Sutherland V. Commissioner Of Income Tax

1951 Present; Jayetileke C.J. and Gunasekara J.

SUTHERLAND, Appellant, and COMMISSIONER OF

INCOME TAX, Respondent .

S. C. 235-CASE STATED FOR THE OPINION OF THE SUPREME COURT

UNDER THE PROVISIONS OF SECTION 74 OF THE INCOME TAX

ORDINANCE UPON THE APPLICATION OF MRS. A. J.

SUTHERLAND, EXECUTRIX OF THE ESTATE OF R. W.

SUTHERLAND, DECEASED

Income tax-Employee of Company-Ex gratia payment made to his wife by Company after his death-Profits from employment-Income Tax Ordinance (Cap. 188), Section 6 (1) (b) and Section 6 (2) (a) (i) and (v).

S was the employee of a Company. In pursuance of a resolution passed by the board of directors of the Company shortly after S's death, a certain sum of money was paid to the appellant, who was S's widow and executrix of his estate. The evidence showed that the payment was a gift to S's widow from the Company that had been her husband's employer and that the motive for the gift was the circumstance, that it represented a sum of money that her husband " would have been entitled to if he had survived " though he died before he became entitled to it.

Held, that the payment made to S's widow was not a profit from S's employment' within the meaning of section 6 (1) (b) and section 6 (2) (a) (i) and (v) of the Income Tax Ordinance. The circumstance that at various times the Company's officials chose such expressions as " overdue leave pay '' and " accumulated furlough pay and passage money due to the late Mr. S " to describe the nature of the payment had no bearing on the question.

THIS was a case stated under section 74 of the Income Tax Ordinance.

H. V. Perera, K.C., with P. Navaratnarajah, for the assessee-appellant- It is necessary to interpret the resolution. The resolution has legal consequences as it is an act of the Company's board of directors. Even if the sum paid was a '' gratuity '' the question still arises whether it was a " gratuity " in respect of services rendered. The reason for the gratuity was the fact that Mr. Sutherland did not take leave. If the . payment was made to the deceased's estate and not to the widow, it was compensation for not taking leave, not compensation for work done. See Craib v. Commissioner of Income Tax1[(1939) 40 N. L. R. 337]; Benyon v. Thorpe"[ 14 Tax Cases 1.]; Stedeford v. Beloe 3[(1932) A. C. 388.]. When section 6 (2) (a) (i) of the Income Tax Ordinance (Cap. 188) defines " profits from employment " to include any " gratuity " the word " gratuity " means gratuity in respect of services--Iyengar: Indian Income Tax Act, 3rd ed., p. 230.

If the payment was made to the widow then it was a death-gratuity. Death-gratuities are excluded by section 7 (1).

H, W. R. Weerasooriya, Acting Solicitor-General, with D. Jansze, Crown Counsel, for the Commissioner of Income Tax, respondent.-The question is what is meant by " leave pay ". In the circumstances of this case

it means something superadded to salary in in lieu of leave not taken. The document D8 shows this .the court must interpret the terms of the contract and not the resolution of the board of directors. If Mr. Sutherland was alive he could have claimed this money as something due on the contract of service. The fact that he died did not make any difference. Payment was. made to the estate. How the particular payment is regarded is a question of fact which has been considered by the Board of Review. The Court should not interfere when the Board of Bevies had sufficient material to come to a decision-Guillain v. Commissioner of Income Tax 1[(1949) 51 N. L. R. 241 at p. 247.]. The payment accrued at a point of time immediately before death. Therefore it was a " profit " within the period before cessation of office under section 11 (9). See Davis v. Harrison2[11 Tax Cases 707.]and Dewhurst v[16 Tax Cases 605.]. Hunters. Although payment was made after the period, still it must be regarded as paid on the dat

Click Here to Read the rest of this document