| 6/1/2009 |
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| Board of Special Commissioners - Cases |
| Case No. 1/73 |
Decided: 6 August, 1973 |
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Scholarship awarded to civil servant
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Appellant, a civil servant, was awarded a scholarship by Government to follow a University course leading to a degree in economics. The question arose as to whether the remuneration he was receiving from Government, equal to his normal salary, constituted income arising from the scholarship and, therefore non-taxable, or a salary due to him for employment services rendered and thus chargeable to tax.
When deliberating on the numerous factors involved, the Board was guided by the legal tenets that "No matter what form a transaction may take, the substance is always its vital element" and "Nomenclature is no safe guide" to determine the actual judicial relationship.
Once the parties entered into a contract governing the award of the scholarship the nature of their judicial relationship was changed from that of an employer/employee. The determining factor was the fact that appellant continued in remuneration when he was not carrying out the duties of an employee but was registered as a student. The remuneration, therefore, was not received for services rendered. He could have been compensated for undergoing further studies but, in that case, payments did not constitute a salary even though it was referred to as such by both parties.
It was held as inconceivable that in a contract of employment the sole obligation of one of the parties is to attend University thus rendering a service to himself and not to the other party even though the latter would benefit from a better qualified employee. It is only reasonable that a person attending a scholarship requires some form of maintenance allowance and this fact might have been recognised by Government when drawing up the conditions regulating the award of scholarships to its employees.
In the context of this complex litigation a particular condition incorporated in the contract of scholarship is the salient one. Government reserved the right, in particular circumstances, to demand the refund of all monies disbursed including those falling under the term "salary". It would be absurd to expect an employee to refund his salary after he would have carried the specified job; surely he must have been remunerated for reasons other than that of employment. The Board dismissed the Commissioner's arguments including his plea that it is expressly provided in Estacode that "scholarship holders remain liable to Income Tax, but the charge is limited to the full salary and the dependants allowance." An income is determined to be chargeable to tax in line with the provisions of the Income Tax Act and not by the conditions of a private contract. The provisions of Estacode have no force at law.
The Board decided that the remuneration termed "salary" was in actual fact income arising from a scholarship and, therefore, exempt from tax in terms of article 8 of the Income Tax Act.
An appeal was entered before the Court from this decision (see case no. 95).
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