CROWN APPEAL.

Auckland Star, Volume LXXI, Issue 159, 6 July 1940, Page 15

CROWN APPEAL.

DUTY ON GIFTS.

INTEREST-FREE LOANS. | . I DECISION OF THE COURT. (By Telegraph.—rress Association.) WELLINGTON, Friday. The Court of Appeal in delivering judgment in an appeal by the Commissioner of Stamp Duties, rejected the contention made on behalf of the commissioner that loans of money without interest were gifts within the meaning of the Death Duties Act and as such liable to gift duty.

In 1925 John Wiltshire Card, solicitor, of Featherston, to enable a son, John Alfred Card, farmer, of Langdale, to acquire fanning property, advanced to him £2001) secured by mortgage over the property, repayable on demand with interest in the meantime. In addition to covenants usual in such mortgages there was a special provision that subsequent advances should be free of interest.

On the same day a further advance of £.5000 was made, and in 192(3 Card reduced the £2000 first advanced by a gift of £1000 to his son and lodged with the commissioner a declaration under the Death Duties Act that this reduction was a gift.

Reductions Exempt from Duty. Similar advances and similar reductions were made in subsequent years, and in 1939 the amounts advanced, and the reductions made, each amounted to £!}(i2.->. In each case the reduction was of an amount which by reason of its size was exempt from duty. The Commissioner of Stump Duties, contending that tlio advances made free of interest were dispositions of property without adequate consideration, and therefore gifts, that the systematic course of reductions showed the substance of the transaction to have been a transfer of a large part of the father's estate to the son and that the security taken was merely to hide the true transaction, ti-eated all advances made without interest as gifts and assessed them with gift duty.

From that assessment Card, sen., appealed to the Supreme Court, and the appeal was allowed. From that decision the Commissioner of Stamp Duties appealed to the Court of Appeal. Opinions of Judges. In delivering judgment the Chief Justice, Sir Michael Myers, said the neat question before the Court was whether a loan of money made by one person to another without interest was within the meaning of the Deatli Duties Act, 1931, a gift of principal moneys lent and liable to gift duty accordingly on the whole amount of the principal moneys. "For myself," said the Chief Justice, "I can see no foundation in either justice or reason to support the commissioner's assessment."

Referring to results which would follow if the Crown's contention were correct, his Honor said: "Legislation intended to produce fantastic results of this kind—results so contrary to natural justice—must, as repeatedly lias been said, be expressed in clear and unequivocal language. There is certainly no such language in the statute which is now being considered." Mr. Justice Ostler described the i Crown's contention as "startling and still more so when it is remembered' that sections 38 and 39 have been in operation for thirty years, during which time there must have been thousands of loans made without interest and this is the first time such a contention has ever been raised." His Honor held that the loans were not gifts and were not dutiable. Mr. Justice Smith' also agreed that there was no duty payable, but Mr. Justice Fair dissented, holding that omission to insist on payment of interest was a partial gift included in the disposition of property which rendered the whole of the loan dutiable. Judgment dismissing the appeal was entered in accordance ' with the views of the majority. The Crown has given notice that it intends to apply for leave to appeal to the Privy Council.