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[2010] ZAWCHC 227
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Van Heerden and Others v S (A63/08) [2010] ZAWCHC 227; 73 SATC 7 (23 September 2010)
Republic
of South Africa
In
the High Court of South Africa
Western
Cape High Court, Cape Town
In the matter
between:
Case
No: A63/08
Gideon
Stephanus van Heerden
…..................................................................................................
.First
Appellant
Garth
Sterling Le Roux
…............................................................................................................
Second
Appellant
Garth Le
Roux Marketing CC
….......................................................................................................
Third
Appellant
And
The State
…..........................................................................................................................................
Respondent
Judgment
Delivered: 23 September 2010
LOUW et
ZONDI JJ
[1] The three
appellants stood trial as accused numbers 1, 2 and 4 respectively, in
the Wynberg Regional court on 49 composite counts.
After a trial
lasting 36 court days, the three appellants were convicted on the
main charge of fraud on each of counts 1, 3 and
4. The first
appellant was also convicted on the main charge of fraud on counts 5,
6, 7 and 9.
[2] The
appellants' co-accused at the trial, the erstwhile accused numbers 3
and 5 are two companies, Logoprops 44 (Pty) (Logoprops)
and Lodge 816
Fancourt (Pty) Ltd (Lodge 816). They were acquitted on all the counts
they were charged with.
[3] The first
and second appellants were sentenced to 6 years imprisonment of which
two years were suspended for a period of five
years on counts 1, 3
and 4. The third appellant was sentenced to a fine of R 10 000 on
counts 1, 3 and 4. The first appellant was
sentenced to two years
imprisonment, suspended for five years on counts 5, 6 and 7 and to a
further two years imprisonment suspended
for five years on count 9.
[4] The
appellants appeal with the leave of the court a quo against their
conviction and the sentences imposed.
[5] The state
cross appeals with the leave of the court a quo against certain
findings by the court a quo. We deal later with the
cross appeal.
[6] The first
appellant is an accountant, Mr. Gideon van Heerden who is the
proprietor of Financial Management Consultants (FMC),
a firm of
accountants in George.
[7]
The second appellant is Mr. Garth le Roux.
[8] The third
appellant is the close corporation Garth le Roux Marketime CC (MCC).
The second appellant and his wife are the only
members of MCC and the
second appellant is MCC's sole executive officer. MCC carries on
business as an estate agent at the Fancourt
golf resort near George
(Fancourt).
[9] The first
appellant, who was born in 1964, obtained a B. Acc degree at the
university of Potchefstroom. He first did articles
in Klerksdorp.
Thereafter he preformed his national service in the employ of the
South African Revenue Service (SARS) as a tax
inspector in Port
Elizabeth. After three years with SARS, from 1987 to 1990, he moved
to George and joined Fancourt, first as an
accountant but later as
its financial manager. In February 2001, the first appellant left
Fancourt to set up FMC, his own accounting
business in George.
[10] The
second appellant was a professional cricket player who retired in
1987 at the age of 37 years. Towards the end of his cricketing
career
he turned to selling advertising for Sports Illustrated, a sports
magazine for about one year. Thereafter he sold time share
in the
Swiss Farm Excelsior resort in the Franschoek valley. The second
appellant formed MCC in 1989 as vehicle through which to
carry on his
estate agency business in Franschoek. After about two and a half
years, in January 1991, the second appellant moved
to George and on
23 January 1991 he concluded a contract of employment with the then
owners of Fancourt in terms whereof MCC was
employed to sell
immovable property at Fancourt. MCC's remuneration consisted of a
basic salary in the form of an annual consultancy
fee of R60 000,
payable at the rate of R5 000 monthly in arrears. In addition MCC was
paid a commission on sales.
1
It was expressly provided that commission was payable only once
transfer of the property sold had taken place.
[11] The
erstwhile owners of Fancourt fell into serious financial difficulties
and Fancourt was acquired by Plattner Golf (Pty)
Ltd (Plattner) in
1994 out of liquidation. Fancourt consists of three golf courses of
which the Links is the most prestigious and
membership of which is by
invitation only.
[12] On 30
November 1995, the second appellant concluded a new contract with
Plattner. This is the contract which governed MCC's
entitlement to
commission which was in operation when MCC relinquished the
commissions that are relevant to this case.
[13] The
second appellant conducts his family affairs through a number of
entities. These include MCC, through which he conducts
the estate
agency business, Logoprops through which he holds a number of
property investments, Lodge 816 in which he holds one
property at
Fancourt and a family trust known as the le Roux Family Trust.
