Page 728 - SAIT Compendium 2016 Volume1

CASE DIGEST 2011–2012
a revised assessment, and the body of the letter ran along similar lines. It therefore recorded a determination. There was thus no merit in the point that the original assessment for the 2002 year of assessment had become nal in terms of s 79A(2) of the Act, and the rst point was decided in the taxpayer’s favour.
The second issue was essentially whether the construction of the prison was a permissible deduction from the taxpayer’s income in terms of s 11(a) of the Act for the reasons referred to above. Section 11(a) provides that, for ‘the purpose of determining the taxable income derived by any person from carrying on any trade, there shall be allowed as deductions from the income of such person so derived . . . expenditure and losses actually incurred in the production of the income, provided such expenditure and losses are not of a capital nature’. The issue turned on s 22, and particularly s 22(2A) of the Act. Section 22 concerns itself with amounts to be taken into account in respect of values of trading stocks. It had to be decided whether the taxpayer’s activities fell within the terms of s 22(2A). The latter section provides that where a person carries on construction in the course of which improvements are effected by him to xed property owned by any other person, such improvements and any materials delivered by him to the relevant property which are no longer owned by him shall, until the contract under which such improvements are effected has been completed, be deemed for the purposes of the section to be trading stock held and not disposed of by him. The question to be answered was whether the taxpayer ever held trading stock in the form of materials and equipment that were built into the prison or, put differently, did it ever effect improvements to the xed property of the State by delivering materials and equipment to that property which it then built into the prison, thus losing ownership of the materials and equipment. Due to the fact that the taxpayer subcontracted the building of the prison to another party, it never provided the materials or the equipment that were built into the prison, and never owned them at any stage. Therefore, the taxpayer was not entitled to the deduction contended for by it in terms of s 22(2A), read with s 11(a). The appeal was upheld in respect of this point.
Turning to the nal issue of the deductibility of fees and interest paid by the taxpayer, the court held that both were deductible in terms of s 11(bA) of the Act, and the taxpayer thus succeeded on this issue.
6. Whether mines are considered to be carrying on one trading activity for purposes of s 36(7F) and (7E) of the Income Tax?
[Armgold/Harmony Freegold Joint Venture v CSARS 2013 (1) SA 353 (SCA)]
Background
The appeal dealt with the deduction of certain mining capital expenditure in terms of s 36(7F) and (7E) of the Income Tax Act 58 of 1962 as well as the basis of calculation where a mine of a taxpayer operates at a loss. The Supreme Court of Appeal dismissed the appeal before it.
Facts
Armgold and Harmony group of companies formed a joint venture known as Armgold/Harmony Freegold Joint Venture (Pty) for purposes of furthering its mining activities with three gold mines known as Freegold, Joel and St Helena.
In September 2008 SARS issued revised tax assessments for AHF JV (Pty) Ltd, adjusting its income tax liability for the 2003 and 2004 tax years. For those tax years SARS set off the losses of the St Helena mine against the taxable income of the Freegold and Joel mines before taking into account the mining capital expenditure incurred in respect of those mines. The effect of this was to reduce the amount of capital expenditure that could be redeemed in respect of the Freegold and Joel mines.
Issue
Was it the correct approach on the part of SARS that the three mines are considered to be carrying on one trading activity for purposes of s 36(7F) and (7E) of the Income Tax Act, and to set the net loss of the one mine off against pro ts of the other two mines before allowing capex?
Decision
The appellant’s approach was rejected by the Supreme Court of Appeal. It found that the calculation made for purposes of calculating the capex was incorrect. However, it also rejected the respondent’s calculation in principle. It was held by the court that the effect of s 36(7E) was to set a maximum cap for the total amounts deductible as capex. The loss suffered by the one mine reduced the total taxable income of the appellant, the individual caps allowable under s 36(7F) had to be reduced correspondingly.
The result of this is that SARS had arrived at the correct gure of the appellant’s tax liability, albeit by the application of an incorrect principle. The appeal was therefore dismissed with costs.
7. Whether a decision to investigate a person’s business and institute proceedings for an interdict is an administrative action for the purposes of the Promotion of Administrative Justice Act 3 of 2000?
[Corpclo 2290 cc t/a U-Care v The Registrar of Banks (755/11) [2012] ZASCA 156]
Background
During April 2009, acting on the instructions of the Governor of the Reserve Bank, the Registrar appointed three employees of PriceWaterhouseCoopers Forensic Services (Pty) Ltd as temporary inspectors to investigate whether the appellants, their directors, members and of cers and related persons and entities were conducting the business of a bank in contravention of s 11(1) of the Act.
Issue
The issue in this appeal is whether the KwaZulu-Natal High Court, Pietermaritzburg (Booyens AJ) correctly granted an interdict in terms of s 81 of the Banks Act 94 of 1990 prohibiting the appellants (respondents in the court a quo) from continuing a business practice in contravention of s 11(1) of the Act.
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