| 22/8/2008 |
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| Court of Appeal - Decisions in Income Tax Cases |
| Case No: 92 |
Decided: 25 June, 1973 |
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Taxability Of A Salary Paid Over To A Company. Application Of Income. Requirement To Declare Dividends Received Under Deduction Of Tax At Source. Penal Additional Tax: Referral Back To The Commissioner
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The taxpayer was encouraged, together with other members of his family, to take up shares in an enterprise that was being privatized. It was agreed that this would be done through companies. Taxpayer and his family borrowed sources through their companies so that the investment could be effected. This was done by the companies. The main shareholder appointed them as directors of the newly privatized enterprise so that "...the remuneration which these posts would carry would affect the cost of your investment seeing that there would not be any guarantee of any dividend..." Taxpayer's family then agreed in writing that they would turn over their salaries to the respective companies. This was done and duly incorporated in the companies' accounts.
Taxpayer claimed that he should not be brought to charge on his salary, as his receipt from the source was a matter of convenience, and the actual beneficiary were the companies. The Courts rejected the plea. This was an application of income after it had arisen. U.K. practice was quoted with approval: "Where the holder of an office receives the emoluments and hands them over to a third party under some arrangement between them, the holder of the office is treated for tax purposes as having received the emolument and as being taxable accordingly."
As regards dividends received under deduction of tax at source, the Court confirmed that there was nothing in the law exempting such income from being declared. (Note: in the absence of arrangements such as at present hold good).
As regards final additional tax, the Board had held that the Commissioner could not have had all the relevant facts available to him at the time he had exercised his discretion, since most of these facts had come to light during the course of the hearing. This issue was therefore referred back to him for further consideration. The Revenue did not appeal from this part of the Board's decision.
BSC Case No: 8/70
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