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[1992] ZASCA 135
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H Holt Will Trust v Commissioner for Inland Revenue (131/91) [1992] ZASCA 135 (10 September 1992)
CASE NO: 131/91
H HOLT WILL TRUST APPELLANT
AND
COMMISSIONER FOR INLAND REVENUE
RESPONDENT
HARMS, AJA:
Case No 131/91 J vd M
IN THE SUPREME COURT OF SOUTH AFRICA
(
APPELLATE DIVISION
)
In the matter between:
H HOLT WILL TRUST
Appellant
and
COMMISSIONER FOR INLAND
REVENUE
Respondent
CORAM
: CORBETT, CJ, HEFER, VIVIER,
VAN DEN HEEVER, JJA et HARMS,
AJA
HEARD
: 21 AUGUST
1992
DELIVERED
: 10 SEPTEMBER 1992
JUDGMENT
HARMS, AJA :
The appellants are the trustees of the Hilda Holt Will Trust. The respondent,
the Commissioner for
2
Inland Revenue ("the Commissioner") assessed the trust to normal tax for the
1983 and 1984 years of assessment. The appellants ("the
trustees") duly objected
to the assessments; their objection was disallowed and they then lodged an
appeal to the Income Tax Special
Court. The appeal was successful and the
assessments were set aside. The Commissioner's subsequent appeal to the Cape
Provincial
Division was upheld. Hence the present appeal by the trustees.
The
testatrix, the late Miss Hilda Holt, executed her testament on 8 October 1980.
She died shortly thereafter namely on 31 December
1981. The assessments relate
to the first two full tax years that followed upon her death. It appears from
the will that she had
a friend, Miss Florence Walker, who, we were informed,
died recently and who was, when the will was executed, in her mid seventies.
It
can safely be assumed that the testatrix was of a similar age.
3
Miss Walker was at all relevant times an invalid
confined to a wheelchair.
She required assistance for
the performance of all bodily functions. The
testatrix
had the well-being and care of Miss Walker at heart and
made
special provision for her in the will. She
received a legacy of R40 000.
Movables such as
jewellery, furniture, as well as medical chairs and
similar goods were also bequeathed to her. As an
additional legacy she was entitled to travelling costs
for her and a companion or nurse if she wished to
move to England.
After having provided for these and other
special bequests, the testatrix instructed her executors
to realise the balance of her estate and to hold the
assets in trust. The relevant portion of the will
provides as follows:
"9.
The rest, residue and remainder of my Estate shall be held upon trust by my
Executors and invested by
4
them in terms of the powers of investment hereinbefore granted
to them for the following purposes:-
(a) To pay to the said FLORENCE WALKER (out of the nett income, but if such
income is insufficient, then to such extent as may be
necessary out of the
capital) during her lifetime, an annuity which shall be paid to her in monthly
instalments. ... The monthly
instalments hereinbefore referred to shall be such
sum as shall, on the last day of the month during which my death occurs, have
the same purchasing power as ONE THOUSAND RAND (Rl 000,00) has at the date of
execution of this my Will." [which figure had to be
adjusted annually in order
to retain that purchasing power] ... "I further direct that in addition to the
aforesaid monthly instalments,
my Executors shall pay any income taxes levied by
any Government or other competent authority on the said FLORENCE WALKER and
attributable
to the inclusion of the annuity in her income, the intention being
that the said FLORENCE WALKER shall receive her annuity free of
tax.
(b) In addition to the annuity payments and tax payments payable from the Trust,
to pay from the Trust income generally such amounts
for the said FLORENCE
WALKER'S personal benefit as she may from time to time indicate to my Executors
in writing as being necessary
for her personal requirements.
(c) Any surplus income shall be accumulated as part of the capital and invested
by my Executors.
