Commissioner of Taxpayer Audit and Assessment v CIBC Trust and Merchant Bank Jamaica Ltd and Others
| Jurisdiction | Jamaica |
| Judge | HARRISON, P. , COOKE, J.A , MCALLA, J.A.: , HARRISON, P: |
| Judgment Date | 08 November 2006 |
| Neutral Citation | JM 2006 CA 61 |
| Judgment citation (vLex) | [2006] 11 JJC 0801 |
| Date | 08 November 2006 |
| Court | Court of Appeal (Jamaica) |
REVENUE LAW - Pension Fund liable to income tax
This is an appeal from the decision of Anderson, J on 17th December 2003 in which the learned trial judge found that -
"The sum paid to the Trustees by the Government of Jamaica pursuant to the Order of the Privy Council made herein on the 28th day of April 1999 and which represents the employees' share of the surplus existing in the Air Jamaica Pension Fund at its discontinuance in 1994, is not liable to income tax."
The facts relevant to this appeal are that the employees of Air Jamaica Ltd, a company owned by the Government of Jamaica, were contributories to a pension scheme created by a Pension Plan dated 1 st of April 1969, ("The Pension Plan"), and by a Trust Deed of the same date. This scheme provided defined benefits for such employees, their widows and beneficiaries.
In 1994, as a result of a privatization agreement, the Government sold its interest in the company. All the employees except four were made redundant on 30 th June 1994. The remaining four, who were trustees of the pension scheme were made redundant on 30 th September 1994. Many of these employees were re-employed by the new owners and new pension arrangements were entered into.
In 1994 the defined benefits were paid out under the Pension Plan leaving a surplus of, in excess of $400m, which had been built up in the trust fund.
In August 1994, by an originating summons, the employee intillbers of the pension scheme, sought a declaration "... that the Plan was discontinued ..." and an order that "the balance of the fund should be applied for (their) benefit ... and their defendants in accordance with section 13 of the Plan." On appeal, the Court of Appeal, by a majority, reversing the trial judge, held that the Pension Plan was discontinued on either the 30 th June 1994 or 30 th September 1994, that section 13.3(ii) of the Plan was not void in that it did not infringe the rule against perpetuities, as the trial judge had found, and therefore the balance of the trust fund should be for the benefit of the employees in accordance with section 13.3(ii).
Their Lordships in the Judicial Committee of the Privy Council in Air Jamaica Ltd et al v Charlton et al (1999) 54 WIR 359 held , inter alia, in disagreement with the Court of Appeal, that the Plan was discontinued on 30 th June 1994, that certain sections, including section 13.3(ii) of the Trust Deed were void for perpetuity and therefore the surplus was held on resulting trust for the benefit of those who provided the funds.
On 17 th July 2000, the Supreme Court appointed the respondents trustees of the resulting trust, who, by summons asked the question:
"Whether the sum paid to the trustees by the Government of Jamaica representing the members' share of the surplus existing in the ... Pension Fund at its discontinuance in 1994 ... is chargeable to income tax..."
The appellant, Commissioner of Taxpayer Audit v. Assessment had claimed that income tax was payable.
The issues therefore before Anderson, J were, whether the said sum paid to the trustees of the resulting trust was subject to income tax and whether or not the said trustees should deduct such tax before payment to the beneficiaries. Anderson, J found that the said surplus, having arisen from a failed trust, is not income chargeable to tax, under either section 5 or section 44 (3)(c) of the Income Tax Act.
Mr. Hylton, Q.C., for the appellant, argued before this Court that the portion of the fund paid to members of the Pension Plan was "of an income nature" and liable to income tax, the declaration of a resulting trust did not change the character of the surplus from being income, the trustees had taken the first and second of the three steps necessary leading to the final winding up of a trust fund and any excess funds were subject to taxation. The character of the surplus funds in the determination whether income tax is payable or not, did not depend on whether the Fund was "discontinued" or "wound up". However, there was evidence contained in the affidavit filed on behalf of the appellant that the Fund was being wound up as a consequence of its discontinuance on 30 th June 1994.
Mr. Mahfood, Q.C., for the respondents, submitted that the money in the resulting trust which arose by operation of the general law on the failure of the original Trust was not taxable income, within either section 5 or section 44(3)(c) of the Income Tax Act. He relied on Halsbury's Laws of England Volume 23 paragraph 82 concerning the construction of statutes inclusive of fiscal legislation. He further maintained that the decision by the Judicial Committee of the Privy Council in Air Jamaica Ltd v Charlton et al supported the view that the said money was capital and not income subject to income tax. The said surplus arose as a consequence of the resulting trust and not on the winding up of an approved superannuation fund. Only the latter would make such surplus chargeable under section 44(3)(c) of the Act. He concluded that there was no distribution of the surplus arising on a winding-up of the Fund.
The pension scheme, evidenced by the Trust Deed and Pension Plan both dated 1 st April 1969, required that the Air Jamaica Trust Fund be created by the provision that "an employee contributes under the Plan" - (section 1.8 of the Plan,) "... by payroll deduction ... [from] his compensation," (section 4.1). Compensation is defined as "... regular salary or wages...". The company was required to pay into the Fund amounts equal to that paid by the members (section 4.2)
The Trust Deed describes the components of the Fund. It reads in paragraph 2:
"The Fund shall consist of:
(a) all contributions and payments made to it by the Company pursuant to the Plan;
(b) all contributions made to it by the members pursuant to the Plan;
(c) all payments and contributions made of it from any other source;
(d) all investments and moneys from time to time representing any such contributions and payments as aforesaid, and
(e) the income arising from any such investments and moneys aforesaid."
The Income Tax Act obliges every person employed and earning a salary or wages to pay income tax in respect of the year of assessment subject to certain exemptions. Section 5 reads, inter alia:
"5-(1) Income tax shall, subject to the provisions of this Act, be payable by every person at the rate or rates specified hereafter for each year of assessment in respect of all income, profits or gains respectively described hereunder -
(c) all emoluments arising or accruing to any person (or any member of his family or household) by reason of his office or employment of profit."
"Emoluments" is defined in section 3 of the Act -
"emoluments includes, in relation to any office or employment of profit -
(a) all salaries, fees, wages, ..."
Such contributions made by members are not subject to the payment of income tax. They are excluded from the computation of emoluments which are subject to such tax. Section 44 authorises the said deferment from the payment of tax. It reads:
"44 -(1) Subject to the provisions of this Act and to any regulations and rules made thereunder, any sum paid by an employer or employed person by way of contribution towards an approved superannuation fund shall, in computing profits or gains for the purpose of an assessment to income tax, be allowed to be deducted as an expense incurred in the year in Which the sum is paid:"
However, income tax is payable subsequently. Subsection (3) provides:
(3) Income Tax shall be chargeable in respect of any sum -
(a) paid or repaid out of an approved superannuation fund to an employer who was a contributor to such fund, or
(b) paid by way of annuity out of an approved superannuation fund to an employed person or his dependents; or
(c) paid by way of distribution of any surplus arising on a winding-up of an approved superannuation fund,
as if such sum were income of the year in which it was so paid or repaid."
The Act therefore anticipates that income tax is payable on the distribution of a surplus which may arise on the winding up of an approved Pension Plan.
Section 13 of the Pension Plan purported to deal with a surplus arising.
Section 13.3 reads:
"13.3 If the Plan is discontinued, the Trustees shall convert the Fund or the appropriate portion thereof into money and subject to the payment of all relevant costs, charges and expenses;
(i) shall (after consulting with an Actuary and in accordance with his report which shall be conclusive and binding upon all persons interested) apply the net proceeds of the conversion of the Fund together with any unapplied income of the Fund."
Provision was made for the purchase of annuities for pension and future
pensions. Section 13.3(ii) continuing reads:
"(ii) subject as aforesaid any balance of the Fund shall be applied to provide additional benefits for Members and after their death for their widows or their designated beneficiaries in such equitable and non-discriminatory manner as the Trustees may determine in accordance with the advice of an Actuary."
Because the clause in section 13.3(ii) was void for perpetuity, that aspect of the...
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