Income tax; Trade profits or gains; Isolated transaction

Arbico Limited, a corporate body, was a building contractor and the objects of its memorandum included the power to deal in property. The company acquired four building plots and built residential accommodation on one of them. The building was sold to the Federal Government of Nigeria at a profit, which was appropriated to the taxpayer's working capital. The sale was the first of property by the taxpayer. The tax authority assessed the taxpayer to tax on the profit made on the property, contending that the profit was in respect of trade or business of the taxpayer; and besides, the taxpayer's memorandum of association included the power to deal in property, so there was a presumption that the sale was in furtherance of its trading objectives. The taxpayer contended that the transaction was not a trade but a realisation of capital and that the sale, being an isolated transaction was not trading within the meaning of the Companies Income Tax Act. This case highlights what constitutes the gains or profits from a trade for tax purposes. In determining a trading activity, the courts are generally guided by the following factors, namely: (1) the nature of assets; (2) the circumstances of purchase; (3) the vocation of the tax payer; (4) the number of like transactions; (5) the object clause of the memorandum of association; (6) the length of time property was held by the company; and (7) the circumstances of sale. The sale in contention was a transaction by way of the trade notwithstanding that it was an isolated transaction. Isolated transactions could constitute trade if the intention of the company was to deal in that line of business within its memorandum of association.