5
(d) Upon the death of the said FLORENCE WALKER:-
(i) SEVENTY FIVE PER CENTUM (75%) of the capital or the balance thereof then
still held in trust (including any accumulated income)
shall devolve upon and be
paid to the following Institutions in the proportions set out against the name
of each Institution, namely:-
THE CAPE JEWISH AGED HOME 40%
CAPE JEWISH BOARD OF GUARDIANS 20%
THE HERZLIA SCHOOL, CAPE TOWN 15%
THE CAPE JEWISH ORPHANAGE (ORANJIA) 5%
THE CAPE JEWISH SICK RELIEF SOCIETY 10%
JEWISH SHELTERED EMPLOYMENT
CENTRE,
CAPE TOWN 10%
and
(ii) The other TWENTY FIVE PER CENTUM (25%) of the capital or the balance
thereof then still held in trust (including any accumulated
income) shall
devolve upon and be paid to the following Institutions, in the proportions set
out against the name of each Institution,
namely:-
THE CAPE FLATS DISTRESS ASSOCIATION
(CAFDA) 10%
THE SOUTH AFRICAN NATIONAL COUNCIL
FOR THE BLIND 10%
THE SOUTH AFRICAN NATIONAL COUNCIL
FOR THE DEAF 10%
6
THE COMMUNITY CHEST OF THE WESTERN
CAPE 20%
THE PRINCESS ALICE ORTHOPAEDIC
HOSPITAL (the funds to be used for
the welfare and amenities of needy
patients) 10%
THE CAPE
CRIPPLE CARE ASSOCIATION 10%
THE CAPE PENINSULA SCHOOL FEEDING
ASSOCIATION 10%
THE STUDENTS HEALTH AND
WELFARE
CENTRES ORGANISATION (SHAWCO) 10%
THE SERVICE DINING ROOMS,
82 Canterbury Street, Cape Town 10%
The ultimate beneficiaries upon whom the balance of the capital was to
"devolve" on the death of Miss Walker were all charitable institutions
of a
public character which, by virtue of the provisions of s 10(1)(f) of the Income
Tax Act 58 of 1962, were exempted from tax on
income accruing to them.
The trustees expended during the two tax years R22 165,53 (1983) and R32
770,73 (1984) on the annuity, the income tea contribution
and the other
requirements in terms of clause 9(b) of the will. The net trust
7
income was, for these two years, R172 131,04 (1983) and R186 423,33 (1984)
and tax was assessed on so-called taxable income in the
hands of the trustees of
R141 174 (1983) and R145 981 (1984). The crisp issue for decision is whether
this income had, during the
relevant tax years, accrued to or in favour of the
ultimate beneficiaries or not (see s 5 of the Act), i e whether they had
acquired
a vested right in that income during the tax years in question:
Commissioner for Inland Revenue v Polonsky
1942 TPD 249.
If the answer is
in the affirmative the trustees, as representative taxpayers, would be entitled
to the exemption created by s 10(1)(f)
since any exemption which could be
claimed by the person represented by a representative taxpayer, must be allowed
in the assessment
made upon the representative taxpayer in his capacity as such.
See s 95(2). Counsel chose not to argue the overriding question as
to whether a
testamentary trust was during
8
these tax years liable at all for tax in respect of the undistributed income
accruing to it. It was held in
Friedman & Others NNO v Commissioner for
Inland Revenue: In re Phillip Frame Will Trust v Commissioner for Inland
Revenue
1991 (2) SA 340
(T) that it was not. Judgment on appeal in that case
is presently pending in this Court. The reason for counsel's attitude was that
the interpretation of the will on the question of the vesting of the
undistributed income may be relevant in respect of the subsequent
years of
assessment. The fact of the matter is that the Act was amended retrospectively
to 1 March 1986 so as to make special provision
for the taxation of trusts: see
Income Tax Act 129 of 1991, s 2(1)(b), 2(2)(a) and 27. The underlying assumption
of this judgment
that a trust could have been so taxed should therefore not be
seen as an expression of approval or disapproval of the judgment in
Friedman's
case,
supra
.
9
The will required the trustees to capitalise, at the end of each tax year,
the surplus income. It had to be invested as part of the
trust capital. The
surplus income, therefore, vested in the person in whom the trust capital had
vested.
The answer to the question of where the right to the surplus income
vested can thus conveniently be sought by establishing whether
the ultimate
beneficiaries had obtained a vested right in the trust assets upon the death of
the testatrix. That, in its turn, depends
on the question whether the grant to
the charities was conditional or contingent and not certain. See
Jewish
Colonial Trust Ltd v Estate Nathan
1940 AD 163
at 175-6. It must be
determined with reference to the language of the will, properly interpreted in
the light of the admissible surrounding
circumstances known to the testatrix,
and with the assistance of the relevant rules of construction (ibid). The fact
that a
10
bequest takes the form of a
fideicommissum
does not
necessarily mean that no right vests in the ultimate beneficiaries.
