Appeals Committee (Center) 15365-08-24 Arie Tussia-Cohen v. Netanya Real Estate Taxation Administration

Judgment

Judge Shmuel Bornstein, Chair of the Committee:

Factual Background

1. On December 20,2022, the appellants, Aryeh and Efrat Tussia-Cohen (hereinafter: "the appellants"), signed an agreement for the purchase of a unit on the second floor of a building at 24 HaBroshim Street in Ramat Hasharon, known as Block 6415, Plot 279, sub-plot 2. (hereinafter: "the sale agreement; attached as Appendix 1 to the Respondent's affidavit") In exchange for the apartment, which also included a balcony, a roof and two parking spaces, the appellants paid the sum of ILS 9,450,557 to the sellers, Eyal Bezalel Weinberg and Yoav Weinberg (hereinafter: the "Sellers").  The apartment was built as part of a joint self-construction project by the landowners under a residential building permit, with the sellers signing an agreement with an executing contractor for the delivery of an apartment "to the developer", and the delivery date according to the execution agreement was set for March 15,2023 (hereinafter: the "Execution Agreement").
2. The appellants submitted a self-assessment, in the framework of which they reported that they had purchased a "shell apartment" that is not fit for habitation and therefore should be classified as a "building" and the applicable purchase tax rate is 6%, as stated in Regulation 2(1) of the Real Estate Taxation Regulations (Appreciation and Purchase) (Purchase Tax), 5735-1974 (hereinafter: the "Purchase Tax Regulations"). The Respondent, the Netanya Real Estate Taxation Administration (hereinafter: "the Respondent"), issued the Appellants an assessment according to the best judgment on September 11,2023 and determined that the purchased property was a "residential apartment".  Therefore, and since this is not a single residential apartment owned by the appellants, the purchase tax rates are 8% and 10% as stated in section 9(c1f)(1) of the Real Estate Taxation Law (Appreciation and Purchase), 5723-1963 (hereinafter: the "Law").  The appellants filed an objection to this assessment on October 24,2023, but their objection was rejected in the respondent's decision of June 20,2024.  Hence the appeal.
3. It should be noted that in parallel to the assessment proceedings, the appellants filed a claim against the executing contractor, claiming construction defects in the apartment purchased by them (A. 41655-11-23) and attached to this claim an expert opinion on their behalf (hereinafter: "expert opinion").  The statement of claim and the expert opinion were marked as Exhibit M/2 in the present appeal.

Summary of the appellants' arguments

4. The apartment was purchased unfinished and uninhabitable, and therefore the appellants were forced to rent an apartment for about eight months, during which time they completed the finishing work. The sale agreement states on a number of occasions that the apartment was sold unfinished and that the purchasers (appellants) must complete it, with the actual cost of completing the construction amounting to more than ILS 580,000.  The apartment lacked many essential facilities, including toilets that were not connected to the sewage, lack of flooring and cladding in the bathtubs, partial interior doors, lack of a railing that posed a danger to life, and the lack of a kitchen and faucets.
5. According to the wording of the law, as it was in effect at the time of purchase, a "residential apartment" does not include an apartment that does not carry an obligation by the seller to complete the construction. The sellers explicitly declared in the sale agreement that they do not undertake to complete the construction of the apartment and sell it as it is ("AS IS"), and therefore it should not be classified as a "residential apartment" for purchase tax purposes.  The original agreement signed between the sellers and the construction contractor "up to the key" was amended and reduced at the stage of the finishing work, as confirmed by the contractor himself in a conversation with the respondent's representative, since the sellers understood that there was no point in investing in expensive finishing materials before the sale.
6. The Ottoman Settlement [Old Version] 1916 There were serious flaws in the conduct of the proceeding by the Respondent. The Respondent chose to testify Ms. Dana Lipkis, who did not handle the case personally and whose entire acquaintance with it is based on documents only, and therefore her testimony constitutes inadmissible hearsay testimony.  The Respondent refrained from bringing to testify the competent authorities who issued the assessment according to the best judgment and the decision in the objection (Ms. Smadar Sommer and Ms. Limor Georgi), and even refrained from bringing to testify the sellers on whose affidavit he relied upon.  This omission establishes an evidentiary presumption that if the witnesses had been brought to testify, their testimony would have acted to the detriment of the Respondent and supported the appellants' version.

12-34-56-78 Chekhov v.  State of Israel, P.D.  51 (2)

7. Another serious administrative flaw is that the hearing of the objection was conducted by way of a short telephone conversation only, without the appellants being given the right to plead properly and without being presented with the relevant documents. In addition, the respondent concealed documents, refused to disclose all the materials on which the assessment was based (such as recordings of the conversations), and acted in contravention of the duty of administrative fairness.  The sellers unilaterally reported the sale of a "residential apartment", out of a clear personal economic interest to report the property as a qualifying residential apartment in order to be exempt from betterment tax.
8. The purchase price of the apartment was about 20% lower than the market price of a perfect apartment in the same building at the time, which indicates that both parties knew that a significant financial investment was required to bring the property to a habitable condition.
9. To the extent that it is determined that the appellants must pay the tax according to the assessment, the interest, linkages and fines that have accumulated over the years and amount to tens of thousands of shekels must be reduced.

