Page 726 - SAIT Compendium 2016 Volume1

CASE DIGEST 2011–2012
the company although it may reduce the value of the shares held by its shareholders, and it can therefore not qualify as an expenditure.
In the premises, the appeal was upheld and the court a quo’s order was replaced with one upholding the Commissioner’s appeal from the Income Tax Special Court with costs.
2. Whether the High Court properly exercised its discretion to dismiss the appellants claim for want of prosecution on the basis that time delay was so unreasonable that it constitutes an abuse of the process of court?
[Cassimjee v Minister of Finance (455-11) [2012] ZASCA 101]
Background
During 1977 the Department of Customs and Excise seized fuel tankers from the taxpayer appellant, Cassimjee, based on the allegation that the appellant was selling fuel under rebate to people who did not qualify for the rebate.
Facts
During 1977 the plaintiff issued summons and an exchange of pleadings carried on until 1981, after which the matter was inactive until 2001. The matter was then pre-maturely placed on the awaiting-trial roll but was once again inactive for a period of ve years. During 2006 the appellant attempted to amend its particulars of claim which was opposed by the respondent but the notice of opposition was defective as it did not set out the grounds of opposition. The application before the high court was to set aside the objection as an ‘irregular procedure’ in terms of rule 30.
Issue
Has the high court properly exercised its discretion to dismiss the appellant’s claim for want of prosecution on the basis that the time delay was so unreasonable that it constitutes an abuse of the process of court?
Decision
After conducting a factual inquiry, the court found that there were two principal mitigating factors to consider in so far as the delay in time is concerned, namely health problems and problems in instructing attorneys.
The SCA found that the explanations provided by the appellant lacked substance as it was characterised by a profound absence of detail. To revive the action would be extremely prejudicial to the respondents as many of the of cials tasked with investigating the matter were deceased or could not recall the events.
The SCA dismissed the appeal with costs.
3. Whether a change of effective management resulted in a deemed disposal of assets and hence resulted in a capital gain?
[Commissioner for the South African Revenue Service v Tradehold Ltd (132/11) [2012] ZASCA 61]
Background
The respondent, Tradehold Limited (‘Tradehold’), successfully appealed against an additional assessment raised by the Commissioner based on a taxable capital gain which, according to the Commissioner, arose from a deemed disposal by Tradehold of its shares in Tradegro Holdings Limited, in terms of para 12(1) of the Eighth Schedule to the Income Tax Act 58 of 1962 (the Act).
Facts
On 2 July 2002, at a meeting of Tradehold’s board of directors in Luxembourg, it was resolved that all further board meetings would be held in that country. This had the effect that, as from 2 July 2002, Tradehold became effectively managed in Luxembourg. It nevertheless remained a ‘resident’ in the Republic notwithstanding the relocation of the seat of its effective management to Luxembourg by reason of the de nition, at that time, of the term ‘resident’ in s 2 of the Act. This status changed with effect from 26 February 2003, when the de nition was amended and Tradehold ceased to be a resident of the Republic.
Issue
Relying on the provisions of para 12 of the Eighth Schedule to the Act, the Commissioner contended that when the respondent relocated its seat of effective management to Luxembourg on 2 July 2002, or when it ceased to be a resident of the Republic on 26 February 2003, it was deemed to have disposed of its only relevant asset, namely its 100 per cent shareholding in Tradegro Holdings, resulting in a capital gain being realised in the 2003 year of assessment in an amount of R405 039 083. This tax is colloquially referred to as an ‘exit tax’.
Decision
Acting Judge Boruchowitz upheld the Tax Court’s position and con rmed that from 2 July 2002, when Tradehold relocated its seat of effective management to Luxembourg, the provisions of the DTA became applicable and that country had exclusive taxing rights in respect of all of Tradehold’s capital gains.
The Commissioner therefore incorrectly included a taxable gain resulting from the deemed disposal of Tradehold’s investment in its income for the 2003 year of assessment and dismissed the application with costs.
4. Whether compensation received for the premature termination of an exclusive distribution agreement is of a capital or revenue nature and whether services supplied to a non-resident recipient on termination of the distribution agreement were zero-rated?
[Stellenbosch Farmers’ Winery v Commissioner for SA Revenue Service (511/2011 and 504/2011) [2012] ZASCA 72] 718 SAIT CompendIum oF TAx LegISLATIon VoLume 1