[14] From 2001
the first appellant and FMC were the accountants of the second
appellant and the corporate entities through which
he conducted his
family's affairs.
[15] The
appellants' convictions on counts 1, 3 and 4 arise from three
transactions which resulted in the admitted omission to disclose
the
following commission income in MCC's income tax returns for the
relevant tax years:
(a) Count 1:
Commission in the amount of R769 250 in respect of which R269 237 in
income tax would have been payable during the
1999 tax year.
(b) Count 3:
Commission in the amount of R665 700 in respect of which R199 710 in
income tax would have been payable during the
2001 tax year.
(c) Count 4:
Commission in the amount of R550 000 in respect of which R165 000 in
income tax would have been payable during the
2003 tax year.
[16] The first
appellant's further convictions:
1. on counts
5, 6 and 7, relate to the admitted omission to disclose the same
commission income in MCC's VAT returns during the
same tax years; and
2. on count 9,
relates to him making a VAT input claim on behalf of Logoprops in
respect of membership of the Links.
[17] We deal
first with the convictions on Counts 1, 3 and 4 which each comprise:
1. a main
charge of common law fraud;
2. a first
alternative charge of contravening s 104(1)(a) of the Income Tax
Act
2
;
and
3. a second
alternative charge of contravening s 75(1)(c) of the Income Tax Act
3
[18] The
appellants were convicted on the main charge of fraud on counts I, 3
and 4. The magistrate found that the appellants had
fraudulently
misrepresented MCC's income to SARS by submitting MCC's income tax
returns for the relevant tax years without reflecting
the commissions
as part of MCC's gross income. The tax returns had all been prepared
by the first appellant and all were signed
by the second appellant,
[19]
The appellants contend that the omitted commissions did not form part
of MCC's
'gross
income"
and
that the tax returns were correct. If this contention is upheld, the
appellants must be acquitted on counts 1, 3 and 4 because
it is an
element of all of these counts that MCC's income tax returns were
wrong in that they did not contain the omitted commissions.
[20]
The appellants contend further that if it should be found that the
omitted commissions did form part of MCC's
'gross
income"
and
that MCC's tax returns were wrong in not containing the omitted
commissions, the appellants must nevertheless be acquitted because
the evidence does not establish that the appellants acted with the
requisite
mens
rea
in
omitting the commissions from MCC's tax returns.
[21]
We turn to the question whether the omitted commissions did form part
of MCC's
'gross
income'.
[22] It is
important to bear in mind throughout the obvious, that is, that the
second appellant, MCC, Logoprops and Lodge 816 are
separate entities
despite that fact that the latter three corporate entities are
'owned' and are controlled by the second appellant.
[23] The three
transactions which resulted in the commissions being omitted from
MCC's gross income and which gave rise to counts
1, 3 and 4 were
referred to in argument as the Lodge 816 transaction, the Sadowsky
transaction and the Links transaction, respectively.
[24] Before
dealing with the three transactions, it is necessary to set out the
history of earlier acquisitions of properties at
Fancourt by the
second appellant.
[25] In August
1991 the second appellant purchased his first property at Fancourt, a
one-eight share in Lodge 611. The second appellant
could not afford
the price of R65 000 for the share. He discussed the problem with Mr
Freer the then managing director of Fancourt
who agreed to assist the
second appellant by reducing the price of the share in Lodge 611
against MCC waiving pending commissions.
The transaction was recorded
as follows in an addendum to the original contract between MCC and
Fancourt Holdings. 'It is hereby
agreed that progress payments due
for your share on Lodge no 611 ... will be deducted from your
commissions on real estate by way
of a journal entry in the books of
Fancourt Holdings. Such method can and will only be used in the event
that commissions are due
and payable to you at the time of payment'.
[26] There is
no evidence as to how the transaction was treated for income tax
purposes. The second appellant could not remember.
This transaction
is significant for two reasons. First, it was the first time the
second appellant financed the acquisition of
property at Fancourt
with a waiver of commission by MCC and secondly, the first appellant
had nothing to do with the transaction.
[27] Later, it
is not clear precisely when, the second appellant sold his share in
Lodge 611 and purchased a one-fifth share in
Lodge 820, a larger and
more expensive property. He financed the transaction with the
proceeds of the sale of his share in Lodge
611 and took out a
mortgage bond for the balance.
[28] We now
turn to the three transactions which gave rise to the three charges
on which both the appellants were convicted.
[29]
The
Lodge
816 transaction.
In
April 1998 the second appellant wanted to buy the property at
Fancourt known as Lodge 816 from Plattner on behalf of the le Roux
Family Trust or its nominee. The second appellant and his family
entities did not have sufficient cash to pay the full purchase
price
of R1,5m. Plattner owed MCC commission of R 500 000 on sales of
property at Fancourt effected through the agency of MCC.
