| 29/8/2008 |
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| Board of Special Commissioners - Cases |
| Case No. 17/50 |
Decided: 8 January, 1951 |
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Interpretation of testamentary disposition; whether an annual payment for a pre-determined number of years constituted an annuity; to determine whether a sum forms part of a beneficiary's total income, it is enough to ascertain that it is received by him in the quality of income - article 5(1)(e), now 4(1)(d), Income Tax Act
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Appellant was among four brothers who, by a testamentary disposition, received an annual payment for a pre-determined number of years from another brother who ran the family business entrusted to him. Appellant claimed that the said payment was not an annuity but a payment - in installments - of a capital sum that was due to him.
On the other hand the Commissioner contended that the said payment constituted an annuity, taxable under article 5(1)(e). To support his argument the Commissioner quoted from various British cases that had held consistently that even where a payment originated from a capital sum it did not necessarily follow that the payment remained of a capital nature in the hands of the recipient. Article 5(1)(e) charged "any pension, charge, annuity..." and made no distinction whether such payments arose from capital or not.
The Board held that to determine whether a sum forms part of a beneficiary's total income, it is necessary to ascertain not whether it arises from capital or income of the trust, but whether it is received by the beneficiary in the quality of income. In this case, appellant was due an annuity, irrespective of whether this was paid out of the business profits or from some other source. Appellant's father certainly never intended that this payment be of a capital nature because the amount of the capital had not been mentioned in the will.
An appeal was entered from this Board decision (case no. 2). The Court confirmed the Board decision.
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