TA 447-09-14 Navok Eliyahu, Glazer Gabriel v. Israel Tax Authority
The court accepted the appellants' appeal against their VAT assessment by the VAT Director in connection with the sale of a property that was acquired by them outside the framework of a business. Among other things, the court held that the appellants' registration as "dealers" does not necessarily lead to the conclusion that their rental activity constituted a business, and that the appellants' status as a "dealer" must be examined on a substantive basis in accordance with the established criteria for the existence of a business.
The appellants sold a property in Tel Aviv under unique circumstances, having passively leased it over the years to a small number of tenants, without deducting input tax.
The respondent regarded the sale of the Tel Aviv property as a transaction subject to value added tax, arguing, inter alia, that the appellants were registered as a "dealer" under the VAT Law, whereas the appellants maintained that the sale did not constitute a "transaction" and that they did not operate a "business."
The court examined the facts agreed upon by the parties under the criteria established in case law for determining the existence of a business, and concluded that no rental business was conducted and that the rental income in the hands of the appellants was passive income not derived from a business. Accordingly, the property subject to the assessment was not "used in a business" nor "intended for use in a business," and does not constitute "equipment" as defined in Section 1 of the VAT Law, and its sale does not constitute a "transaction" and shall not be subject to VAT under Section 2 of the VAT Law.
