected that FHLR pays taxes on its

management fees which I don‟t agree. During the cross examination,

the witness admitted that the Partnership R B Patel & Co. New

Zealand Company was not registered for tax purposes in Fiji and

lodged the relevant Partnership Tax Returns. The Applicants too have

declared the management fees received and lodged the Income Tax

Returns, the witness admitted;

(xi) There was a technical consultancy agreement signed between FHLR

and Pacific Management Consulting LP (PMC) in relation to the

management of RBG (Exhibit „L‟);

(xii) The Technical consultancy agreement was a separate agreement

between FHLR and Pacific Management Consulting LP. The witness

was asked whether the Partnership was still in control of RBG through

this new agreement. Patel‟s answer was „no‟ PMC is a limited

partnership and has different partners. However, on perusal of the

Supplementary Bundle of Documents filed by the Respondent on 10

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September 2014, under the New Zealand Companies Office, Pacific

Management Consultancy was registered on 15 October 2009 two

weeks before the Technical Consultancy Agreement and the Novation

Agreement was signed by the Applicants;

(xiii) During cross-examination, witness admitted Partners in the Technical

Consultancy Agreement are companies duly registered in New

Zealand. However, the Respondent‟s Supplementary Bundle of

Documents New Zealand Companies office extract of Registration

was filed. The extract was generated on 19 July 2013 and it shows

that the shareholders in Pacific Management Limited are Surendra

Kumar Patel, Jainthilal Patel. Company Directors are Prasann Patel,

Surendra Kumar Patel. The witness Surendra Kumar Patel had

purposely suppressed that the consultancy companies relationship to

the Patel family, and that he was a Director of Pacific Consultants for

obvious reasons. Once again, it is to have the control over RBG

Business, and I conclude the witness purposely lied to this court by

stating the Partnership did not have control over the Management of

RBG through this company when the composition of the consultancy

company was by Patel and related companies

[12] Having considered the evidence by Surendra Kumar Patel, I have made certain

conclusions. Patel had sworn an Affidavit in evidence and gave oral evidence before this

court. I have concluded in the preceding paragraphs the evidence of Patel cannot be

accepted in its totality. His evidence was wage and on several issues he contradicted his

evidence in chief. I do not consider him as a credible witness although certain part of his

evidence was accepted. However, the witness‟s demeanor do not satisfy this court to

consider him as a credible witness, I conclude.

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[13] Before considering the actual issues now, I consider the evidence of Navitalai Biukoto who

is now the Principal Auditor of the Respondent. He stated:

(i) the Applicants‟ objections in relation to the Respondent‟s assessments

were based on the sum of 8.3 million paid to the Applicants.

(ii) the Applicants‟ decision was disallowed, the sale of the Management

Contract is assessable under Section 11 of the Income Tax Act. The

sum of 8.3 million was calculated taking into consideration the present

value of the future cash flows from the Management Agreement as

income. The witness stated the resident tax rate was applied the

Respondent deemed that the Applicants carried on their management

role through the permanent establishment in Fiji by virtue of Article 5

of the Fiji and New Zealand Double Tax Treaty. I agree with this

evidence considering all the material before me.

(iii) the witness stated that he did not carry out the audit of the Applicants

and reviewed the Applicants objections and he did not consider

Section 11(j) at that stage and it was considered after independent

legal advice was received. I have already concluded that this court

will not consider Section 11(j) for the determination of this case.

[14] Now, I will consider the following issues:

(a) The payment of 8.3 million falls within the perview of Section 11 of the

Income Tax Act?

(b) Whether Section 11(u) can be applied by the Respondent?

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[15] The Respondent‟s position was that 8.3 million payment falls within the purview of

Sections 11 and 11(u).

[16] I have already concluded in the Judgment of the Appeal No. 4 of 2012 on 18 June 2015

that the Applicants through their New Zealand Company entered into the Management

Agreement with a view to making substantial profits by carrying on and carrying out of the

business of RB Patel Group Limited. The Applicants‟ submissions fail.

