Page 717 - SAIT Compendium 2016 Volume1

CASE DIGEST 2008–2009
constitute trading stock in terms of the rst part of the de nition of ‘trading stock’. It was held, further, that the taxpayer had not intended to dispose of the phosphate-bearing ore and accordingly the ore stockpiles did not fall within the second part of the de nition of ‘trading stock’. It was therefore held that that the phosphate-bearing stockpiles did not constitute trading stock as de ned in s. 1 of the Income Tax Act.
(In his 2009 Budget Review, the Minister of Finance indicated that legislation would be introduced to address this perceived lacuna in the Income Tax Act.)
7. Compensation of a revenue or capital nature?
In WJ Fourie Beleggings v CSARS (2009) 71 SATC 125 (SCA) the taxpayer, an hotelier, had received a payment by way of compensation for the cancellation of a trading contract, involving accommodation for a number of guests in the hotel for more than two years. The issue was whether such compensation was of a revenue or a capital nature. The guests in question had departed prematurely, leaving their hotel rooms in a damaged state. By agreement, an amount was paid to the taxpayer in settlement of any claim it may have had, arising from these events. It was held that the contract in question had been entered into as part of the taxpayer’s business of providing accommodation and was therefore a product of the taxpayer’s income-earning activities, not the means by which it earned income. The contract could therefore not be construed as an asset of a capital nature, and the compensation paid to the taxpayer in respect of the termination of that contract was therefore of a revenue, not a capital nature, and fell to be included in gross income.
8. Non-disclosure of material facts
In Moresport (Pty) Ltd v CSARS (2009) 71 SATC 133 (TPD) the taxpayer, a local importer and distributor of footwear, had imported a large supply of shoes which had been detained by the customs section of SARS in terms of s 113A (1) (a) of the Customs and Excise Act 91 of 1964 on suspicion of being identical counterfeit reproductions of an overseas shoe manufacturer’s products. SARS successfully applied ex parte to a magistrate for a search and seizure warrant. The taxpayer then applied to the High Court for an order setting aside that warrant. It was held that SARS had failed to make full disclosure to the magistrate when applying for the warrant and, in particular, had failed to disclose correspondence from the taxpayer setting out the latter’s defences to allegations of copyright infringement. These undisclosed facts were held to be material to a proper determination by the magistrate as to whether there were reasonable grounds for believing that an act of dealing in counterfeit goods had taken place or was likely to do so. It was held that the failure by SARS to disclose all the material facts made the decision of the magistrate susceptible to being set aside.
9. Loan accounts to Trusts and CGT
In ITC 1835 (2009) 71 SATC 105 the executor of a deceased estate, in terms of a joint will, awarded to an inter vivos trust, a loan account owed to the estate by the trust as part of the residue of the estate. The issue was whether the debt to the trust, discharged in this way for no consideration, gave rise to a capital gains tax liability in terms of paragraph 12 (5) of the Eighth Schedule to the Income Tax Act. It was held that it was clear from the wording in the will that it was the intention of the testatrix that her claim against the trust (that is to say, her loan account) would form part of the residue in the estate and that this claim was not separately bequeathed to the trust as a legacy. It was held, accordingly, that the trust was not liable for capital gains tax on the value of the loan account.
2009–2010
1. The taxpayer’s right to s. 89quat interest on refunded tax paid by a company on ctitious income [KNA Insurance and Investment Brokers (Pty) Ltd (in liquidation) v SARS (2009) 71 SATC 155]
The taxpayer company had made a payment of provisional tax which was thereafter refunded on the grounds that the payment had been made as a result of the fraudulent claim by a director that the company had received income on which it was taxable. It was held that interest in terms of s. 89quat was not payable on the amount so refunded.
2. The deductibility of legal costs incurred in defending a defamation action
[ITC 1837 (2009) 71 SATC 177]
The Premier of a province had been held liable to pay damages for defamation. The taxpayer’s legal costs in defending
the action were held to be deductible in terms of s. 11 (c), in that such costs were fortuitous expenditure arising from an event that was a risk inseparable from the discharge of his duties.
3. The Seventh Schedule provides SARS with an exclusive remedy for imposing an estimate of the taxpayer’s remuneration
[Vacation Exchanges International (Pty) Ltd v CSARS (2009) 71 SATC 249]
It was held that the Seventh Schedule to the Income Tax Act 58 of 1962 provides SARS with an exclusive remedy to
impose what it regards as a correct estimate of the taxpayer’s remuneration; it was further held that SARS does not have a discretion to elect to collect the relevant tax otherwise than in terms of that Schedule.
4. Requirements for the enforceability of settlement agreement between taxpayer and SARS
[King v CSARS (2009) 71 SATC 261]
The taxpayer averred that he had entered into an agreement with SARS for the settlement of a dispute. It was held that,
in order for such an agreement to be binding on SARS, it must have been concluded in strict compliance with s. 88E (1) of the Income Tax Act. The court upheld an exception to the taxpayer’s claim, holding that the particulars of claim did not make the requisite allegations to support a cause of action in this regard.
5. Legitimate expectations: The right to substantive relief left open by the SCA
[Duncan v Minister of Environmental Affairs and Tourism [2009] ZASCA 168]
SAIT CompendIum oF TAx LegISLATIon VoLume 1 709
CASE DIGEST 2009-2010