Vander Poorten v. The Commissioner of Income Tax
1942Present; Soertsz and Keuneman JJ.
VANDER POORTEN v. THE COMMISSIONER OFINCOME TAX.
C. (Inty.) 38 (s).
Income Tax—Sums paid in satisfaction of legacy—Statutory income of bene-ficiary—Legacy not liable to tax—Income Tax Ordinance (Cap. 188),s. 11 (.11).
A legacy paid under the last will of a deceased person does not formpart of the-“income of a beneficiary of the estate” of the deceasedwithin the meaning of section 11, sub-section (11), of the Income TaxOrdinance and is not liable to tax in the hands of the legatee.
HIS was a case stated for the Supreme Court by the Board of Reviewunder the Income Tax Ordinance.
Two questions arose in the case stated, viz. : — (1) whether or not twosums of money paid to the appellant's wife by the executors and trusteesof the last will of A. W. Winter fall within the definition of profits orincome under section 6 of the Income Tax Ordinance and/or whetherthese two sums of money are part of the statutory income of a beneficiaryof the estate of the deceased, Mr. Winter, within the meaning of sub-section (11), section 11, of the Ordinance.
H. V. Perera, K.C. (with him N. M. de Silva), for assessee, appellant.—The legacy of Rs. 10,000 is a capital receipt in the hands of the legateeand is, therefore, not taxable.
This sum cannot be caught up under section 11 (11) for two reasons : —(1) It is a capital sum. (2) The wife of the assessee, i.e., the personreceiving the legacy, is not a beneficiary of the estate of a deceased person.There is a distinction between one who is a legatee and a beneficiary. Abeneficiary is one who has an interest in the property of the deceased.
An examination of the various amendments of section 11 clearly showsthat it was never the intention of the Legislature to tax legacies or otherpayments in nature of capital payments. The latest amendment, i.e.,the portion within brackets, merely makes explicit what was implicit inthe section.
The Board of Review sought to bring this amount under section 6 (1) (f)or (h). This cannot be done. Charge has nowhere been defined. Hereit is intended to be a charge in the nature of an annuity, which is specificallytaxed. The corresponding section in the English Act refers to “ annuityor other annual payment ”. The draftsman in Ceylon has merelyrevised the order.
Under 6 (1) (h) this payment is casual. It is a simple legacy—themode of payment does not affect the question.
H. H. Basnayake, C.C., for Commissioner of Income Tax, conceded thatfor the purposes of this appeal he could not support the finding of the Boardof Review, that the legacy falls within the ambit of section 6.
The legacy was statutory income of the beneficiary under section 11 (11).Every payment from an executor to a beneficiary is taxable under thissection. The executor is exempted from the payment of tax and, therefore,the beneficiary has to pay. The wife of the assessee is a beneficiary.
482 SOERTSZ J.—Vantler Poorten v. The Commissioner of Income Tax
She has an interest in the property of the deceased and is entitled toget her legacy from the estate. In fact, the estate is charged with thepayment of the legacy. Counsel refers to definition of term “ beneficiary ”in Stroud’s Judicial Dictionary, p. 183, where it is defined as one who isinterested in property and entitled to it for his own benefit.
Cur. adv. vult.
September 9, 1942. Soertsz J.—
This is a case stated by a Board of Review under the Income TaxOrdinance for our consideration. It was . stated at the instance of anassessee who appealed to the Board unsuccessfully against the decisionof the Commissioner of Income Tax.
Two questions arose on the case as stated by the Board, namely,“whether or not the two sums of Rs. 2,509 and Rs. 5,000”, paid, tothe appellant’s wife by the executors and trustees of the last will ofA. W. Winter, “fall within the definition of ‘Profits’ or ‘Income’under section, 6 of the Income'’Tax Ordinance” and/or “whether or notthese two sums are part of the statutory income of a beneficiary of theestate of the deceased Mr. Winter, within the meaning of sub-section 11 (11)of the Ordinance
These two sums of money were paid to the assessee’s wife in thefollowing circumstances. A. W. Winter, who died in December, 1931,left a Last Will and Testament by which, inter alia, he gave and devised ahalf of Pillagoda Valley to his executors and trustees upon/trust to payfrom the income thereof, together with the income from the other half of
Pillagoda Valleyto Hilda, the wife of Joseph Vander
Poorten (the appellant), the sum of Rs. 10,000 on certain conditions.The testator left it open to the executors and trustees to pay this sum inreasonable instalments. The relevant conditions having been satisfied,the executors and trustees, in the exercise of the discretion given to them.,paid these two sums of money to the appellant’s wife in part satisfactionof the legacy.
The Assessor, in assessing income in this case, included these two sumsof money as liable to tax. On appeal, the Commissioner of Income Taxupheld this assessment as properly made, in virtue of section 6 (1) (/)and sub-sectiens 10 and 11 of section 11 of the Income Tax Ordinance(Cap. 188). The Board before whom the matter then went took the sameview, and stated this case.
Crown Counsel, appearing on behalf of the Commissioner of IncomeTax, conceded, I think quite rightly, that he could not .support the viewthat the sums involved were income under section 6 (1) (/) or under anyother category of section 6 (1).~'
The sole question, then, that we have to answer is whether thesesums, although they are not within the meaning of “ profits ” or “ income ”in section 6 (1) of the Income Tax Ordinance, are none the less liable totax in the hands of the appellant’s wife under sub-section 11 (11) of theOrdinance.-
Once it is. conceded that these sums of money are not “ profits ” or“income” within the meaning of section 6 (1), which is the section thatenumerates the things that are income, chargeable with tax, there mustbe clear words in some other provisions of the Ordinance to render liable
Velupillai v. Sabapathipillai.
to tax that which is not income either in the ordinary connotation of thatword, or in the meaning given to it by section 6 (1). There are no suchwords in the sub-section relied upon, namely 11 (11), which is in theseterms : —
“The statutory income for any year of assessment of any beneficiaryof the estate of a deceased person administered by an executor shall,subject to the provisions of sub-sections (8) and (9), be the amountof profits or income received by or distributed to him, or applied to hisbenefit, from the income of the estate during the year preceding thatyear of assessment.”
Assuming, without conceding, that the appellant’s wife, who is a legateeunder the will of A. W. Winter, is a beneficiary of his estate, sub-section 11(11) would render her, and not the executor, liable to pay tax on thatpart of profits or income received by or distributed to her as the shareof profits or income due to her. But these sums of money, althoughthey were income in the hands of the executors and trustees, came intoher hands not as income but as part of a capital sum due to her onaccount of the legacy left to her. The latest amendment of the IncomeTax Ordinance, effected at a date subsequent to this case, makes it quiteclear that such receipts are not liable to tax. That amendment introduces-certain additional words placed within brackets at the end of sub-section 11(11) as quoted by me above. Those words are : —
(“ otherwise than as the capital amount, or any part of the Capitalamount of his interest in the Estate ”.)
In my view, the insertion of those words, in that way, was not intendedto. and did not, alter the law but served to make explicit the true content•of the law as it stood. They are explanatory words.
I would, therefore, in answer to the one question left for our consideration.say that these two sums of money are not liable to tax in the hands of theappellant’s wife under sub-section 11 (11).
The appellant is entitled to costs.
Xeuneman J.-—I agree.
VANDER POORTEN v. THE COMMISSIONER OF INCOME TAX