Y. v Board of Inland Revenue

• Jurisdiction: Trinidad & Tobago
• Judge: Barnes, J.,Burke, J.,Dean-Maharaj, J.
• Judgment Date: 11 February 1992
• Court: Tax Appeal Board (Trinidad and Tobago)
• Docket Number: Nos. I 137 - I 142 of 1988
• Date: 11 February 1992

Tax Appeal Board

Barnes, J.; Burke, J.; Dean-Maharaj, J.

Nos. I 137 - I 142 of 1988

Y.

and

Board of Inland Revenue

Mrs. Maureen Rajnauth-Lee for appellant

Miss Allyson West for respondent

Revenue law - Income tax — Appeal against assessment to income tax and unemployment levy and refusal of respondent to allow deductions of alimony payments to appellant's former spouse who was residing abroad — Appellant entitled to deductions of alimony payment under s. 20 because the former spouse was chargeable to tax under s. 50 — Appeal allowed.

1 JUDGMENT of COURT: These are appeals against assessments to income tax and unemployment levy for the years of income 1980, 1981, 1982 and 1983, and particularly against tare decision of the respondent to disallow the appellant's claims for deductions of alimony payments to his former spouse who was residing abroad during those years of income. These appeals were consolidated by Order of the court on 13th June, 1991.

2 The facts are not in issue, as is evidenced by a joint statement signed by counsel for the parties and submitted to the court. This statement is set out below –

“TRINIDID AND TOBAG0.

APPEALS NOS. I 137 - I 142 of 1988

Y - V - BOARD of INLAND REVENUE

AGREED FACTS

For the income years 1980, 1981, 1982 and 1983 the appellant made to his former wife, resident in Canada, alimony payments in the sums stated on his Tax Returns for the said respective income years. Both the order of the Supreme Court of Ontario and the Agreement for alimony thereunder were made in Canada.

Signed on behalf of the appellant:

MAUREEN RAJNAUTH-LEE

Signed on behalf of the respondent:

ALYSON WEST

24.7.91”

3 In these circumstances no evidence was taken and the hearing consisted only of legal submissions by counsel.

4 The issues in this case may be gleaned from the respondent's case as set out at paragraph 12 of the Consolidated statement of case, as under:–

• “(a) that the income tax returns filed by the Appellant in respect of the years of income 1980 to 1983 inclusive did not accurately reflect his income tax liabilities for those years or his unemployment levy Liabilities for the years 1980 and 1981;

• (b) that by virtue of Section 20 of the Income Tax Act, a person may not deduct a maintenance allowance paid to a spouse from whom he is separated, or alimony paid to a former spouse, unless the spouse or spouse receiving such maintenance allowance or alimony is chargeable to tax thereon under said Act;

• (c)that the appellant's spouse or former spouse is not chargeable to tax on said maintenance allowance or alimony payments under the Income Tax Act;

• (d) that in the premises, the respondent acted properly and within the powers granted to it by the Income Tax Act in disallowing the appellant's claims in respect of said alimony payments.”

5 The alimony payments claimed by the appellant, according to para 3 of the consolidated statement of case, are for each of the years 1980 to 1982: $12,600; and for 1983: $14,400.

6 Both the appellant's claim, and the respondent's decision to disallow, turn on the construction of section 20 of the Income Tax Act Chap. 75:01, and it is quoted hereunder is extenso –

“20. (1) Subject to subsection (2), an individual to whom 66etion 17 applies who, in the year of income has paid –

(a) a maintenance or separation allowance in accordance with the terms of a registered deed of separation or an order of any court of competent jurisdiction to his or her spouse from whom he or she is separated; or

(b) alimony to a former spouse from whom he or she is divorced under a divorce recognised under the laws of Trinidad and Tobago, shall be entitled to a deduction equal to the amount of such allowance or alimony.

(2) The deduction allowable under this section shall not apply unless the spouse or former spouse, as the case may be, receiving such maintenance or separation allowance or alimony is chargeable to tax thereon under this Act.”

7 Mrs. Rajnauth-Lee in putting the appellant's case submitted that as required by section 20(2) the appellant's former spouse should be receiving alimony payments (which was not in issue) and that she must be chargeable to tax on those payments under Chap. 75:01. She further submitted that the words “under this Act” did not mean “in Trinidad and Tobago” and therefore should not be confused with whether the former spouse is paying tax in Trinidad and Tobago. In support of this, counsel for the appellant suggested that section 20(2) should be compared with section 12(h)(i) of the Income Tax Act, quoted below.

“12. In ascertaining the chargeable income of any person for any year of income, no deduction shall be allowed from the income in respect of –

(h) sums paid by any person by way of interest upon any money borrowed by that person for use in the production of the income, unless

(i) the person receiving such interest is chargeable to tax,”

8 The court's attention was then drawn by Mrs. Rajnauth-Lee to a letter from the respondent to the appellant dated 15.1.88 (folio 40 of I 137 of 1988) in which the taxpayer was asked inter alia for evidence of payment of withholding tax on his alimony payments, and in this regard she urged that section 50 of the Income Tax Act should be examined.

9 It seems to the court that the relevant provisions of this section are subsections (1)(b) and (3), which are set out below:–

“50. (1) There shall be levied and paid income tax, in this Act referred to as withholding tax, at the rate set out in Part II of the Third Schedule–

(b) on any payment made to any person not resident in Trinidad and Tobago or to any person on behalf of such non-resident person, and to every non-resident company (where such person or company is not engaged in trade or business in Trinidad and Tobago), so however that in the case of a payment arising outside Trinidad and Tobago to such a person or company withholding tax shall not be payable.

(3) Where the payment or distribution is made to a person who is not resident in Trinidad and Tobago or to a non-resident company, and such person or company is resident in a country with which there is a double taxation agreement or Order under section 93, the person or company making the payment shall, nevertheless, deduct tax at the rate specified in Part II of the Third Schedule, unless the person or company making the payments satisfies the Board that a reduced, rate of withholding tax applies under or by virtue of the double taxation agreement or Order under section 93.”

10 Counsel for the appellant argued that if withholding tax was payable on the alimony payments, it followed that the appellant's former spouse who was receiving these payments was chargeable to tax thereon as contemplated by section 20 and that no deduction is to be allowed under Chap. 75:01 in ascertaining the appellant's chargeable income unless he has accounted for and paid over the withholding tax to the respondent.

11 Mrs. Rajnauth-Lee said that the question of withholding tax was crucial to the determination of the appeals. In making the point that under the Income Tax Act the payment of withholding tax on the alimony was essential to the granting of deduction in ascertaining the chargeable income of the appellant, she referred to section 12(i) of Chap. 75:01, as under:–

“12. In ascertaining the chargeable income of any person for any year of income, no deduction shall be allowed from the income in respect of –

(i) payments within the meaning of section 51, unless the payer has accounted for and paid over withholding tax to the Board.”

12 “Chargeable to tax” said Mrs. Rajnauth-Lee means liable to a charge or payment of tax and “thereon” means on the money received by way of alimony payments. She asked the court to find, from the respondent's enquiry of to appellant regarding withholding tax on those payments, that the respondent too had been of the view that the former spouse was chargeable to such tax.

13 She contended that assuming withholding tax was payable, the...