Page 640 - SAIT Compendium 2016 Volume2

IN 74 Income Tax acT: InTeRPReTaTIon noTes IN 74
Various court cases have considered the meaning of the word ‘repairs’ extensively and produced relevant principles. The Supreme Court of Appeal analysed the dictionary meaning ascribed to the word ‘repair’ in Flemming v KBI.* From this analysis the court concluded that ‘repair’ involves the process of renewing, renovating or restoring decayed or damaged parts.† The court held that a deduction under section 11 (d) will only be available if the original structure was
in need of repair.‡
In ITC 491§ it was held that in the ordinary sense of the word, ‘repairs’ means replacement or renewal of something
that has become defaced or worn out or worn down by use or possibly by wear-and-tear.
In ITC 617¶ various court cases were reviewed from which the following principles emerged:
• Repair is restoration by renewal or replacement of subsidiary parts of the whole. Renewal as distinguished from repair is reconstruction of the entirety, meaning by the entirety not necessarily the whole but substantially the whole subject matter under discussion.
• In the case of repairs effected by renewal it is not necessary that the materials used should be identical with the materials replaced.
• Repairs are to be distinguished from improvements. The test for this purpose is – has a new asset been created resulting in an increase in the income-earning capacity or does the work undertaken merely represent the cost of restoring the asset to a state in which it will continue to earn income as before?
In ITC 626** it is mentioned that these tests are not exhaustive but are merely of assistance to the general enquiry. It is necessary in each case to determine whether or not what has been done actually constitutes ‘repairs’ in the ordinary meaning of the word, and the extent to which it falls under that heading.
It is immaterial whether repairs occur as a result of some fortuitous act, such as a storm or re, or as a result of the wearing out, damage or deterioration of an asset by use. Restoration involves a renewal or replacement of subsidiary parts of the structure and the expenditure incurred will be deductible. However, if the damage is of such an extent that the asset is partially destroyed, one would then have to look at whether the repair or renovation is a reconstruction of the entire asset, in which case the expenditure will not be deductible. To the extent that the cost of repairs is recoverable under a policy of insurance the deduction will be prohibited by section 23 (c).††
4.2 The meaning of ‘maintenance’
The Concise Oxford English Dictionary‡‡ de nes ‘maintenance’ as – ‘[t]he process or state of maintaining or being maintained’;
and de nes ‘maintain’ as –
[c]ause or enable (a condition or state of affairs) to continue, keep at the same level or rate; keep (a building, machine, etc.) in good condition by checking or repairing it regularly’.
In Heerman’s Supermarket (Pty) Ltd v Mona Road Investments (Pty) Ltd§§ van Heerden J considered the meaning of the words ‘repair’ and ‘maintenance’ within a lease agreement and whether the wide dictionary meaning of the word ‘repair’ was wide enough to cover ‘maintenance’. The lessor claimed it was liable for repairs but not maintenance under the provisions of the lease agreement. The court found that the word ‘repairs’ was capable of covering ‘maintenance’.
In Clanwilliam Municipality v Braude¶¶ the court expressed the view that –***
‘[t]he words ‘maintenance’ and ‘repair’ have ‘connotations which differ in accordance with the objects and circumstances to which they are applied’.
The court accepted in Natal Motor industries Ltd v Crickmay††† what was said at 859 by Donovan J in Reilly v British Transport Commission,‡‡‡ that –§§§
* 1995 (1) SA 574 (A), 57 SATC 73
† Above at 79 where it is mentioned that: ‘Die gemeenskaplike betekenis van al hierdie omskrywings in die woordeboeke van ‘repair’, ‘repairs’ en ‘herstel’ is dat hulle betrekking het op die regmaak, opknap of herstel van ‘n voorwerp wat in vergelyking met sy vorige toestand ‘n gebrek of tekortkoming opgedoen het.’
‡ Above at 80. See also ITC 1097 (1966) 28 SATC 290 (T) where it was held that the taxpayer, who let his farm and was therefore not a farmer, incurs expenditure on sinking a new borehole cannot deduct such expenditure, but he can deduct expenditure incurred on repairing an existing borehole
§ (1941) 12 SATC 77 (U).
¶ (1946) 14 SATC 474 (U).
** (1946) 14 SATC 530 (U)
†† Silke on South African Income Tax in § 8.98 and Income Tax Practice Manual in [A:R16].
‡‡ Oxford University Press, tenth edition, 1999.
§§ 1975 (4) SA 391 (D) at 396.
¶¶ 1954 (3) SA 657 (C).
*** Above at 666. An appeal was allowed on the basis that Braude was not liable under the contract and not on the
maintenance v repairs issue.
††† 1962 (2) SA 93 (N) at 97. ‡‡‡ (1956) 3 All E.R. 857. §§§ Above at 97.
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