[17] I agree with the Respondent that 8.3 million was paid to the Applicants for the Novation of

the Management Agreement and the said payment is the Applicants‟ ordinary income by

virtue of Section 11 of the Income Tax Act. I have already concluded in the said Judgment

the background to the Management Agreement was to carry on and carry out of the

business in Fiji. In the present matter the sum of 8.3 million was paid to the Applicants on

Novation of the Management Agreement on the basis that future income generated through

the Management Agreement to the Applicants. I have determined in the Judgment in Case

No. 4 of 2012, that sale of the shares of the Applicants is an ordinary income under Section

11 of the Income Tax Act. For the said determination, I have considered the case

authorities FCTU Myer Emporium Ltd (1987) 163 CLR 1990 at 209, Californian Copper

Syndicate vs. Harris [1904] 5TC 159, which are applicable to this matter too, and

conclude the payment of 8.3 million after signing the novation agreement was an ordinary

income under Section 11. The principles applied in cases of FCT vs. Cobling (1990) 22

FCR 42 Samji vs. Commissioner of Inland Revenue (1993) FJHC 41 support my

conclusions, and favour the Respondent‟s arguments.

[18] I also considered the principles elaborated in Allied Mills Industries Pty Ltd vs. FCT

[1994] HCA 58; (1994) 181 CLR 466 and Commissioner of Taxes (Vic) vs. Phillips

(1936) HCA 11; (1936) 55 CLR 144 and conclude as follows:

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(a) the sum of 8.3 million paid to the Applicants is arrived at, after considering

the future income of the Applicants under the Management Agreement.

(b) in any event, Management Agreement was a contract to perform managerial

services and it cannot be considered as a capital asset of the Applicants‟. I

further state that the Applicants from the inception had the motive of

carrying on and carrying out of the business of RBG with a view to have a

substantial share of the income under the terms of the Management

Agreement which contained unfair terms. This court cannot allow dubious

acts of the Applicants to claim the 8.3 million as a disposal of a capital

asset claiming that the Management Agreement was a capital asset and I

hold in favour of the Respondent.

(c) further, it is my conclusion that the Novation of the Management Agreement

cannot be treated as Capital Asset disposal since the lump sum payment was

calculated on the basis considering the future income to be derived under

the Management Agreement. As submitted by the Respondent, I apply the

principles elaborated in Moneymen Pty Ltd vs. Federal Commissioner of

Taxation [1990] FCA 486; 91 ATC 4019. This case was relied upon by the

Applicant but it does not favour the Applicants. By making calculation on

the said basis the Applicants had received a lump sum payment as an

income, I conclude.

(d) further, I too have taken into consideration that although the Management

Agreement was given up, the Applicant executed a Consultancy Agreement

with FHLR at a lower payment and the witness attempted to convince this

court that the Manager was reasonable. When all matters taken into

consideration on payment of the 8.3 million there is no benefit accrued to

FHLR by lowering the fees under Consultancy Agreement. The Applicants‟

have received their future income in advance, I observe. I accept the

evidence of Biukoto of the Respondent.

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[19] As stated in the preceding paragraphs and the Judgment delivered in Case No. 4 of 2012. I

conclude and determine the 8.3 million payment is income which falls in the ambit of

Section 11 of the Income Tax Act and I hold in favour of the Respondent, as such there is

no necessity to consider whether the payment of 8.3 million falls within the purview of

Section 11(u). However, for the completeness of this Judgment, I address the applicability

of Section 11(u).

