| 21/8/2008 |
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| Court of Appeal - Decisions in Income Tax Cases |
| Case No: 40 |
Decided on 10 October 1961 |
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Whether Interest Payable On Outstanding Death Duties Was Deductible Against The Income Arising From The Inherited Assets
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Basing himself on the bare wording of the law, the Commissioner of Inland Revenue claimed discretionary powers in the deduction of interest. It was held, however, that while the details of the amounts due for deduction could be subject to such discretion, whether at law a deduction was due or not was subject to appeal.
The tribunals, however, agreed with the Revenue that no deduction was due because, in the first place, the law required that interest had to be paid on "sums borrowed" and unpaid death duties had not been borrowed by the taxpayer from the Revenue. (The Court also implied clearly that if the taxpayer had borrowed money from third parties to settle the duties, the relative interest would still not have been deductible).
Secondly, it was held that deductions could only be granted for expenses which had been incurred in the production of income, and death duties payable on inherited assets did not help to produce the income accruing to the taxpayer from the assets. The interest upon unpaid death duties is not a charge on the income. It is payable upon a debt unconnected with that income which the taxpayers are liable to pay irrespective of the income arising from the assets. The debt is a personal debt of the heirs due by them in consequence of their having inherited assets, but it is not a condition antecedent to the production of the income. Death duties are actually payable irrespective of whether there exists income from the inherited assets. The payment of interest, in any case, was to be considered as an application of income that had already arisen.
The Court also rejected various other peripheral arguments brought forward by appellants, and approved the principle established in the U.K. courts to the effect that:
'In taxation you have to look simply at what is said. There is no reason or any intendment; there is no equity about a tax: there is no presumption about a tax. You read nothing in, you imply nothing: but you look fairly at what is said and what is clearly said, and that is the tax'.
BSC Case No: 13/60
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