Page 715 - SAIT Compendium 2016 Volume1

CASE DIGEST 2007–2008
The taxpayer contended that STC was a tax on dividends as contemplated in article 7 of the OTA, alternatively that it was substantially similar to a tax on dividends.
The court held that STC was a sui generis tax, calculated with reference to the net amount of dividends and deemed dividends declared, but was not a tax on dividends, and was therefore outside the ambit of article 7 of the OTA.
20. The issue before the court in Kungwini Local Municipality v Silver Lakes Home Owners Association (2008) 70 SATC 205 (SCA) was whether a local authority had exercised its power to increase property rates for the relevant nancial year in respect of one of its areas in a lawful manner, given the requirements of the Local Government Transition Act 209 of 1993, which applied at the relevant time.
It was held that the court a quo had been correct in concluding that the resolution of the local authority, dated 29 June 2004, was intra vires the enabling legislation and did not fall foul of the principle of legality. However, the failure of the local authority to stipulate, in its notice of 28 July 2004, the date on which the increased rates would come into operation, meant that the requirements of section 10G (7) of that Act had not substantially been complied with. The local authority had thus levied rates with retrospective effect, which was not authorised by the legislation; hence the notice did not comply with the legislation. Moreover, the notice did not comply with the legislation in that it conveyed to the general body of ratepayers two contradictory approvals for the area concerned. The notice had therefore failed to comply with the most important aspect of section 10G (7) and was therefore invalid.
21. The decision in CSARS v Wooltru Property Holdings (Pty) Ltd [2008] ZAWCHC 44 concerned the issue of which company in a group is saddled with a recoupment of previously-deducted tax allowances in circumstances where SARS has consented to the ling of a consolidated income tax return and the group has undergone rationalisation.
The court resolved the issue by applying the principle laid down by the Appellate Division in CIR v Witwatersrand of Racing Clubs 1960 (3) SA 291 (A), 23 SATC 380, namely, that once income is received by or has accrued to a taxpayer, it forms part of his gross income for income tax purposes, and that no subsequent disposal of that income by the taxpayer can undo that fact.
In the present matter, it was held that the effect of the ‘extra-statutory arrangement’ that had been entered into was that income had rst accrued to the affected subsidiaries, thus xing them with tax liability on that income, and the income was only thereafter transferred to the holding company.
The court found no merit in the contention that, after SARS approved a consolidation of the accounts, the subsidiaries had conducted business as nominees or agents for the holding company, nor in the proposition that they had antecedently divested themselves of any income on which they would be liable to tax.
The court held that the subsidiary companies which had been granted the tax allowances for the leasehold improvements remained the entities in whose hands such allowances were recoupable.
The court accepted the fundamental proposition that section 8 (4) (a) of the Income Tax Act does not contemplate a recoupment of expenditure by a taxpayer where the latter was not the party who had incurred the expenditure.
In the present matter, the holding company had not been granted, in its own right, a deduction for expenditure on leasehold improvements and having not claimed such a deduction in its own right, it could not be liable for the subsequent recoupment of that expenditure.
22. In ITC 1833 (2008) 70 SATC 238 the taxpayer, a public company dealing in commodities, required nancing and had entered into a series of inter-related agreements whereby it borrowed a higher amount for its immediate business purposes for a xed term at a xed rate of interest, and effected repayment by delivering a de ned quantity of the commodity in question at the maturity date at an agreed future price. Interest was payable six-monthly in arrears over the term of the contract. The taxpayer also entered into a forward purchase hedge to deliver the required quantity of the commodity on the maturity date at the same future price.
SARS contended that the transaction had been arti cially engineered and designed to conceal the fact that the true loan amount was a lesser amount and the sole purpose was to facilitate the enhanced interest deduction claimed by the taxpayer in terms of s 11 (a) of the Income Tax Act 58 of 1962.
The Tax Court held that the parties intended and did in fact implement the agreements in accordance with their tenor. In terms of the principles laid down in CIR v Conhage (Pty) Ltd 61 SATC 391, the countervailing evidence adduced by SARS was not suf ciently cogent to cast doubt on the authenticity of the agreement. The taxpayer had thus discharged the onus of proving that its true intention was to contract with its nanciers on the terms re ected in the agreements to which it was a party, and those agreements were therefore not simulated.
In the alternative, SARS invoked the anti-avoidance provisions of s 103 of the Income Tax Act. The court held that, as the main ground of assessment was that the agreement was simulated, it followed that SARS could not at the same time have been satis ed that the transaction had a tax avoidance effect. Consequently, SARS could not invoke s 103 in the alternative.
SAIT CompendIum oF TAx LegISLATIon VoLume 1 707
CASE DIGEST 2007-2008