[20] Section 11(u) of the Income Tax Act states:

“any know-how payment and any sum paid or credited for the management

for or supervision in connection with the carrying on of a business, to the

extent that such payment or credit does not constitute reimbursement of

expenditure that is –

(i) of a kind that is deductible under this Act; and

(ii) incurred in relation to the payment or credit by the person to

whom the payment or credit is made;

Provided that, where the payment or credit is made partly for any purpose

other than those mentioned in sub-paragraphs (i) and (ii), the

Commissioner may, for the purposes of this paragraph, determine to what

extent the sum so paid or credited is for such other purposes”;

Know-how payment is defined in Section 2 of the Act which states:

15. “know-how payment” means payment for any scientific, technical,

commercial or industrial information, techniques, knowledge or

assistance likely to assist in the carrying on of a business or in the

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manufacture of processing of goods or materials or in the working of

a mine, oil well or other source of mineral deposits (including the

searching for, discovery, or testing of deposits or the winning of

access thereto) or in the carrying out of any agricultural, forestry or

fishing operations”.

The Applicants submitted that Section 11(u) is a wrong provision and Section 8A should

be the correct provision. Section 8A and the interpretation in Section 2(i) of the Act was

quoted:

“Non-resident means a person who or a company which is not a resident”;

“Resident means –

(a) a person other than a Company who resides in Fiji and includes a

person –

(i) whose domicile in Fiji, unless Commissioner is satisfied

that his permanent place of abode is outside Fiji;

(ii) who has actually been in Fiji, continuously or

intermittently during more than one half of the income

year, unless the Commissioner is satisfied that his usual

place of abode is outside Fiji and that he does not intend

to take up residence in Fiji;

(iii) in the case of a Company, a Company which is

incorporated in Fiji or in the case of a Company not

incorporated in Fiji or in the case of a Company not

incorporated in Fiji and either its practical management

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and control in Fiji, or its voting power controlled by

shareholders who are residents”.

The Applicants submitted that assessments made by the Respondent are contrary to law

and the Respondent seeks to recover from wrong taxpayer. I don‟t agree with the

submission for the following reasons:

1. I have already concluded the payment of 8.3 million is correctly assessed

under Section 11 of the Income Tax Act as an income.

2. The facts established in this case shows that $8.3 million was paid to the

Applicants for Novation of the Management Agreement is a know-how

payment for the Applicants‟ technical, commercial knowledge of the

business and the payment was for the carrying on the management of the

business.

I conclude that in case of Ricketts vs Commissioner of Inland Revenue (1988) 10 NZ TC

5, 001 established the proposition that is to qualify as know-how payments, it is only

necessary to establish that such payments were made in response to the provision of

services requiring special skills and expertise in this instance the expertise in management

and control of supermarket business and I hold that the Respondent‟s assessment decisions

on the Applicants are correct under Section 11(u).

Accordingly, I conclude:

(1) Ground (a) of the Applicants‟ application fails as stated in the preceding

paragraphs.

(2) Ground (b) was not an issue at the hearing.

(3) Ground (c) was not an issue at the hearing.

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(4) The conclusions were made in the preceding paragraphs in favour of the

Respondent that proceeds relieved on the Novation of the Management

Agreement is not realization of the capital assets thus Ground (d) fails.

(5) That the proceeds are taxable under Section 11 and 11(u) of the Act as such

penalties can be imposed by the Respondent and the Ground (e) of the

application fails.

(6) There is no unreasonable request for discovery by the Respondent and the

Respondent has the right for such discovery, I conclude.

Accordingly, I determine that the payment of $8.3 million to the Applicants falls within the

purview of Section 11 and 11(u) as per decision by the Respondent and the Applicants fail

and further state this Judgment is binding over Tax Case Nos. 9 and 10 of 2012.

Orders of the Court:

(1) Application for review dismissed, accordingly dismissed, accordingly

case Nos. 9 of 2012 and 10 of 2012 are also dismissed..

(2) The Applicant of this Case and the Applicants in the Case Nos. 9 and 10

of 2012 are ordered to pay $5,000.00 each totaling to $15,000.00, costs

summarily assessed to the Respondent within 30 days of this Judgment.

Delivered at Suva this 24th

Day of June 2015.

…..…………………..

C. KOTIGALAGE

JUDGE