Appeals Committee (Center) 39712-06-21 Maslawi Building Company Ltd. v. Central Real Estate Taxation Administration

Judgment

The Honorable Judge Shmuel Bornstein, Chairman of the Committee:

We have before us two consolidated appeals concerning the respondent's decisions not to recognize the cancellation of a transaction and instead to determine that it is a "resale" for the purposes of the Real Estate Taxation (Appreciation and Purchase) Law, 5723-1963 (hereinafter: the "Law").

The Relevant Facts

1. On August 4, 1996, Lorenzi Properties, in a tax appeal (hereinafter: "Lorenzi" or the "Owner"), acquired rights in Plot 380 in Block 6109 in Ramat Gan. On November 10, 2000, the Maslawi Company acquired a construction company in a tax appeal (hereinafter: "Maslawi" or "the Developer") lease rights in land bordering Plot 285 in Block 6109.
2. On May 2, 2001, Lorenzi and Maslawi entered into a combination agreement, according to which Lorenzi sold to Meslawi 60% of its rights in Plot 380 in exchange for construction services on the remaining rights (40%) (hereinafter: the "Combination Agreement" or the "Combination Transaction"); attached as Appendix 6 to the Respondent's affidavit). As part of the combination deal, Maslawi undertook to build an office tower in two plots and to promote new city building plans.  In addition, the Maslawi undertook to ensure that Lorenzi received loans from a commercial bank in the amount of $1,300,000 for the purpose of repaying an existing mortgage, loans for the payment of betterment tax, sales tax and property tax debts, as well as an amount intended to pay attorney's fees.  On December 13, 2001, a warning note was registered on parcel 380 in favor of Maslawi.
3. The real estate (parcels 380 and 285) was leased to Yair Hashahar in a tax appeal (hereinafter: "Yair Hashahar") for the purpose of operating a parking lot as of May 2, 2011, against rent in the sum of ILS 41,000 per month (the agreement was attached as Appendix 10 to the Respondent's affidavit). It should be noted here that in the lease agreement, Maslawi was presented as the owner of the full rights in the two plots, but according to the appellant, Maslawi rented only her part of the parking lot, while the rent was divided between her and Lorenzi.
4. On November 30, 2016, an agreement was signed between Maslawi and Zach.k.s. In a tax appeal (hereinafter: "Zach"), in which Maslawi sold its rights in Plot 285 for a sum of approximately ILS 63 million (the agreement was attached as Appendix 13 to the Respondent's affidavit).  In addition, and according to the same agreement (clause 15), Maslawi granted Tzach an option to purchase its rights and obligations by virtue of the combination agreement in Plot 380, in exchange for consideration in the sum of ILS 1,000.
5. According to the appellant, the transaction was never executed due to many disputes between the parties, and Maslawi did not receive possession of the land and did not fulfill its main obligation to build the new building and hand over the consideration units. On June 22, 2017, Lorenzi notified Maslawi of the cancellation of the combination agreement (the letter of notice of cancellation was attached as Appendix 9 to the Respondent's affidavit), and subsequently, on June 30, 2019, an agreement was signed between the parties to cancel the combination transaction, which is the agreement that is under review in the framework of the appeals in this case.

The Ottoman Settlement [Old Version] 1916

6. 12-34-56-78 Chekhov v. State of Israel, P.D.  51 (2) On July 2, 2019, i.e., two days after the agreement regarding the cancellation of the combination transaction was signed, Lorenzi signed an agreement with Zach for the sale of all of its rights in Plot 380 in exchange for a sum of approximately ILS 41 million (the agreement was attached as Appendix 19 to the Respondent's affidavit).  According to clause 6.3.1 of the agreement between Lorenzi and Zach, Zach was required to pay Matzlawi, out of the first payment, the sum of ILS 5.1 million to cover Lorenzi's obligation to Mazlawi, after which the warning note registered in favor of Maslawi would be deleted (clause 6.3.5).  to the agreement).
7. On November 18, 2020, a request was submitted to the manager to cancel the combination transaction, and on May 18, 2021, the respondent rejected the request and ruled that it was not a transaction cancellation, but rather a resale, for the reasons detailed in its decisions (the decisions were attached as Appendices 1 and 2 to the Respondent's affidavit). Appeals against these decisions were filed before us.

