Page 713 - SAIT Compendium 2016 Volume1

CASE DIGEST 2007–2008
The court also held that SARS’s ruling did not purport to do anything other than authorise the reporting of the income of the relevant companies in a single tax return and that the income and expenditure concerned remained that of the relevant subsidiary companies.
It followed that the only taxpayer that could claim the allowances was A (Pty) Ltd and hence no recoupment was taxable in the taxpayer’s hands. The allowances in issue had thus been granted, not to the taxpayer, but to its subsidiary. Hence, the allowances had been properly granted and the recoupment attached to the taxpayer who, in terms of the ruling, had been granted the allowance.
10. In ITC 1827 (2008) 70 SATC 81, the taxpayer, an incorporated medical practice, had purchased the practice from the previous partnership and had nanced the purchase by crediting the erstwhile partners’ loan accounts. Initially, no interest was charged on these loan accounts, but after one of the directors required his loan to be repaid so that he could liquidate his personal indebtedness to a bank, interest was charged.
The issue before the court was whether the interest on such loans was deductible in terms of s 11 (a) of the Income Tax Act.
The Gauteng Tax Court held that all the prerequisites for deductibility in terms of s 11 (a) were satis ed. Thus, the interest was not of a capital nature, since the purchase price of the practice was of a capital nature, but of a revenue nature. Moreover, the purpose of the loan had been the production of income. It was irrelevant, said the court, for what purpose the directors of the incorporated practice intended to apply the money once they had received it from the incorporated practice. As to legal costs, the court held that SARS had acted unreasonably in averring that the interest in question was of a capital nature and was not incurred in the production of income, and a punitive costs order was therefore warranted.
11. In ITC 1828 (2008) 70 SATC 91, the taxpayer, a discretionary trust, had acquired certain immovable property by the acceptance of an offer in terms of which the existing trustees and bene ciaries (both as to capital and income) would be replaced by new trustees and bene ciaries.
The issue was whether, on these facts, there had been a ‘transaction’ as de ned in the Transfer Duty Act 40 of 1949. The events in issue had occurred prior to the amendment of the de nition of ‘transaction’ in s 1 of the Transfer Duty Act that had been effected by the Revenue Laws Amendment Act 74 of 2002.
The Gauteng Tax Court held that the agreements in question did indeed constitute a ‘transaction’, as so de ned, and that the effect of the agreements concluded between the outgoing trustees and the incoming trustees and bene ciaries was that a new trust, legally separate from the original trust, had been created, and that transfer duty was therefore payable on the value of the property in question.
12. The facts of CSARS v Saleem (2008) 70 SATC 115 (SCA) were the following. Acting in terms of s 88 (1) (c) of the Customs and Excise Act 91 of 1964, of cers of SARS had seized certain clothing to the value of some R1.2 million from the premises of a small clothing retailer on the basis that such items of clothing were imported goods on which no import duty had been paid.
The taxpayer (the retailer of the goods in question) averred that he had purchased the goods in question from local suppliers and offered to take the SARS of cers to the latter, but the offer was declined.
The taxpayer thereupon applied successfully to the Pretoria High Court for an order declaring the seizure to have been unlawful and that the goods must be returned. The High Court granted such order. On appeal, the Supreme Court of Appeal set aside the order of the High Court.
The Supreme Court of Appeal held that the seizure of the goods was an administrative act which had to be carried out in conformity with the Constitution and the Promotion of Administrative Justice Act 3 of 2000. The sole issue was the reasonableness of SARS’s suspicion that the goods were imported goods and that further investigation would reveal them to be subject to forfeiture.
It was held that the provisions of ss 101 and 102 (1) of the Act strengthened SARS’s hand in that any person carrying on business in the Republic is required to keep records relating to transactions, and to produce these on demand; further, that where a person sells or deals in imported goods, he must be able to produce proof of the person from whom the goods were obtained or the place where any due duty had been paid, the date of payment, and particulars of entry for home consumption.
The taxpayer’s inability to produce any such records was a material factor to be considered, as an honest trader could be expected to have obtained copies of all relevant documents from his supplier. SARS did not have to do more by way of investigation than wait for such documentary proof to be furnished by the taxpayer. In the present case, the taxpayer’s inability to produce records and documents to re ect the party from whom the goods were purchased, together with other suspicious conduct, were suf cient grounds for SARS to reasonably conclude that the goods were liable to forfeiture, and therefore were subject to seizure.
13. The issue in ITC 1830 (2008) 70 SATC 123 was whether, properly interpreted, s 20 (1) and (2) of the Income Tax Act merely requires the taxpayer to have carried on a trade during the year of assessment, or whether it also requires income to have been received or accrued.
The Gauteng Tax Court held that, in order to satisfy the requirements for the setting-off of an assessed loss in terms of these provisions, it was not suf cient that the taxpayer had carried on a trade during the year of assessment in question; in addition, income must have been received by or have accrued to the taxpayer during that year.
14. In ITC 1831 (2008) 70 SATC 132, members of the time-share scheme carried on by the taxpayer were entitled to space-bank or deposit their occupation rights, in return for which they were allocated ‘points’ on the taxpayer’s internal computer system.
SAIT CompendIum oF TAx LegISLATIon VoLume 1 705
CASE DIGEST 2007-2008