INCOME TAX CASE

New Zealand Herald, Volume LXXV, Issue 23067, 18 June 1938, Page 18

INCOME TAX CASE

INTEREST ON LOAN MONEY TO PAY DEATH DUTY EXEMPTION FROM ASSESSMENT [BY TELEGRAPH —PRESS ASSOCIATION] "WELLINGTON, Friday The Appeal Court delivered judgment to-day in tho caso of the Public Trustee (as executor of the Robert Hannah i Estate), versus the Commissioner of | Taxes. Tho question considered by the Court was whether the interest payable on moneys borrowed by the Hannah Estate to pay death duties was a deductible item in arriving at the amount of income assessable for tax. The Court held that tho interest on so much of the borrowed money as was used in producing assessable income is deductible. Not a Voluntary Debt "Here the death duties were not a voluntary debt," said the Chief Justice, Sir Michael Myers. "They were the debt of the estate, which was a charge upon the estate, and which the trustee was compelled to pay. Tho Death Duties Act authorises him to borrow money upon the security of the assets of the estate in order to enable him to pay duty. It was not, therefore, a voluntary expense incurred by the estate. Here also the money was borrowed in order to prevent a reduction of income. "The borrowed money was not employed for purposes alien to, or independent of property, and tho loan here was instrumental in, or conducive to the production of assessable income. It cannot bo said that the debt was incurred for a purpose wholly unconnected with tho production of the assessable income of the estate. On the contrary, it was incurred for the very purpose of maintaining tho income of the estate and preventing its reduction." Judgment Reversed For tho reasons stated in his judgment, His Honor said he found himself unable to agree with the judgment of the Court below. Inasmuch as the money borrowed was employed in the production of both assessable and nonassessable income, tho answer he would make to tho question asked was that as a matter of law part of the interest was deductible. The quantum of such deduction was a matter of fact, and it was for the commissioner to decide. No difficulty arose in tho present caso because the parties had agreed as to the basis of deduction. Mr. Justice Blair concurred in Sir Michael's judgment and Mr. Justice Callan wrote a separate judgment agreeing with it. Mr. Justice Northcroft, however, dissented, expressing the opinion that the exemption claimed was not available. Costs on the lowest scale were allowed the appellant.