| 7/2/2012 |
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| Board of Special Commissioners - Cases |
| Case No. 32/71 |
Decided: 16 August, 1972 |
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Interest accruing in a Staff Provident Fund and payable on retirement are brought wholly to charge in the year payment is effected; gratuities are tax-exempt only when they are ex gratia - articles 5 and 8, now 4 and 12, Income Tax Act
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In terms of a life insurance policy appellant was entitled to a share of the company's annual profits. He disputed the Commissioner's decision to consider such income as being chargeable to tax citing Newport that "it is a recognised axiom that a man cannot make a profit out of himself, and it is for this reason that mutual profits are exempt from tax." The Board observed, however, that appellant had failed to prove that the contracted insurance company was a mutual trading organisation and that the profits have arisen from the excess contributions of the holders of participating policies. In the circumstances the principle referred to is not applicable and the income was chargeable to tax as held by the Commissioner.
Appellant also maintained that part of the sum he had received from a Staff Provident Fund, on retirement, consisted of interests that had been accumulating over the years. Taxpayer argued that, in the light of the provisions of article 5 of the Act, tax is imposed on "the income of any person accruing in or derived from Malta or elsewhere". Hence, the income due to him in those particular years could not be brought to charge wholly in the year of actual receipt. It was stated in evidence that, on retirement, taxpayer had to receive a sum that included both the contributions and the accumulated interests. The Board noted that it follows that at the time the interests were credited to him he was not entitled to encash them and, therefore, they were not actually due at that point in time. This plea was, therefore, also rejected.
The Commissioner's decision to bring to charge the sum received by appellant from the Staff Indemnity Fund on retirement, was also disputed by the latter. He argued that this constituted a retiring gratuity and was thus exempt in terms of article 8. The Board agreed that a gratuity is tax-exempt but only when it is paid ex gratia and not ex jure. It resulted that in terms of the Rules of the Staff Indemnity Fund the fund "has been and shall continue to be made up of special donations which the Bank has already made and may hereafter make to it". It is evident that the Bank was under no obligation to make donations to the Fund and the staff had no legal right to the retirement payments or even its quantum. The Board ruled that payment had been effected ex gratia and was, therefore, not chargeable to tax.
An appeal was entered before the Court from this decision (see case no. 94).
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