In
determining whether the so-called surplus trust income had accrued to or in
favour of the charities concerned, it is convenient
to consider the nature of
Miss Walker's interest. The president of the Income Tax Special Court (TEBBUTT
J) held that it was of a
usufructuary nature whereas the court
a quo
(per
NEL J) was of the view that it was the interest of a fiduciary in a
fideicommissum residui
. Miss Walker's entitlement was to an annuity, a
tax contribution and a payment of her personal needs. Those payments had, as a
matter
of principle, to be made out of trust income. If the trust income were in
any tax year insufficient to pay the
annuity
, trust capital could be
utilised for that purpose only. Any shortfall in the tax contribution or money
needed for personal necessities
11
could not be provided for in like manner. But, according to
the court
a quo
, the fact that she had some entitlement to the capital
indicated that the only purpose of the trust was to provide for her needs,
that
the whole of the trust capital was earmarked for her use and that, therefore,
the overriding intention of the testatrix was
to postpone the vesting of the
trust assets in the charities until her death.
The testatrix was a very
wealthy woman who seemingly lived a life of relative opulence. There is no
reason to believe that she was
not fully aware of the value of her assets. In
the short span of time between the execution of the will and her death, she
thrice
amended her will by the addition of codicils, the last dated some two
weeks before her death. Capital assets to the value of approximately
Rl,5 m were
handed to the trustees for their administration. From the income of this capital
she willed that only R12 000 per annum
12
should be used as a basic annuity, and, as indicated, Miss
Walker's total entitlement amounted to a mere R22 165,53 during the first
full
tax year following the testatrix's death. If regard is further had to the
wording of the will, it is obvious to me that the
testatrix was clearly of the
view that, at the date of distribution (i e the date of Miss Walker's death)
there would not merely
be left a substantial residue of the initial capital but
that it, together with accumulated surplus income, would be paid to the
charities. It is so that she made provision for the eventuality where the trust
income in a given year would not suffice to pay the
annuity. In such event
capital was to be utilised but only, as pointed out, to pay the annuity. It is
true that, as envisaged by
the testatrix, inflation was likely to cause a steady
increase in the amount of the annuity, but, as pointed out by appellant's
counsel,
the same inflation would tend to
13
increase the capital value of the trust assets and the income
derived therefrom. In all the circumstances it seems clear that the
testatrix
regarded the use of capital to supplement the annuity as a remote possibility
and that Miss Walker's entitlement to the
trust capital was inserted
ex
abundanti cautela
. In my view it follows that the overriding intention of
the testatrix could not have been to give Miss Walker a vested interest in
the
capital of the trust. That disposes, in part, of the finding that she had a
fiduciary interest. Since she had no power at all
to alienate any trust
property, her rights could, also, not be equated with those of a fiduciary in a
fideicommissum residui
.
Counsel for the Commissioner, in support of the submission that the charities
had no vested interest in the capital of the trust,
relied almost exclusively on
the fact of Miss Walker's interest
14
therein. In
Estate Raath & Another v Estate Bell &
Others
1922 NPD 323
the same argument was considered and rejected. MATTHEWS
AJ held (at p 328) that the direction of the testator to draw upon the capital
fund to supply any shortfall in income "by itself would not create a necessary
inference that the testator intended to postpone the
vesting of the interests of
the other beneficiaries until after the deaths of his wife and sister; for it is
not the property which
is on the testator's death to vest in the eight
beneficiaries but the right to a division thereof ..." The argument raised its
head
once again in
Commissioner for Inland Revenue v Estate Bews
1943 NPD
327.
The full bench there stated that the widow in that case was a usufructuary
in spite of the fact that, in the event of a shortfall,
her income had to be
made up out of capital. The court then approved of MATTHEWS AJ's dictum and
added another consideration why
the
15
submission under investigation had to fail, namely:
"The cases, in which the question of vesting arises, almost invariably depend
upon a condition of survivorship. ... The possibility
of the bequest being
reduced from time to time because capital is used to make up the income payable
to the usufructuary to a fixed
sum is not a condition of this kind, and, in a
case like the present, is quite irrelevant in relation to the question of
vesting."