Summary of the Respondent's Arguments

10. The apartment purchased is a "residential apartment" for purchase tax purposes, since both the subjective and objective tests are met.
11. Quoted from NevoAs to the subjective test, the appellant admitted in his testimony that the appellants' intention was to live in the apartment and in fact they moved in. As for the objective test, the apartment was built in a residential neighborhood according to a residential building permit, and as part of a construction project in which the sellers signed an agreement with the contractor for the execution of "Fausli" and "key witness" construction works.
12. On January 10,2022, the building was given a "Form 5" by the Ramat Hasharon Municipality, indicating that the construction was completed in accordance with the permit and that the apartment was legally habitable. In addition, the apartment was permanently connected to electricity and water (after receiving Form 4), and as of February 20,2022, the sellers were required to pay residential property taxes by the municipality, and even requested an exemption for an "empty property".  The existence of these permits establishes a presumption that the construction of this is an apartment whose construction has been completed, and the test regarding purchase tax is even more lenient than that of betterment tax.
13. As can be seen from photos taken inside the apartment by the Ramat Hasharon Municipality Inspector on December 28,2022 (only eight days after the agreement was signed), the apartment is plastered and whitewashed, parquet floored, equipped with aluminum windows, electric shutters, electrical and communication accessories, a grill for a central air conditioner, and a ceramic-clad bathroom with a glass shower and toilet. In addition, the photos and documents indicate that the apartment has a modern kitchen with a sink, a faucet and preparation for the dishwasher, as well as a proper lockable entrance door.  The fact that some of the minor finishing work was not completed (such as the installation of a bathroom cabinet) does not detract from the fact that the property is a residential apartment.
14. The appellants filed a lawsuit against the executing contractor, and in this framework they submitted an expert opinion detailing the construction defects in the apartment. This opinion unequivocally proves that the apartment had a kitchen, toilets, ceramic cladding, and water and electricity systems, in complete contradiction to the appellants' statements in the present proceeding.  The appellants piled up many difficulties and deliberately concealed the expert's opinion, and even raised false claims that constitute an extension of a prohibited façade and occupied testimony, such as the claim that the picture showing the kitchen is not of their apartment.
15. According to the law and case law, there is no obligation to testify to the specific party that made the decision, but rather it is sufficient for a person who is familiar with the details of the case and the documents it includes. The appellants were given the full right to plead both in writing and orally at the assessment stage and at the objection stage, and in any event, according to the doctrine of relative nullity, there is no reason to cancel the assessment because of these arguments.
16. There is no reason to exempt the appellants from interest, linkage and fines, in view of their conduct which was clearly in bad faith, and there is no justification for discriminating against them in favor of any other taxpayer.

Discussion and Decision

17. I will preface by saying that from the evidentiary material presented to the committee, it clearly emerges that the apartment being purchased is a "residential apartment" for all intents and purposes, and therefore the respondent was correct in determining that the appellants should be charged purchase tax for the purchase of a residential apartment that is not a single apartment. Moreover, the conduct of the appellant in the framework of the present proceeding, which he testified before the committee in a testimony that is inconsistent, to say the least, with the actual state of affairs, as could easily be seen from the evidence before the committee, including photographs showing the condition of the apartment close to the date of its purchase, aroused discomfort.  The result is that in determining the factual basis relevant to the present proceeding, there is a real difficulty in relying on the appellant's testimony, and the evidentiary basis presented by the respondent, which was consistent, clear, clear and reliable, must be adopted.

Therefore, the appeal should be dismissed, and this is what I would suggest to my colleagues.

18. As stated, the main question in this appeal is whether the apartment being purchased is a "residential apartment" for purchase tax purposes as the respondent's position, or a "shell apartment" or "building" as the appellants' position.

Section 9(c) of the Law, as worded at the relevant time, defines a "residential apartment" for purchase tax purposes as "an apartment that is used or intended to be used for residential purposes, and in an apartment whose construction has not yet been completed, except for an apartment with which there is no obligation on the part of the seller to complete the construction." (It should be noted that the definition of "residential apartments" for the purpose of betterment tax is slightly different and includes an additional component, i.e., "an apartment used for residential purposes or intended for residential purposes according to its nature").

19. Other Municipality Applications 278/84 Dalia Friedman v. Land Appreciation Tax Administration (August 10,1987) (hereinafter: "the Friedman Case") It was held that the designation of the residential apartment for the purpose of purchase tax was examined by means of two cumulative tests: an objective test (residential potential) and a subjective test (the buyer's intention to make use of the residential property).  Where these two elements are met, the property will be considered a residential apartment for purchase tax purposes.

This is what it says there: