Page 711 - SAIT Compendium 2016 Volume1

2007–2008
CASE DIGEST 2007–2008
CASE DIGEST
1. Progress Of ce Machines CC v CSARS (2007) 69 SATC 231 concerned the duration of an anti-dumping order imposed by the Minister of Finance in terms of ss 55 and 56 of the Customs and Excise Act 91 of 1964. The order was to endure for ve years and was imposed with retrospective effect. The question before the court was whether the ve years commenced from the retrospective date when it took effect, or from the date of the notice in the Government Gazette. It was held that the ve-year period commenced from the retrospective date when it took effect.
2. In Shaikh v Standard Bank (unreported, referred to as [2007] SCA 168 (RSA); available online at http://www. supremecourtofappeal.gov.za/judgments/sca_2007/sca07168.pdf) the court af rmed and applied the principle laid down in Howick District Landowners Assoc v Umngeni Municipality 2007 (1) SA 206 (SCA) that where an empowering statute does not require that the provision in terms of which a power is exercised be expressly speci ed, the decision- maker need not mention it. Provided moreover that the enabling statute grants the power sought to be exercised, the fact that the decision-maker mentions the wrong provision does not invalidate the legislative or administrative act. The court pointed out that that this principle is not a licence for unauthorised administrative acts; the principle legitimises acts where authority for the act does exist, but the source of that authority is incorrectly given.
3. The facts of Carmel Trading Co Ltd v CSARS (unreported, referred to as [2007J SCA 160 (RSA); available online at http://www.supremecourtofappeal.gov.za/judgments /sca_2007/sca07-160.pdf) were the following: on 3 September 2002 the High Court had issued a preservation and anti-dissipation order in respect of a South African-registered Falcon executive jet, originally valued at R200 million, which had been languishing and deteriorating at an airport in France since April 2003. The present appeal by the taxpayer was against the order that the aircraft be sold and the proceeds held in trust pending the outcome of the litigation. The court held that the sale would not infringe the Bill of Rights, inter alia, because the sale would not amount to a ‘deprivation’ of property. In effect, it would merely substitute a fund of money for a deteriorating asset and Carmel’s position would not, after the sale, be any different from what it then was. The value of the asset was being retained for the owner and creditors. moreover, the sale was not ‘arbitrary’ because there was suf cient reason for the deprivation and it was procedurally fair. SARS would not get control of the proceeds of the sale, which would be kept in trust on behalf of the owner of the aircraft.
4. CSARS v Airworld CC (unreported, referred to as [2007] SCA 147 (RSA); available online at http://www. supremecourtofappeal.gov.za/judgments/sca_2007/sca07-147.pdf) concerned a disputed point of interpretation of the Income Tax Act 58 of 1962 which has since been resolved through an amendment to s 64C (1) which became effective as from 22 December 2003. The issue was whether a discretionary trust was a ‘recipient’ as contemplated in s 64C (1) of the Act in its pre-amendment form. If the answer was in the negative, then this lacuna was capable of being exploited to avoid or defer liability for Secondary Tax on Companies (STC).
In terms of s 64C (1) a ‘recipient’ vis-à-vis any company was (prior to the amendment) de ned as a shareholder of the company or any relative of such shareholder or ‘any trust of which such shareholder or relative is a bene ciary’.
The question was whether these words included all trusts, or only those in which the bene ciary in question had a vested right, thereby excluding from the ambit of a ‘recipient’ those discretionary trusts where no vesting had yet taken place.
The majority judgment (per Hurt AJA; Howie P and Lewis JA concurring) held that the meaning of the term ‘bene ciary’ in this context was not restricted to bene ciaries with vested rights.
5. Sallies Limited v CSARS (unreported, Johannesburg High Court, case no A3034107; 30 November 2007) concerned the deductibility or otherwise of interest on a particular loan, which the taxpayer sought to deduct from its income in the form of certain marketing fees. The issue turned on whether the interest, incurred by Sallies on the loan which had been used to acquire the shares in question, satis ed the criteria for deductibility laid down in the general deduction provisions of the Income Tax Act 58 of 1962, namely s 11 (a) read with s 23 (f) and s 23 (g).
Goldstein J said that the dominant question was the true nature of the transaction; and that the most important factor in that inquiry was the purpose of the borrowing at the time the borrowing occurred. In the result, the court held that, on the evidence, it had not been proved that the taxpayer had acquired the shares in question ‘in the production of income’; the appeal failed and the interest was thus not deductible.
6. The issue in WJ Fourie Beleggings CC v CSARS (2008) 1 SATC 8 (OFS) was whether an agreed amount, in settlement of a claim for damages, paid to the taxpayer during the year of assessment ending 28 February 2002 was a revenue or capital receipt.
The taxpayer was the lessee of a hotel. Naschem, a division of Denel (Pty) Ltd, had agreed to pay the taxpayer some R9 million in return for the taxpayer’s providing accommodation and meals for a delegation of 38 students from the United Arab Emirates who were to be trained by Naschem in South Africa. These foreign students took up the accommodation, then departed prematurely and without notice after vandalising their rooms. A settlement agreement was reached between Naschem and the taxpayer in respect of the damages suffered by the taxpayer, whereby Naschem would pay the taxpayer R1 292 760 in full settlement. The settlement agreement did not record what these damages were in respect of.
The taxpayer was assessed on the basis that the amount was of a revenue nature. On appeal, the court held that the taxpayer had not succeeded in proving that the compensation was of a capital nature, and its appeal against the assessment was dismissed.
SAIT CompendIum oF TAx LegISLATIon VoLume 1 703
CASE DIGEST 2007-2008