| 7/2/2012 |
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| Board of Special Commissioners - Cases |
| Case No. 13/52 |
Decided: 31 March, 1953 |
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Taxability of annuities - article 5(1)(e), now article 4(1)(d), Income Tax Act
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Appellant transferred his business to his son. His son agreed to pay him Lm3,800 for the stock, machinery and vehicles. In consideration of the goodwill and tenancy, his son agreed also to pay a weekly annuity of Lm5 payable until appellant's and his wife's death. Appellant claimed that the annuity received from his son was for the cession of a right and, being of a capital nature, was not taxable in his hands. The Commissioner maintained that whatever the circumstance, an annuity is always taxable under article 5(1)(e).
The Board noted that our law taxed annuities both when constituted by onerous title (as in this case) and when constituted gratuitously (where there is no doubt as to its taxability). The Board noted that in Malta annuities are a much older concept than income tax itself, therefore if the law really wanted to distinguish between that part of the annuity which refers to capital and that part which refers to interest, it could have easily done so. But since such a distinction had not been made by the Act (contrary to what had been done in the case of Australia), it could not be made by the Board.
The Board considered that under British legislation annuities were always taxable unless these consisted of payments by installment of an ascertained capital sum. The Board quoted from authoritative British texts and tax cases.
It was held that appellant had actually bought an annuity that assured him of an amount of income until his death. The situation was analogous to that of the owner of a temporary emphyteusis: part of the emphyteusis represents capital, yet the recipient is taxable on the whole amount because the law did did not distinguish between the income and the capital element of the payment.
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