(at p 331
in fine
- p 332)
Reliance was placed
on this judgment in
Ex Parte
Administrators Estate Hellmuth
1951 (1) SA 298
(0) 303
D-E for the proposition that " 'n vestiging van
regte
plaas kan vind alhoewel die
corpus
nog nie bepaal is
nie".
These principles were accepted as virtually
axiomatic in
Ex parte Estate Phillpott
1952 (3) SA 233
(N) and the point was made that (as I have found the
case to be in the present instance) where a will clearly
contemplates that there will be a residue for
distribution to the ultimate beneficiaries, the
intention to postpone vesting is not present. And,
added the learned judge (DE WET J) at p 237 E, (I
16
paraphrase) it is possible for an uncertain but ascertainable
amount in
futuro
to vest immediately.
Marwick v Marwick &
Others
1953 (2) SA 827
(N) is another instance where it was held that
vesting took place in the ultimate beneficiaries in spite of the fact that the
annuitant
had an entitlement to income which could be supplemented by a draw on
capital. So, too,
Estate Mader v Estate Mader & Others
1962 (1) SA 22
(T) and
Ex Parte Estate Heurtley
1963 (4) SA 218
(SR). To sum up, this
line of cases has held that the fact that the annuitant is entitled to have the
annuity supplemented from capital,
does not make him a fiduciary but he remains
essentially a usufructuary and, if that is the case, the presumption that
vesting takes
place in the ultimate beneficiaries on death, arises. See
especially the
Estate Mader
case
supra
at p 25 A-B. Secondly, "the
mere fact that the usufructuary might receive capital from the estate, thus
causing the
17
residue to be diminished, did not in itself postpone the
vesting of the residue in the ultimate beneficiary in a case where the will
clearly contemplated that there would be a residue at the date of distribution.
In such an instance an uncertain but ascertainable
amount
in futuro
would
vest in the ultimate beneficiary
a morte testatoris
". (CORBETT
et al.
The Law of Succession in South Africa
p 158). It was not suggested that we
should not follow these cases nor can I conceive of any reason not to do
so.
It follows that although the extent of the ultimate bequest to the
charities was not fixed, that did not, in itself make the bequest
conditional.
The bequest was, as at the death of the testatrix certain: each ultimate
beneficiary was already entitled to a fixed
percentage of the ultimate trust
assets. The fact that the assets would not remain static, did not affect the
entitlement. It is
a well known fact that
18
trust assets grow or diminish,
in specie
or in value,
but that
per se
, as set out above, has never been held to render a
bequest conditional or to create an uncertainty as to the right in
contradistinction
to the value of the right.
The usual condition of
survivorship which is to be found in a true fideicommissary bequest was also not
present. As was stated by
WATERMEYER JA in
Jewish Colonial Trust Ltd v Estate
Nathan supra
at p 177, where the fideicommissary is a charity with an
apparently indefinite future existence and the object of the bequest is
to
benefit the charity at a definite future date, the rights given to the ultimate
beneficiary are unconditional and vest on the
death of the testator since no
condition of survivorship can be implied. That is especially true in the present
case where fixed
percentages of the trust assets were allocated to each charity
and no provision was made for the eventuality of
19
one or more of them going out of existence prior to the death
of Miss Walker. As was so pithily stated in
Commissioner for Inland Revenue v
Estate Bews supra
at p 331, death, issue and parentage are all foreign to
the nature of juristic persons. Clause 9 (d) of the will provided that the
trust
assets would "devolve upon and be paid" to the ultimate beneficiaries at the
death of miss Walker. The phrase "devolve upon"
usually bears the connotation of
a vesting. I am, however, satisfied that, having regard to the aforegoing
considerations and the
terms of the will as a whole, in this context it was used
tautologically and synonymously with "to be paid".
To conclude: I am of the view that the interpretation attached to the will by
the President of the Income Tax Special Court was correct
and that,
consequently, his order should be reinstated.
The appeal is accordingly upheld with costs, including the costs consequent
upon the employment of
20
two counsel. The order of the court
a quo
is amended to
read "Appeal dismissed with costs, including the costs of two counsel".
L T C HARMS
ACTING JUDGE OF APPEAL
CORBETT, CJ )
HEFER, JA ) CONCUR
VIVIER, JA )
VAN DEN HEEVER, JA
)