The second
appellant agreed with Ms Diesel the CEO of Plattner that MCC waive
its claims to the commissions of R 500 000 and that
Plattner in turn
reduce the price at which it sold Lodge 816 to the le Roux Family
Trust or its nominee, by R500 000 to R1m. The
deal was done and the
le Roux Family Trust nominated the company, Lodge 816 as the
purchaser.
[30]
The
Sadowsky
transaction
.
In February 2000 the second appellant purchased a property at
Fancourt known as house 2034 from Plattner on behalf of Logoprops.
This purchase was part of a larger and complicated series of
transactions which also involved a Mr Sadowsky. It is not necessary
for purpose of this appeal to set out the detail of the interrelated
contracts that were all concluded during February 2000. The
essential
elements for purposes of this appeal is that these transactions again
included a waiver of commissions owed to MCC and
included the fact
that in terms of a proposal made by the second appellant which was
agreed to by Ms Diesel on behalf of Plattner,
the second appellant
purchased House 2034 in the name of Logoprops at a price which
Plattner in effect agreed to reduce from R2,4m
by R665 700, being the
total of MCC's claims for commissions it waived in favour of
Plattner.
[31]
The
Links
transaction
.
Membership of the Links golf course at Fancourt is by invitation only
and whoever joins the Links is required to make a long term
loan
deposit of R250 000 and must further pay an annual membership fee of
R25 000. In 2002, the second appellant, who had been
invited by Mr
Plattner to join the Links and second appellant's, friend Mr Mahon
applied for Links membership. The second appellant
agreed with Mr
Mahon to pay his deposit of R 250 000 and the first annual dues of
R25 000 to Plattner and Mr Mahon agreed to deposit
an equivalent
amount in second defendant's bank account in London. The second
appellant was consequently obliged to pay Plattner
R 550 000 for
himself and Mr Mahon. He was not able to do so in cash and second
appellant arranged with Mr du Plessis who had succeeded
the first
appellant who had by this time left Fancourt as financial officer, to
settle the amount of R 550 000 by a waiver of commission
earned by
MCC on sales of Fancourt property effected by MCC. The second
appellant then arranged for the Links membership to be
issued to
Logoprops. He did so, he testified, because the first appellant had
advised him that there might be a tax benefit in
doing so.
[32] Two
points must be emphasised at the outset. MCC relinquished the
commissions before it received the commissions and MCC received
nothing in return for relinquishing the commissions. The benefit
derived from MCC relinquishing the commissions went to the second
appellant and two of the entities owned and controlled by the second
appellant, namely Lodge 816 and Logoprops. The benefit obtained
by
Logoprops and Lodge 816 was that it enabled them to buy the Fancourt
properties at prices reduced by the amounts of the commissions
and
Logoprops and Mr Mahon also acquired Links membership and one year's
subscription without paying Plattner anything. Mr Mahon
in turn, paid
the equivalent amount in foreign currency into second appellant's
bank account in London. It is important, in our
view, to bear in mind
that the question is not whether the second appellant or the Le Roux
Family Trust or Logoprops or Lodge 816
or all of them should have
paid tax on the commissions. The question is whether MCC was liable
to pay tax on the commissions, which
should consequently have been
included in MCC's tax returns as part of MCC's gross income.
[33] It is
common cause between the state and the appellants that MCC
relinquished the commissions before the properties in question
were
transferred to the purchasers. The state and the appellants differ on
whether MCC's right to payment of the commissions was
conditional on
the transfer of the properties. The appellants contend that the MCC's
claims to payment of the commissions were
subject to the suspensive
condition that transfer of the properties take place. The state
contends that the transfer of the properties
did not constitute a
suspensive condition and that payment of the commissions was merely
postponed in each case until the transfer
took place.
[34] The
answer to this dispute lies in the proper interpretation of the
contract between MCC and Plattner and not in an interpretation
of the
individual contracts of sale between Plattner and the buyers.
[35] MCC's
contract with Plattner was concluded on 30 November 1995. The
commission clause reads as follows:
9.1 The
Consultancy (MCC) shall be entitled to receive commission of 5 (five)
per centum on all its sales in respect of Corporate
mansions,
executive lodges, family homes and erven in the resort development
effected and concluded by the Consultancy.
[36] The state
accepts that the use of the words 'effected and concluded' postulate
two requirements. Ms Hendry submitted that clause
9.1 means that MCC
was unconditionally entitled to the commission as soon as the
contract of sale was entered into and all the
suspensive conditions,
if any, in the particular contract of sale were met. All that was
postponed until transfer of the property
was the payment of the
commission. In her heads of argument, she put this contention as
follows:
'once all
conditions of the sale have been met, transfer is a certain albeit
future event.'
