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Some Reflections on the British Rule in Sharkey v. Wernher with Special Reference to its Effects on Israel Tax Law
Published online by Cambridge University Press: 12 February 2016
Extract
Although legally the Israel Supreme Court is not bound by its own decisions, in practice it will normally follow them. It is therefore not surprising that when the Supreme Court recently deviated from a previous decision, the case raised considerable interest as well as some controversy. The case in question is Cohen v. Assessing Officer, which was heard before a bench of five judges. By a majority of three to two the Court deviated from a decision which had been unanimously reached, by a bench of three judges, in Ben Zvi v. Assessing Officer. Both cases dealt with a tax problem which confronted the Israeli revenue for the last ten years. As will be shown, the problem is not limited to Israel Law. Indeed, one of the main points considered by the Court was the meaning and effect of the controversial decision of the House of Lords in Sharkey v. Wernher. This was the problem involved.
It is a basic rule of Israel tax law that a man who sells land for a profit is not liable to pay income tax unless the profit has been derived from “any trade…or from any transaction or adventure in the nature of trade”.
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- Copyright © Cambridge University Press and The Faculty of Law, The Hebrew University of Jerusalem 1967
References
1 Sec. 33(b), Courts Law, 1957, 11 L.S.I. 157.
2 See Neéman, Y., “Investment Property Converted into Business Use—Income Tax and Valuation Method”, (1967) 2 Is. L.R. 46.Google ScholarCf. Klimowsky, E. W., “Accounting Principles and Legal Rules in the Law of Income-Tax”, (1966) Quarterly Tax Journal, 424.Google Scholar (In Hebrew.)
3 (1966) vol. 3, 20 P.D. 421.
4 Since the decision was given by the Supreme Court comprising more than three judges, there could be no “Further Hearing”, under sec. 8 of the Courts Law, 1957, 11 L.S.I. 157.
5 (1963) 17 P.D. 1963.
6 Sharkey v. Wernher, [1956] A.C. 58; 36 T.C. 275.
7 Income Tax Ordinance, sec. 2(2).
8 Land Appreciation Tax Law, 1963, 17 L.S.I. 193.
9 Land Betterment Tax Law, 1949, 3 L.S.I. 86.
10 Income Tax Ordinance, 1947, sec. 5A as introduced by the Income Tax (Amendment) Law, 1952, 6 L.S.I. 106.
11 Income Tax Ordinance, Part Five, sees. 88–99 as introduced by the Income Tax(Amendment) Law (No. 6), 1965.
12 Ben-Zvi v. Assessing Officer (1963)17 P.D. 1963.
13 Cohen v. Assessing Officer (1966) vol. 3, 20 P.D. 421.
14 See supra, n. 2.
15 Sharkey v. Wernher, supra.
16 36 T.C. 279.
17 36 T.C. 282.
18 Salomon v. Salomon & Co. Ltd., (1897) A.C. 22.
19 Crump, S. T., “Fantasy in Finance”, [1964] B.T.R. 168, 175.Google Scholar
20 Potter, D. C., “Reflections on Sharkey v. Wernhet”, [1964] B.T.R. 438.Google Scholar
21 See, for example, D. C Potter, ibid. 442, 443.
22 Edey, H. C., “Valuation of Stock in Trade for Income Tax Purposes”, [1956] B.T.R. 23, 36.Google Scholar A similar view was expressed in Taxation, 13th July 1964, p. 177: “In Sharkey v. Wernher the amount of the liability depended upon the market value of the horses when they were taken out of stock. The converse must be true when the transfer operates the other way if one is to arrive at the true business profit”.
23 The Commissioner of Income Tax, Bombay v. Bai Shirnbai K. Kooka (1956) 30 I.T.R. 753; (1962) 46 I.T.R. 86 (S.C.).
24 Cf. The British Finance Act, 1962, Schedule 9, para 7.