| 4/2/2012 |
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| Court of Appeal - Decisions in Income Tax Cases |
| Case No: 2 |
Decided on 7th May 1951 |
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Capital As Against Income: Taxability Of A Payment Received In Virtue Of An Obligation Imposed On A Legatee By A Testamentary Disposition.
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A businessman, who was already a widower, made use of certain provisions of the Civil Code to bequeathe by way of legacy to one of his children the whole of a business which actually belonged to the community of acquests with his pre-deceased wife. Excluded from the legacy were debtors and creditors of the business, as well as the value of the stock existing at the time of his death, at cost price.
The other children of the deceased were to transfer to the legatee their respective quotas of the business, on pains of being excluded from the inheritance (except for the legitim i.e their reserved portion). They were however to receive from the legatee:-
(a) an annual payment for four years;
(b) a lump sum payment each at the end of the four years.
The Court of Appeal held that both payments to be made by the legatee under these arrangements represented the consideration which the other children were to receive from the legatee for being deprived of their share of their mother's inheritance. Hence the annual payment received was not taxable. The final lump sum payment was not in dispute, presumably because it had not yet been received. The Court did not specifically state that no taxability arose because the payments were capital in character, but this is the inevitable conclusion. The annual payment received during the year had been brought to tax as an annuity, and the Court limited itself to stating that no such charge arose.
N.B.: The law was later amended to include an "annual payment" in the charging section together with "annuity". The effect of this addition does not appear to have been judicially clarified to date.
BSC Case No: 17/50
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