[37] We agree
with the submissions of Mr Trengove, who appeared for the second
appellant, that the ordinary meaning of the words
used contain two
separate requirements namely that the contract of sale must not only
be 'effected', that is, be entered into by
Plattner and the
purchaser, but also that the sale was 'concluded'. The latter could
not again mean that the contract was made.
The use of the word
'concluded' must have been intended to add a further requirement. We
agree with counsel's contention that the
sale, having been made, that
is 'effected' when it was entered into, was only 'concluded' when it
was finally given effect to by
the transfer of the property.
[38] This
interpretation, based on the ordinary meaning of the words used in
the contract is supported both by the history of the
contract and by
the way the parties to the contract understood and implemented the
contract.
[39] The
contract between MCC and the erstwhile owners of Fancourt is the
predecessor of the contract between MCC and Plattner.
Clause 9.2 of
the earlier contract is quoted above. It provides that MCC was
entitled to commission on sales 'effected and concluded',
but
continued to expressly provide that the commission was only payable
'once transfer has taken place', that is, that MCC claim
to
commission was subject to the express condition that transfer of the
property sold did occur. Unlike the earlier contract, the
contract
between MCC and Plattner does not expressly provide that commission
is only payable once transfer has taken place. There
is no suggestion
however, that when Plattner and MCC later concluded their contract,
the parties to the latter contract intended,
by not repeating the
express term regarding transfer, to change the position with regard
to MCC's entitlement to commission. The
contract with Plattner must
accordingly, in our view, be seen in the aforesaid context, to mean
that the payment of commission
was subject to the transfer of the
property sold.
[40] In
addition to this historical context, it is clear from the evidence of
the second appellant, confirmed as it was by a number
of the
witnesses on behalf of the State, that if a sale did not proceed to a
successful transfer, MCC was not entitled to the commission
on the
sale.
[41] All the
witnesses who testified in regard to the manner in which the contract
was implemented confirmed that Plattner had a
strict rule that MCC
was only entitled to payment of the commission upon transfer of
theproperties sold. This appears from the
evidence of Mr van Vuuren
the SARS investigator who commenced his investigation of the second
appellant's tax affairs in June/July
2003, Ms van Zyl
4
the chartered accountant who was employed by Plattner in various
capacities since 2004, Ms Louw who was employed by Plattner as
'development bookkeeper' from 1999 to 2001, Mr du Plessis who was
employed by Plattner from April 2001 first as development accountant,
and thereafter as chief financial officer, Ms Pirrie the sole member
of Pirlak CC who worked as a sub-agent to MCC in the selling
of
Fancourt property, Ms Ingrid Diesel, who was first employed at
Fancourt in 1991 and who became the chief executive officer of
Plattner in 1995.
[42] The
sub-contract concluded between MCC and Pirlak CC on 15 May 1999 in
respect of which Ms Pirrie testified, also strengthens
the conclusion
that the payment of commission was dependant on the successful
transfer of the property sold. This sub-contract,
which was clearly
intended by the parties thereto to accord with the position which
existed between MCC and Plattner, expressly
provided that in respect
of sales 'introduced and concluded' by Pirlak CC, MCC would pay
commission to Pirlak CC 'on transfer'.
[43] The
magistrate commenced his reasoning on the issue of the waiver of the
commission by stating that the role of the second
appellant should
notbe ignored and by pointing out that in his view this was a case of
a barter in which the second appellant 'as
the common denominator
traded MCC's right to the commissions for a benefit to Logoprops,
Lodge 816 or other entity'. In the process,
the magistrate held, MCC
'received a major tax advantage.' This approach of the Magistrate
does not account for the fact that the
second appellant, a natural
person and the corporate entities controlled by him, are all separate
persona in law. On the other
hand, the magistrate, recognising the
existence of separate entities in law, held that 'the corporate veil'
between the second
appellant and the corporate entities controlled by
him, needed to be pierced.
[44] We agree
with Mr Trengove's submissions that the piercing of the corporate
veil is not appropriate in this case and that, in
any event if it
were done, would not further the State case. It is clear from the
evidence that the second appellant established
the separate corporate
entities in good faith for sound commercial reasons and that the
waiver of the commissions occurred lawfully,
in good faith and for
practical commercial reasons, namely, the second appellant's lack of
cash. There is no evidence that the
waivers were done for income tax
purposes. There was no fraud or other improper conduct in the
establishment of the corporate entities
or in the use of the separate
corporate entities by the second appellant in the conduct of the
affairs of those entities.