Summary of the appellants' arguments

8. The manager's decision, which rejected their request to cancel the transaction and classified it as a "resale", is erroneous; The combination agreement did not take root in reality and could have been canceled. In any event, even if the transaction was not canceled, it is not a resale, but rather a transfer of the right from the developer to the winner.
9. The cancellation was done for objective economic reasons only, and not for the purpose of achieving a tax advantage. This is a business asset of a company and not a residential apartment whose sale qualifies for an exemption, and in any event, the sale value that the respondent will determine in the resale transaction will form the basis for the purchase value at the time of the sale of the real estate for good.
10. The main and substantial undertaking of the transaction - the construction and delivery of consideration units worth tens of millions of shekels - was not carried out by Maslawi despite many lengths. The deal was lengthened and delayed due to external circumstances that were beyond Maslawi's control.
11. Except for the demolition of an old building (a shed with an asbestos roof) and the promotion of a new city building plan (only a small part of which applies to the owners' rights), there are no remnants of the deal. These changes are considered negligible compared to the purpose of the transaction.
12. Although Maslawi registered a warning note on the land, a warning note is not a proprietary right, and the fact that no additional registration was made beyond that for 18 years indicates that the transaction was not completed.
13. Possession of the land was not given to Maslawi and it did not generate any income from it. The rent from the rental of plot 380 as a car park was paid to Lorenzi only.  According to case law, the provision of a property for the purpose of construction is not considered the delivery of possession, but rather the granting of the right of a mere "licensee".  The demolition of the shed was a violation of the agreement.
14. The amount of compensation paid by the buyer to the seller (through a partial waiver of the repayment of the loan) is approximately ILS 1.1 million. This sum does not reflect the true value of the right in the land (approximately ILS 22 million), and therefore does not constitute a "resale" at market prices.
15. The seller was not charged betterment tax for the transaction, but rather sales tax in the amount of ILS 84,615 paid in 2018. The buyer did not pay the purchase tax, and the date of payment was repeatedly postponed by the respondent, who recognized that the conditions of section 51 of the law had not been met.
16. The respondent classified the cancellation agreement differently and determined that it was an artificial cancellation of the transaction. Therefore, the burden of proving his claim rests on him.  The respondent's argument that Zach exercised the right of choice that was given to her by Maslawi was raised only in the respondent's affidavit, and therefore it is that Zach's representative should have been summoned to testify.
17. Execution Order 26/92 of the Respondent dated November 12, 1992 (hereinafter: "H.B. 26/92") states that most of the cancellation requests should be recognized as "genuine and in good faith", and this should be done in the present case as well.
18. There is a contradiction in the respondent's argument. On the one hand, it states that cancellation should not be recognized unless it is done with the consent of both parties, but on the other hand, it states that cancellation by consent is examined with "extreme caution and precision."

Summary of the Respondent's Arguments

19. This is not a cancellation of a transaction, but rather a "resale". The deal has taken root in the ground of reality and can no longer be uprooted.
20. Approximately 18 years have passed from the date of the signing of the combination agreement to the signing of the cancellation agreement. This long period indicates that the cancellation is not genuine.
21. The land was registered in the name of Maslawi (a note of caution), the possession was actually handed over while the building was demolished and the land was rented as a parking lot in exchange for rent, and actions were even taken to improve the land and promote the zoning plan. Even if the actual construction was not carried out, the land was greatly improved for the benefit of all parties.  Maslawi has made profits over the years from renting the land as a parking lot, which indicates that the deal was not canceled but "developed."
22. Over the years, many calculations have been made between the parties - loans were granted, the land was rented, changes were made to the transferred parts - and the payment paid in the framework of the cancellation agreement is an additional layer to those calculations and is not solely within the scope of loan repayment.
23. Maslawi granted Tzach an option to purchase its rights by virtue of the combination transaction, and Tzach exercised the option and stepped into its shoes. The memorandum of understanding between Lorenzi and Tzach regarding the cooperation between them reinforces the conclusion that the combination deal remains valid and exists.
24. The long period that passed since the signing of the combination agreement until it was canceled, as it were, benefited both parties, since the value of the land had increased in the meantime, and this strengthens the conclusion that this was a resale.
25. According to Regulation 12(b) of the Real Estate Taxation Regulations (Procedures before Appeals Committees), 5725-1965, the appellant is the plaintiff and therefore the burden of persuasion and the burden of proof is on him. The appellants did not lay an evidentiary basis to support their position.  The withdrawal of the affidavit of Maslawi's former legal advisor, Mr. Itamar Alfasi (hereinafter: "Alfasi"), effectively left the appellant without a witness on behalf of one of the parties to the transaction.  Failure to bring relevant witnesses (such as a representative of Maslawi with personal knowledge, representatives of Zach and Yair Hashachar) serves the duty of the appellant.
26. Maslawi falsely declared in her motion to postpone the date for payment of purchase tax that she had not yet seized possession of the land (a copy of the application dated July 3, 2018 was attached as Appendix 20 to the Respondent's affidavit), despite the fact that possession was actually given even before June 22, 2017, through the demolition of the building and the rental of the lot to a parking lot, and where section 76 of the Law requires notice within 14 days after the condition postponing the date of payment ceased to be met.

Discussion and Decision