| 6/1/2009 |
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| Board of Special Commissioners - Cases |
| Case No. 8/62 |
Decided: 27 July, 1965 |
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Tax on arrears of interest payments (Japanese Bonds) - taxability of the "arrears" portion in the hands of a usufructuary - article 5, now 4, Income Tax Act
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During wartime and 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 one of 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.
The Board had already treated this matter twice, in cases numbers 37/59 and 4/62, and its decisions were both confirmed by the Court of Appeal (case nos. 38 and 52).
This case differed from the others in that the original owner of the Bonds had died and, for death duty purposes, his estate was deemed to include the arrears element of the interest. When the interest was paid, it was brought to charge as income tax in the hands of his surviving spouse as usufructuary. This applied to the deceased husband's share of the community of acquests. No problem arose regarding the widow's own share. Appellant pointed out that for death duty purposes the interest was considered to be capital in nature and, therefore, the Commissioner could not now treat it as income. The question was also raised regarding the actual entitlement to the arrears interest between the heirs of the deceased and his usufructuary.
The Board held that the new circumstances did not impinge upon the principles on which the two other cases were decided and confirmed by the Court of Appeal. The death duty and income tax taws were two separate legislative measures and each had to be applied in its own context.
An appeal was entered before the Court from this decision (see case no. 63).
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