5
In any event, if the separate legal entities were to be ignored, the
consequence would be that the benefit of the waived commissions
accrued to the second appellant personally. The state case is,
however, that the commissions accrued to MCC. A piercing of the
corporate veil will not assist the State case.
[45] In
considering the question whether MCC had divested itself of the
commission prior to its accrual, the magistrate cautioned
against
becoming 'so technical that you may run the risk of being unable to
see the wood for the trees' and concluded that even
if MCC intended
divesting itself of the commissions before it became unconditionally
entitled to it on transfer, this intention
should 'not be seen in
isolation'. The real intention was, so the magistrate appears to
reason, that MCC would only divest itself
of the commissions after
the transfer of the properties occurred. This is so, the magistrate
held, because it was 'improbable',
since Plattner would not have put
itself at risk, that Plattner would have given the benefit of
discounts to Logoprops and Lodge
816 before MCC was unconditionally
entitled to the commissions waived. 'The real set-off or barter would
... have occurred not
when (MCC) agreed with Plattner not to be paid
the commission, but when the condition was met (upon transfer)', the
magistrate
concluded.
[46] The
magistrate's conclusion that Plattner would not have put itself at
risk is not supported by the evidence. None of the witnesses
who had
knowledge of Plattner's affairs stated that Plattner would not have
given unconditional discounts in exchange for MCC waiving
commissions
that would be paid only after transfer. The evidence was, in fact, to
the contrary and the witnesses all stated not
only that MCC's
commissions were only paid after transfer but also that Plattner did
give unconditional discounts in exchange for
the commissions waived
by MCC, at the time when the transfers had not yet taken place.
[47] In the
alternative, the magistrate concluded, MCC's claim to the commission
was not conditional upon transfer taking place
and 'the barter or
set-off occurred immediately when the contract was effected and
concluded (meaning that any suspensive condition
in the contract was
fulfilled)'. It followed, the magistrate concluded, that MCC was
unconditionally entitled to the commissions
at the time that the
waiver occurred.
[48] Finally,
dealing with the fact that the commissions were only paid to MCC once
transfer took place, the magistrate held:
"It
is clear that only the
payment
of
these commissions were "sacrificed". Accused 4 (MCC) earned
them and would be entitled to them when the underlying
contracts were
effected and concluded. The common practice was that payment would
only follow on transfer. The amounts therefore
accrued to accused 4
at that earlier time. The addendum to sales contract referred to in
par 18 above, agreeing that
"over
& above the offer in the contract purchaser agrees to pay to the
seller R500 000 (five hundred thousand) in commissions
as
they arrive
,
schedule to be agreed"
(my
underlying), confirms this interpretation."
[49] The
magistrate concluded that the sales were 'effected' when they were
made and that the sales were 'concluded' when the contracts
of sale
were no longer subject to any internal suspensive conditions to the
sales themselves. In our view, this interpretation
does not accord
with the ordinary meaning of the words used, the history of the
contract and with the manner in which the parties
(MCC and Plattner)
understood and implemented the contract. In our view, the magistrate
was wrong in concluding that the contract
provided for a mere delay
in the payment of commission to the date of transfer.
[50]
In law a distinction is drawn between a suspensive condition and a
time clause. A condition qualifies a contractual obligation
by making
its operation and consequences dependent on the happening of an
uncertain future event,
a
dies incertus an.
If
it is both certain that an event will occur and when it will occur,
a
dies certus an, ac quando
or
certain that it will occur but uncertain when it will occur,
dies
certus an, incertus quando,
it
is not a condition but a time clause.
See:
de Wet and van Wyk,
Die
Suid Afrikaanse Kontraktereg en Handelsreg
,
5
th
Ed,
at 146; 147 and van der Merwe, et al,
Contract:
General Principles
,
3
rd
Ed,
at 287; 294.
[51]
Transfer is an uncertain future event which may never occur even
though all the suspensive conditions in the contract of sale
may have
been fulfilled. Where payment of the commission is postponed until
such an uncertain future event occurs, it is subject
to a suspensive
condition suspending the obligation to pay. In
Southernera
Resources Ltd v Furndell
[2009] ZASCA
150
par [11] the SCA again confirmed this to be the position. Ms Diesel
expressly testified that the way the parties implemented the
contract
was that MCC was not entitled to commission on sales which were
cancelled before transfer. If the transfer does not occur,
MCC
forfeits the commission on the sale. As was pointed out in argument
by Mr Trengove, it makes no sense to say that MCC remained
entitled
to commission because its right to the commission was not dependent
on transfer but that if transfer does not take place,
MCC could never
claim the commission because the payment of the commission 'would
only follow on transfer'. This is simply another
way of saying that
payment of the commission was dependent on transfer, an uncertain
future event, taking place.
