| 21/8/2008 |
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| Court of Appeal - Decisions in Income Tax Cases |
| Case No: 64 |
Decided on 3 April, 1967 |
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Income 'Received In Malta' By Non-Residents. Different Tax Results Emerging From Different Financial Arrangements.
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The Income Tax Act establishes its territorial boundaries by limiting the world-wide basis of assessment in the following terms:-
'Provided that in the case of income arising outside Malta to a person who is not ordinarily resident or not domiciled in Malta, the tax shall be payable on the amount received in Malta'.
This proviso is usually depended upon to establish the remittance basis of assessment applicable in cases where the taxpayer is either not ordinarily resident or not domiciled in Malta. It however also found application in the unusual circumstances of the present case.
The taxpayer was separated from her husband from whom she received alimony in terms of a notarial contract. It had already been decided in case no 55 that such payments constituted income in the recipient's hands. The particular circumstances in this case were that the husband was resident in U.K., while his separated wife was resident in Australia. Both were apparently also domiciled in the respective countries. The husband, however, was in receipt of a Malta Government pension which was paid to his representative in Malta. This representative, in turn, paid the wife's alimony out of the pension to the wife's representative, also in Malta.
The Board of Special Commissioners took the view that this was a question of debtor and creditor in respect of a debt. On the basis of U.K. case law, the Board held that the locality of debts was the country where the debtor resided. In the present case this was the U.K., and since the creditor (i.e. the wife) was resident in Australia, no income fell within the tax net spread by the Maltese Income Tax Act.
The Court disagreed. The regulatory provision in the Income Tax Act in the matter was the above quoted proviso, and what one had to see was whether there was income being received in Malta by the separated wife, although she resided outside Malta, irrespective of where the income was to be held to arise. The Court held that, in the circumstances of the case, the wife was receiving income in Malta when her representative in Malta received the alimony payments. It was true that matters could perhaps have been so arranged as to achieve non liability, but the Court quoted with approval the following ruling in a U.K. case:-
'...in dealing with income tax questions it frequently happens that there are two methods at least of achieving a particular financial result. If one of these methods is adopted tax will be payable. If the other method is adopted, tax will not be payable... The net result from the financial point of view is precisely the same in each case, but one method of achieving it attracts tax and the other does not'.
BSC Case No: 33/65
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