Page 718 - SAIT Compendium 2016 Volume1

CASE DIGEST 2009–2010
A legitimate expectation gives rise to a right to a fair hearing, but an unresolved issue in South African law has been whether it also grounds a right to substantive relief. In English law, it has been held that a legitimate expectation affords a claim to compel substantive compliance with the expectation in question (R v North and East Devon Health Authority, Ex parte Cochlan [2001] QB 213 (CA)).
South Africa’s Constitutional Court has, to date, found it unnecessary to decide whether or not to follow English law in this regard (Premier, Mpumalanga v Executive Committee, Association of State-Aided Schools, Eastern Transvaal 1999 (2) SA 91 (CC) para 36; Bel Porto School Governing Body v Premier, Western Cape [2002] ZACC 2; 2002 (3) SA 265 (CC) para 96.)
This issue was again left open by the Supreme Court of Appeal in Duncan v Minister of Environmental Affairs and Tourism [2009] ZASCA 168.
6. Collateral challenge to a regional service levy
[City of Tshwane Metropolitan Municipality v Cable City (Pty) Ltd [2009] ZACC 34]
The Constitutional Court dismissed an application for leave to appeal in a matter involving a disputed liability for
a regional services levy that had been imposed by a municipality. It was held that it was unnecessary to consider the doctrine of collateral challenge because the municipality’s prospects of reversing the judgment of the Supreme Court of Appeal were poor, and this was particularly so in regard to the prospect of reversing the nding that s. 12 of the Regional Services Councils Act 109 of 1985 did not give the Minister the power to authorise a council to estimate the liability of levy payers.
7. Whether a payment to SARS can discharge liability for an amount owing under a settlement agreement with a third party
[Goldblatt v Liebenberg (2009) 71 SATC 189]
In terms of a settlement agreement, which had been made an order of court, the applicants were obliged to pay the
respondent certain amounts. The applicants thereafter refused to pay certain amounts to the respondent on the grounds that their obligation in this regard had been discharged by certain payments made by them to third parties, including the South African Revenue Service. Before the judgment debt in question became due for payment, the applicants had been declared agents of rst respondent by the Commissioner for SARS in terms of s. 99 of the Income Tax Act.
The issue before the court was whether, by operation of law, SARS had become entitled to receive the money which would otherwise have been payable to the rst respondent in terms of the court order, and whether this factor operated as a discharge of applicants’ obligation to the rst respondent under the court order.
The court held that the s. 99 notice did not constitute an assessment of rst respondent’s tax liability. Moreover, it did not create a debt due and payable by rst respondent to SARS, in that respondent’s liability to pay normal tax became due only when SARS issued an assessment of the tax due by him. Hence, in the present matter, there was no assessed tax due by rst respondent at the relevant time. It was held that a s. 99 notice is a mechanism whereby SARS can secure payment of an assessed tax liability, but that it does not convert an obligation to pay normal tax, which will become due and payable upon assessment, into an assessed liability to tax.
It was therefore held that the balance of the amount due in terms of the court order remained unpaid and that there was no basis upon which the court could set aside the writ in question where the major part of the judgment debt remained unsatis ed.
8. Whether shares held by a company in its own subsidiary constituted trading stock
[Anglovaal Mining Ltd v CSARS (2009) 71 SATC 293 (SCA)]
The parent company in a group of companies, having incurred a loss on the sale of shares that it held in a subsidiary of
one of its subsidiary companies, claimed a deduction for the loss in terms of s. 11 (a) of the Income Tax Act. The issue before the court was whether the loss was deductible, or whether it was of a capital nature and therefore not deductible. It was held that, on the facts of this particular matter, the taxpayer had acquired the shares in question with the intention of disposing of them at a pro t and that those shares had thus been trading stock in its hands. It was further held that the taxpayer had properly brought the shares into account in the manner required by s. 22, and was therefore entitled to deduct the loss it had incurred on resale of the shares.
9. Whether income derived in Lesotho was taxable both in Lesotho and in South Africa
[Grundlingh v CSARS (2010) 72 SATC 1]
This was an appeal to the Free State High Court in respect of the decision in ITC 1819 (2007) 69 SATC 159.
The appellant, a practising attorney, was a permanent resident of the Republic and had been admitted to practise in
both South Africa and the Kingdom of Lesotho. He was a partner of the rm Webbers, in Bloemfontein, and he was also a partner in Webber Newdigate, a separate Lesotho partnership of attorneys in Lesotho which rendered professional services through partners, some of whom were residents of the Republic of South Africa, and some of whom were residents of Lesotho.
The appellant shared in the pro ts of Webber Newdigate, and his share of such pro ts for the 2002 and 2003 years of assessment was taxed by the Lesotho scal authorities.
The South African Revenue Service included those pro ts in the appellant’s taxable income for the relevant years of assessment, and credited him with the amount of tax he had paid to the Lesotho revenue authorities.
The issue on appeal was whether the appellant’s share of the pro ts of Webber Newdigate was taxable only in Lesotho, or was also taxable in South Africa. This turned on the proper interpretation of article 7 (1) of the Double Tax Agreement between the government of the Republic of South Africa and the government of the Kingdom of Lesotho.
It was held that a partnership is not a legal person, nor a legal entity, either in South Africa or in Lesotho. It is the individual partners who are tax entities. Thus, Webber Newdigate was not an enterprise liable to pay tax in Lesotho and article 7 (1) of the governing Double Tax Agreement was not applicable.
710 SAIT CompendIum oF TAx LegISLATIon VoLume 1