[52] The
commissions were waived by MCC before it became unconditionally
entitled to payment of the commissions and, the evidence
is clear,
MCC also did not receive anything in return for waiving the
commission.
[53] We turn
to the question whether the commission waived by MCC before it became
unconditionally entitled thereto, nevertheless
formed part of its
"gross income" and therefore constituted taxable income in
the hands of MCC. MCC's gross income in
terms of section 1 of the
Income Tax Act is "the total amount, in cash or otherwise,
received by or accrued to or in favour
of" MCC.
[54] Since it
is common cause that MCC never received the waived commissions, the
question is whether these commissions nonetheless
"accrued"
to MCC.
[55]
An amount "accrues" to a taxpayer when the taxpayer becomes
unconditionally entitled to it. See
Hersov's
estate v CIR
1957
(1) SA 471
(A) at 481 H- 482A;
Mooi
v SIR
1972(1)
SA 575 (A) at 684D-G;
CIR
v Cactus Investments
1999
1 SA 264
(T) at 275H-J;
Hochberg
v CIR
1933
CPD 256
at 264.
[56]
Meyerowitz on Income Tax 2007. 2008 at 16.18 puts it as follows:
"There
can be no accrual until the taxpayer has become entitled to a right
to payment. So, if the right to payment depends
upon the fulfilment
of a condition, there can be no accrual until the condition has been
fulfilled. The condition, it is considered,
may relate either to the
taxpayers entitlement to payment or to the quantum to which he is
entitled. Thus in the case of a builder,
where the contract provides
for payment on architect's certificates there is no accrual until the
architect issues his certificate.
This applies equally to the
retention monies even after the building has been completed. Where
there is no provision for payment
and no payment before the
completion of the contract, there is no accrual before the contract
is completed."
[57] At 6.26
Meyerowitz considers the accrual of commissions earned and states the
following:
"If
commission is payable on the conclusion of the contract, e.g. when
the principal confirms the order booked by the agent,
that will be
the date of accrual. If the commission is only payable after delivery
of the goods ordered (in this case the equivalent
of transfer of the
properties sold) or upon payment by the debtor, the date of accrual
will be date of delivery (transfer in this
case) or payment as the
case may be".
[58] In Silke
on South African Income Tax page 2-12-2 paragraph 2.7 the authors
deal with the same point in the following manner:
"Restating
this principle before this same court in
Hochberg
v CIR
,
Watermeyer J, who delivered the judgment of the court, made it clear
that before an amount can accrue in terms of this principle,
the
taxpayer's right to claim payment must be unconditional. If the right
to claim future instalments is conditional or dependant
on
performance by the taxpayer of certain obligations or the fulfilment
of certain terms - for example, the obligation to deliver
property or
render services or the approval of a third party - there can be no
accrual under the Act until the obligations have
been complied or the
conditions fulfilled, since until these events have taken place the
taxpayer is not entitled to claim payment."
[59]
We next consider the question whether MCC was lawfully entitled to
waive the commissions and thereby divest itself of the income
before
it accrued to it and thus lawfully avoided liability to pay income
tax on the commissions waived. In
CIR
v King
1947
(2) SA 196
(A) at 211 - 212, Watermeyer CJ held that it was
legitimate for a taxpayer to divest itself of income before it
accrued to it and
so to avoid liability on income tax and stated the
following:
"This
scheme for calculating the taxable amount affords several
opportunities for the ingenious person to put into operation
a
transaction which is designed to free himself from taxation in
respect of monies which should be taxable in his hands because
they
are in reality his income for the year. (By the words "in
reality his income" I mean they are the produce of his
capital
or his labour or both). For example, seeing that the "gross
income" of a person is defined as the total amount
"received
by or accrued to or in favour of that person", a taxpayer can
while retaining the ownership of his capital,
arrange for the fruits
of that capital, which are in reality his income, to be received by
someone else and thus he can free himself
from taxation in respect of
these monies".
[60]
In
Taxpayer
v Commissioner of Taxes, Botswana
(1980)
43 SATC 118
at 131 Maisels, P held as follows:
"I agree
with counsel for appellant that income does not "accrue"
(in the ordinary sense of that expression) to or
in favour of a
taxpayer who has ceded his right to claim and receive the income and
has thus divested himself of that right. There
is as is demonstrated
in the cases quoted by appellant's counsel an important distinction
between a disposal of income after it
has accrued to a person and a
disposal by him of a right to income which would only accrue in the
future. In the former case, as
the income has already accrued to the
party who disposes of it, it remains taxable in his hands. In the
latter case the income
accrues to the recipient of the right and not
to the person who has disposed of the right".
