Page 755 - SAIT Compendium 2016 Volume1

CASE DIGEST 2013–2014
The court held that determining whether the ‘further costs’ was properly raised as a justi able issue before the SCA is a factual issue which it can decide upon and that it is permissible for the court to consider extrinsic evidence such as the heads of argument of the parties.
The court held that, given the history of the classi cation of the expenses in the legal process leading up to the SCA, the SCA must have considered the ‘further costs’. At para 18, the court states the following in this regard:
‘In the absence of a line by line scrutiny by the SCA, I accept that the categorisation of ‘further costs’ is not a rigid category. It is nomenclature used as a tool of convenience by auditors. The label of this category does not place a rigid limitation on the legal interpretation of tax principles when considering the various items within it.’
Victor, J referred to several judgments to point out the principles for interpreting orders and judgments of courts with speci c reference to Firestone South Africa (Pty) Ltd v Genticuro AG 1977 (4) SA 298 (A), where it was reiterated that a judgment must be construed from its language as a whole and only if there is uncertainty should extrinsic evidence be investigated. Reference was also made to Finishing Touch 163 (Pty) Ltd v BHP Billiton Energy Coal South Africa and Others 2013 (2) SA 204 (SCA), where it was held that ‘... one must examine the purpose of the judgment or order and consider the context’ and to Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA), where at para [18] Wallis JA stated the following:
‘consideration must be given to the language used in the light of the ordinary rules of grammar and syntax; the context in which the provision appears; the apparent purpose to which it is directed and the material known to those responsible for its production. Where more than one meaning is possible each possibility must be weighed in the light of all these factors. The process is objective, not subjective. A sensible meaning is to be preferred to one that leads to insensible or unbusinesslike results or undermines the apparent purpose of the document. Judges must be alert to, and guard against, the temptation to substitute what they regard as reasonable, sensible or businesslike for the words actually used.’
Held
The court held that it would seem as if all the procedural information, heads of argument and the contract were considered by the SCA to arrive at a decision and the fact that the SCA at para 18 dealt with related nance charges in a short conclusion without doing line-item scrutiny would indicate that a broad approach was adopted by the SCA in interpreting the deductibility principle. The court subsequently held that, should only the guarantee fee, introduction fee and other nance charges (as listed in paras [14] – [17] of the SCA judgment) have been allowed as a deduction by the SCA, the SCA would have speci cally referred to it in its judgment and that it would not have taken a broad approach with regards to the three categories it considered (ie the prescription issue, trading stock issue and the interest and other costs issue). The court subsequently held that in the absence of an express reference disallowing ‘further costs’ the SCA judgment must be interpreted to include ‘further costs’. No cost order was made.
The principle of this case can be found at paras [41] – [42], where the following was Held
‘[41] ... Principles emanating from judgments are meant to be applied to different facts otherwise the law would be a static process. A sensible objective observer looking at the judgment in its entire context would note the import of the principles of allowing the deductions of a wide variety of fees and the like. The category “further costs” is but a descriptive outline or a convenient label perhaps for accountants. On the whole the items listed in “further costs” are a “close connection” to the furtherance of the project.
[42] Once that is so, in the absence of an express reference to disallowing “further costs”, I conclude that the judgment must be interpreted to include further costs.’
4. ABC (Pty) Ltd v CSARS ITC 13410 GTC (4 August 2014)
Introduction
This is an appeal by the taxpayer ABC (Pty) Ltd to the Gauteng Tax Court against an assessment issued by SARS by treating certain mineral-bearing ore as trading stock and applying the tax deduction limitation imposed by s 23F (2) of the Income Tax Act 58 of 1962 (‘ITA’).
Facts
The taxpayer is a company and a subsidiary of D Ltd and operated a mine consisting of two incline shafts and a concentrator plant located in Limpopo. It does not own the land on which it mines nor does it trade in the ore mined as it is the extracted concentrate from the mineral ore that is sold. The mining operations of the taxpayer consist out of two distinct phases, namely extracting the ore from the ground and then the ore is smelted and subjected to a otation process to extract the mineral concentrate.
During August 2004, the taxpayer concluded a written contact with E (Pty) Ltd for the supply of the concentrate. The contract provided that the full purchase price payable to the taxpayer delivered in month one would only be quanti able in the fth month after the month of delivery. Furthermore, if the concentrate delivered did not comply with the moisture requirements speci ed, the purchaser would dry the concentrate which would take place at an additional cost to the taxpayer. The taxpayer relied on the provisions of s 11 (a) of the ITA to deduct all the costs relating to the ore mining and concentrate extraction as well the drying costs. It also applied s 24M to defer the income from the sold concentrate for the last four months of the tax year on the basis that the concentrate was disposed of for an unquanti ed amount and only became quanti able in month ve in the following tax year.
SARS raised additional assessments for the 2007, 2008 and 2009 tax years for R63 million, R220 million and R170 million, respectively, which represented the same ratio as the amounts in respect of the concentrate sold during the year which did not accrue. SARS raised the assessments on the basis that s 23F (2) applied to expenditure incurred by the taxpayer as the ore and concentrate constituted trading stock acquired by the taxpayer and disposed of for an amount that would not accrue to the taxpayer in that tax year. SARS furthermore contended that the drying expenses, administrative
SAIT CompendIum oF TAx LegISLATIon VoLume 1 747
CASE DIGEST 2013-2014