Page 725 - SAIT Compendium 2016 Volume1

CASE DIGEST 2010–2011
Decision
The court noted that search and seizure, as envisaged in terms of s 118B, permitted ‘a substantial intrusion into the affairs of the persons against whom it may be invoked’ and there was, therefore, a particular need to ensure ‘that the provision is given no wider reading than Parliament must be taken to have intended’.
The court was of the view that, as a matter of rst impression, the words contained in s 114 (2) were suf ciently wide to extend the inspection power contained in s 118B to a computer, as a computer is a thing in which information is recorded.
While the taxpayer contended that a document was something tangible on which evidence or information is physically recorded and, by contrast, a computer is a piece of machinery comprising a number of features, operated by electricity and having a wide range of functions, the court dismissed the contention.
It is trite law that a computer hard disk was a single storage entity and was not just a container of les. The court therefore concluded that the power of inspection did extend to the inspection of a computer.
2011–2012
1. Whether expenditure for the acquisition of a trade mark by assignment is actually incurred and therefore a deductible allowance?
[Commissioner SARS v Labat Africa Ltd 2013 (2) SA 33 (SCA)]
Background
The taxpayer, under its former name of Acrem Holdings Ltd, purchased ‘the entire business operations’ of Labat- Anderson (South Africa) (Pty) Ltd in terms of a written agreement dated 15 February 1999. Its effective date was 1 June 1999. The business operations of Labat-Anderson were de ned to include all its tangible and intangible assets including, more particularly, the trade mark. In terms of clause 6 of the agreement, under the heading ‘sale’, the taxpayer ‘purchased’ the business ‘for a consideration’ of R120 million, ‘discharged by the issue to Labat-Anderson’ of 133 333 333 Acrem shares ‘at an issue price of 90 cents per share’. (Although called a sale, the agreement was not a sale because a sale requires payment in money and not consideration in kind.)
The clause further provided that the ‘purchase price’ was to be apportioned as to the net tangible assets at the values re ected in the accounts, then to the value of the trade mark and name in an amount as determined by an independent and suitably quali ed valuator, and the balance was to be apportioned to goodwill.
Facts
The respondent acquired a trade mark through assignment during the tax year and sought to claim the deductible allowance. The agreement resulting in the acquisition of the trade mark involved the respondent purchasing the entire business operations of a company. That included all the company’s tangible and intangible assets including the trade mark. Instead of money, the purchase price was discharged through the assignment to the seller of shares in the purchasing company. The shares were issued and transferred in terms of the agreement and their value, at the time of transfer, was in excess of the issue price. The trade mark was valued at R44 462 000 and the allowance claimed was based on that valuation. The appellant, the Commissioner for SARS, disallowed the claim but the Income Tax Special Court upheld the respondent’s appeal. The Commissioner’s appeal against the judgment of the special court was dismissed by the high court, leading to the present appeal.
Issue
The issue before the full bench of the North Gauteng High Court was the question of whether the issue by a company of its own shares in consideration for a trade mark constituted ‘expenditure actually incurred’ by the company for the purposes of s 11(gA)(iii) of the Income Tax Act.
Section 11(gA), as it read during the relevant 2000 tax year, provided for the amortisation of the cost of the acquisition of intellectual property rights at the rate of 4 per cent per annum. Taxpayers who incurred any expenditure in acquiring a trade mark by assignment from any other person, where such trade mark was used by the taxpayer in the production of his income, could claim such expenditure as a deduction.
SARS contended that no expenditure had ‘actually been incurred’ by the taxpayer in acquiring the trade mark as required by s 11(gA)(iii) of the Income Tax Act on the ground that no expenditure had actually been incurred by the respondent in acquiring the trade mark in issue.
Decision
Harms AP (with whom Lewis JA, Heher JA, Maya JA and Plasket AJA concurred) held that the question the court a quo should have posed was whether the issuing of shares by a company amounts to ‘expenditure’ and not whether the undertaking to issue shares amounts to an obligation, which it obviously does.
The term ‘expenditure’ is not de ned in the Act and since it is an ordinary English word and, unless the context indicates otherwise, its ordinary meaning must be attributed to it. Its ordinary meaning refers to the action of spending funds; disbursement or consumption; and hence the amount of money spent. In the context of the Act, it would also include the disbursement of other assets with a monetary value. Expenditure, accordingly, requires a diminution, or at the very least movement, of assets of the person who expends. This does not mean that the taxpayer will, at the end of the day, be poorer because the value of the counter-performance may be the same or even more than the value expended.
In the present case, the respondent assigned the trade mark as consideration for the shares and did not ‘expend’ any money or assets in acquiring the trade mark. An allotment or issuing of shares does not in any way reduce the assets of
SAIT CompendIum oF TAx LegISLATIon VoLume 1 717
CASE DIGEST 2011-2012