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2011
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[2011] ZAGPJHC 181
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Mobile Telephone Networks Holdings (Pty) Ltd v Commissioner for the South African Revenue Service (A5033/10) [2011] ZAGPJHC 181 (2 November 2011)
REPORTABLE
SOUTH GAUTENG HIGH COURT, JOHANNESBURG
CASE NO
:
A5033/10
TAX COURT CASE NO: 12401
DATE:02/12/2011
In the matter between:
MOBILE TELEPHONE NETWORKS
HOLDINGS
(PTY)
LIMITED
................................................................
Appellant
…............................................................................
(Appellant
in the Court
a quo
)
and
THE COMMISSIONER FOR THE
SOUTH
AFRICAN REVENUE
SERVICE
........................................
Respondent
…............................................................................
(Respondent
in the Court
a quo
)
J U D G M E N T
VICTOR, J
:
Hyperion Management System
[1]
1.1 The system was introduced in the 2004 tax year in order to
capture record and index certain aspects related to its financial
affairs.
The system assists in the conduct of its business.
Its assists in the consolidation of financial results.
The reporting of its results to others.
The professional fee was incurred with its auditors in relation to
them rendering services about the implementation, adjustment,
fine
tuning and user operation of the system.
[2] The majority of transactions in the appellant’s financial
records relate to interest income and therefore they must
necessarily
use the Hyperion system or the largest part in relation to that
income. It is not used in relation to the dividend
income.
[3] The appellant installed the Hyperion system and the concomitant
professional fees in order to achieve the results mentioned
above.
[4] The professional fees are
closely connected to the earning of the interest income and should
properly be regarded as a cost
incurred in order to create the
income.
[5] The other companies in the
group derived a benefit from the Hyperion system because of its
interconnected structure in which
the companies within the group
trade.
[6] The appellant incurred the
professional fee in order to have the effective conduct of its
activities in respect of producing
income.
[7] The respondent disallowed the professional fee because the
Hyperion system aids in the presentation and reporting of results
of
the appellant and the consolidated results in the group.
[8] In so doing it has disregarded the factors referred to above.
[9] The fact that the Hyperion system aids in assisting the
appellant to report its trading results is not a justifiable reason
to disallow the expenditure.
[10] The appellant is obliged in
terms of its business arrangements to report its results to other
companies with the MTN group
and such function is in the ordinary
course of business and related to its trading activities.
[11] The function necessarily
relates to the ongoing production of its income in a manner complied
with its obligations to other
companies in the group.
[12] The criticism by the
respondent that the appellant is not provided sufficient information
so to cause it to deal with the
deductions is to be assessed. It is
not correct that all the information was not provided. The
respondent failed to address itself
to relevant information which was
supplied and failed to contact the appellant’s auditors before
disallowing the auditors’
fees.
[13] The legal grounds upon which the appellant relies. See section
23(g) of the Income Tax Act.
[14] The Hyperion system
constitutes a trade business. The reason for trade is based on the
fact that the appellant’s activities
is that of a money-lender.
The scale of the investment by the appellant in the shares of its
subsidiary companies is such as to
amount to the carrying on of
trade. It is their contention that if one of the activities amount to
trade then it is entitled to
a deduction in respect of that expense.
[15] The word “
trade
”
is very wide and there is no numerous of activities. The disallowed
expenditure was incurred in the production of income.
Not
expenditure which is of a capital nature. See section 11(a) and
section 23(f) of the Act.
[16] The expenditure was incurred to directly facilitate the
carrying on of its trade in a legally compliant manner. It does
not
have to show a direct causal link or connection but a closeness of
connection between the two. Eg. cost price expenditure
incurred for
a product which is later sold by a taxpayer’s profit. Such
direct causal link is not the only link required
in terms of section
11(a) of the Act.
[17] There are instances where expenditure does not causally produce
the income but is still deductible – section 11(1)
of the Act.
[18] Mr C H Gericke testified on behalf of the appellant. He
testified that the Hyperion system assists the taxpayer in the
consolidation
of its financial results. It assists the underlying
companies and the superior ones. Auditors assisted in facilitating
the consolidation
of its results based on a new system.