Page 724 - SAIT Compendium 2016 Volume1

CASE DIGEST 2010–2011
Davis, J reached the conclusion that where the DTA is read, together with the provisions of the Act, it implies that the word ‘taxpayer’ should include not only those persons who fall within the provisions of the Act, but also those who are dealt with in the DTA.
The application accordingly succeeded.
5. ‘Realisation company’ acquires property and then develops it and sells it at a pro t
[CSARS v Founders Hill (Pty) Ltd [2011] 3 All SA 243 (SCA)]
Introduction
The taxpayer was is a ‘realisation company’ as it was formed for the purpose of realising land held as a capital asset by its holding company. Supposedly surpluses made from sales of the property are not taxable as trading pro ts since such surpluses are capital receipts.
Facts
Initially SARS did not issue an assessment to the effect that the pro ts made on the sale of land by the taxpayer were income in nature. However, SARS subsequently issued a revised assessment stating that the pro ts were income in nature.
The respondent’s objection that the proceeds of the sales were capital in nature was disallowed on the basis that the respondent was a trader in land.
Issue
The issue before the court was whether the pro ts made by the respondent on the sale of land were of an income nature, and hence liable to pay income tax, or capital and, in particular—
• whether the land in issue had been acquired by the respondent as stock-in-trade or whether it had been acquired as a
capital asset;
• if it had been acquired as a capital asset, whether the respondent had thereafter ‘crossed the Rubicon’ by commencing
to engage in the business of trading in the property.
SARS contended that when the respondent sold erven on which it realised pro ts, it had crossed the Rubicon and ventured into territory in which the pro t amounted to taxable income. The taxpayer on the other hand maintained that it had done no more than realise a capital asset advantageously.
Decision
Lewis JA (with whom Harms DP, Nugent JA, Malan JA and Plasket AJA concurred) held that a realisation company, in the present context, was one formed for the purpose of facilitating the realisation of property and the company did no more than act as the means by which the interests of its shareholders could be served.
It was held that the taxpayer was formed solely for the purpose of acquiring the property and then developing and selling it at a pro t; there was therefore no reason why the property was not stock-in-trade.
The court held that the taxpayer’s business was to develop the erven and sell them and its intention in acquiring was different from that which AECI had had, at least originally, to hold its surplus land as a capital investment; the respondent’s pro ts were gains ‘made by an operation of business in carrying out a scheme for pro t-making’ and therefore revenue derived from capital productively employed and must be taxable income.
Accordingly, the respondent had acquired the property as stock-in-trade and had then conducted business in trading in the property and the pro ts made were taxable as income.
In the result the appeal was upheld with costs and the Commissioner’s assessments in the tax years 2000 and 2001 were correct.
6. Removal by HMRC of computers from premises of the taxpayer company
[R (on the application of Glenn & Co (Essex) Ltd) v HMRC [2010] EWHC 1469 (Admin)]
Introduction
In this UK case the Administrative Court was asked to consider the legality of actions of HMRC (Her Majesty’s Revenue & Customs) in removing computers from business premises.
Facts
The taxpayer company dealt in excise goods and had been registered as a revenue trader. HMRC of cers had entered the taxpayer’s business premises, unannounced, and without having obtained a warrant and stated that the purpose of the operation was to conduct interviews and to inspect business records including computers.
The of cers disconnected and removed a computer server and desktop computers to interrogate their hard disks. The following day all but one of the computers were returned, with the remaining computer and server being returned on a later date.
Issue
The taxpayer’s business premises was accessed, unannounced, and without having obtained a warrant for search and seizure.
The taxpayer challenged, by way of an application for judicial review, the legality of the of cers’ conduct in removing the computers on the grounds that s 118B of the UK Customs and Excise Management Act 1979 did not permit their removal because they were not documents as de ned.
716 SAIT CompendIum oF TAx LegISLATIon VoLume 1