See
also
CIR
v Cactus Investments
1999
(1) SA 264
T at 281 F-H where it was stated by Wunsh J with reference
to the decision of the then appellant division in
First
National Bank of SA Limited v Lynn N.O
.
and Others
1996
(2) SA 339A:
"A person
can effectively divest himself or herself of a right which is to
accrue in the future by means of a cession thus
removing one possible
obstacle to the view that a person could, for tax purposes, divest
himself or herself of a right to income
by ceding it before it
accrues".
[61] In this
case MCC waived the right to the payment of the commissions at a time
when the payment of the commissions was still
conditional upon the
transfer of the properties sold. On the principles set out above,
there was no actual accrual of the commissions
waived by MCC.
[62]
Paragraph (c
)(ii)
of
the definition of gross income in the Income Tax Act provides for the
deemed accrual of income in certain circumstances.
[63] Paragraph
(c) of the definition of gross income includes
any amount .
received or accrued in respect of services rendered or to be rendered
or any amount . received or accrued in respect
or by virtue of any
employment or the holding of any office. Provided
that:
(i)
(this
sub paragraph is not relevant to our enquiry and excludes from
paragraph (c) certain fringe benefits)
(ii)
any
amount received by or accrued to or for the benefit of any person in
respect of any services rendered or to be rendered by any
other
person shall for the purposes of this definition be deemed to have
been received by or to have accrued to the said other
person.
[64] The court
a quo found that the benefit of the reduced prices paid by Logoprops
and Lodge 816 for the properties purchased by
them from Plattner
constituted "amounts" which had accrued to them "in
respect of services rendered" by MCC
and that those amounts
should accordingly be deemed to have accrued to MCC.
[65] Mr
Trengove submitted that:
1. the
discounts Logoprops and Lodge 816 received from Plattner did not
constitute 'amounts' which accrued to them and, in any event,
2. the
discounts did not accrue to Logoprops and Lodge 816 in respect of
'services' rendered by MCC within the meaning of paragraph
(c)(ii).
[66]
We turn first to the question whether the discounts received by
Logoprops and Lodge 816 were "amounts" within the
meaning
of paragraph (c)(ii). In
Commissioner
for Inland Revenue v People's stores Pty Limited
[1990] ZASCA 1
;
1990
(2) SA 353
AD at 363I - 364A Hefer JA held the following:
The
first and basic proposition is that income although expressed as an
amount
in
the definition need not be an actual amount of money but may be
"every form of property earned by the taxpayer whether corporeal
or in incorporeal, which has a money value . . . including debts and
rights of action" (per Watermeyer J at 209 in
Lategan
v CIR
1926
CPD 203).
This proposition is obviously correct so that very little
need be added to what Watermeyer J himself said in support thereof.
At 364H - I
Hefer JA however pointed out:
It
must be emphasised that income in a form other than money must in
order to qualify for inclusion in the "gross income"
be of
such a nature that a value can be attached to it in money. As Wessels
CJ said in the Delfos case
1933 AD 42
at 251: " the tax is to be
assessed in money on all receipts or accruals having a money value.
If it is something which is
not money's worth or cannot be turned
into money, it is not to be regarded as income". (See also
Mooi
v SIR
(supra)
at 6838 -F). On the other hand, the fact that the valuation may
sometimes be a matter of considerable complexity cf the
Lace
Proprietary Mines case (supra) at 279-281) does not detract from the
principle that all income having a money value must be
included. How
the valuation is to be done depends of course, entirely on the nature
of the income and the circumstances of the
case.
[67]
The question is therefore whether the discounts received by Logoprops
and Lodge 816 on the price of the properties purchased
by them at
less than market value constitute "amounts".
In
CIR v Hersov
1952
(1) SA 485
(A) a company agreed with a director to compensate him for
waiving certain rights and for agreeing to vote his shares in favour
of a resolution sponsored by the company. The compensation received
by the director was in the form of shares issued to him at
a price
well below the market value. One of the questions in the case was
whether the discount was taxable in the hands of the
director. The
court held that the discount on the price of the shares was not
taxable in the hands of the director and pointed
out that
"We know
that the market value of the shares were much greater than the normal
value but the mere fact that the taxpayer buys
a commodity at a
bargain price does not entitle the fiscus to demand payment of income
tax on the difference between the real value
of the commodity and the
price paid for it".
