| 6/1/2009 |
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| Board of Special Commissioners - Cases |
| Case No. 38/58 |
Decided: 22 September, 1959 |
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Interest is deductible when due, except when it is established that it will definitely not be paid - article 10(1)(a), now 14(1)(a), Income Tax Act
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Appellant, a widow, had inherited from her husband a large liability on which interest was due. The creditor had given up all hope of receiving this money and had entered into an arrangement whereby he accepted a part of the sum in full settlement. He also informed Revenue that he had renounced his right to the interest due. In the light of this declaration the Commissioner declined to allow appellant a deduction in respect of interests. Appellant, on her part, maintained that interest was deductible when it became due and, in any case, she had never accepted the creditor's unilateral action.
The Board held that, in principle, interest was deductible when it became due and not when it was actually paid. If, however, in the meantime circumstances changed with retroactive effect, interest was not deductible, once it was not due in the first instance.
It was established from evidence given by appellant's son, that appellant had in fact expressed her opposition to the terms of agreement with the creditor because it would not be to her advantage as regards tax. This notwithstanding, when the agreement was drawn up and signed, no reservation was made by appellant and no indication was made as to whether payment was being effected in settlement of capital solely or on any interest thereon. The creditor had every right to set off the amount received against that part of the capital originally owned to him. Once payment was being made in full and final settlement interests were no longer due. Moreover, when signing the agreement without reservations appellant had tacitly accepted the waiver of interests with retrospective effect.
An appeal was entered before the Court from this decision (see case no. 34).
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