| 6/1/2009 |
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| Board of Special Commissioners - Cases |
| Case No. 4/62 |
Decided: 7 February, 1963 |
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Tax on arrears of interest payments; interests paid in arrears cannot be considered as "capital repayment"; nothing impedes the Commissioner from changing his interpretation of a legal provision - article 5, now 4, Income Tax Act
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During war time and the immediate post-war years no interest was paid on Japanese bonds. In 1952 the Japanese Government set up a scheme whereby the bonds were re-cycled and for ten years interests were paid both in respect of the current year and of one the preceding ones. Taxpayer argued that since most of the arrear years preceded the promulgation of the Income Tax Act, no tax should have been charged on the arrears portion.
This matter had already been treated by the Board in case no. 37/59 and its decision was confirmed by the Court of Appeal (case no. 38). The Court had ruled that interest was taxable when paid. Following precedents established in the U.K. courts, it was held that receivability (during the arrears years) without receipt is nothing. Income accruing was not taxable until received, except in trade matters where the rules of accountancy were based on the accruals principle. In the case Leigh vs Commissioners of Inland Revenue (May 1927) it had been expressly stated that "a debt that has been long delayed has been all along receivable but the receivability which is touched upon is the receivability under which there has been a receipt." Quoting extensively from established authors, the Board held that there was no justification for it to treat this case differently from that decided upon by the Court of Appeal.
The Board also rejected taxpayer's plea that as the Revenue had once issued a letter (to another taxpayer) to the effect that no tax would be charged in cases when the bonds in question had been owned before the payment arrangements were made, the Commissioner could not go against his own ruling. The Board held that there was nothing in general law that prohibited a change of interpretation.
An appeal was entered before the Court from this decision (see case no. 52).
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