[68]
In
Commissioner v Brummeria Renaissance
2007
(6) SA 609
SCA the court held that the benefit of an interest free
loan given in exchange to occupants of a retirement village of a
right
to occupy units in the village for life, constituted "amounts"
that were received or accrued to the developer of the village.
SARS
has issued the following note on the interpretation of Brummeria. It
is made clear that SARS understands Brummeria to apply
only where the
recipient of an interest free loan receives it in exchange for goods
sold, services rendered or some other benefit
granted by the
recipient to the lender:
'It
is evident from the facts of the Brummeria case, that the rights to
use the interest free loans were intended by the lenders
(the
occupiers of the units) to be in exchange (or as a
quid
pro quo)
for
the life rights granted by the borrower. It, therefore, logically
follows that the principles from that judgment may be applied
in all
cases where benefits in the form other than money (such as the right
to use an interest free loan) are granted in exchange
(or as a
quid
pro quo)
for
goods supplied, services rendered or any other benefit given.'
[69]
The magistrate held that the discounts received by Logoprops and
Lodge 816 did constitute "amounts" for the purposes
of
paragraph (c
)(ii).
This
is so, it was held because "it is improbable that these are
normal discounts in the commercial sense" and because
of the
role played by the second appellant, being the member and director of
both Logoprops and Lodge 816, he "would obviously
not have
allowed accused 4 (MCC) to sacrifice commission it earned without
getting similar value in return in another form".
[70]
In our view Mr Trengove correctly pointed out that the
quid
pro quo
for
the discounts received by Logoprops and Lodge 816 were not given by
those entities themselves but were given by MCC. Logoprops
and Lodge
816 therefore received the discounts without giving anything in
return therefor. The fact that MCC was prepared to waive
the
commissions so that Logoprops and Lodge 816 could get a benefit
occurred because the second appellant controlled all three
these
entities. The fact that they were all controlled by one person, does
however, not remove the fact that they are separate
legal entities.
[71]
Mr Trengove further submitted that even if the court should hold that
the discounts given to Logoprops and Lodge 816 constituted
"amounts",
the question remains whether paragraph (c
)(ii)
deems
those amounts to have been received by or to have accrued to MCC. In
terms of paragraph (c
)(ii)
the
amounts are deemed to be received by or accrued to MCC if Logoprops
and Lodge 816 received the amounts in respect of services
rendered by
MCC. Mr Trengove submitted that if paragraphs (c
)(ii)
is
applied literally the amounts received are deemed to be received by
the natural persons who rendered the estate agency services
in
consideration for which Plattner granted the discounts to Logoprops
and Lodge 816. The people who rendered these services were
either the
second appellant, MCC's other staff and agents or MCC's sub-agent, Ms
Pirrie. On the State's own case the literal application
of paragraph
(c)(
ii)
cannot
therefore be applied.
[72]
In
Commissioner
v Professional Contract Administration
2002
(1) SA 179
(T) the full bench of the then Transvaal Division of the
High Court considered the problems created by a literal application
of
the provision of paragraph (c)
(ii)
and
held that paragraph (c
)(ii)
should
not be applied literally in all cases where a company provides a
service to its customers and receives payment for it. If
paragraph
(c
)(ii)
is
applied literally, the payment must be deemed to have been received,
not by the company, but by the company's employees who actually
rendered the service. (See 185F-I). The court held that paragraph
(c
)(ii)
applies only
where the substance of a contract (as opposed to its form)
demonstrates that the contract concluded between a body
corporate and
a third party, is one where the member of the body corporate and not
the body corporate itself, in fact renders the
service. (At 191B-C).
[73]
This is then an instance where the courts recognised that a literal
application of paragraph (c
)(ii)
cannot
be applied.
[74]
A further instance where a literal application of paragraph (c
)(ii)
is
not followed is the SARS practice note of 2 September 1985. The
relevant part reads as follows:-
It is accepted
that this deeming provision is not of application where a natural
person (Mr X) is nominated by his employer to act
as a director of a
company (company A) in which the said employer is a shareholder and
where any directors fees which may become
payable by company A in
respect of the directorship of Mr X are in terms of a contract
payable by company A either to the employer
direct or to Mr X subject
to a condition requiring Mr X to pay the directors fees over to and
for the benefit of the employer.
The director's fees will therefore
not be subject to tax in the hands of Mr X but will be taxed in the
hands of the employer.
Meyerowitz
commented on this practice note in an article in the Taxpayer 1985 at
page 187, where he pointed out that the practice
was at variance with
the 'uncompromising language' of paragraph (c
)(ii).
Although
agreeing that the practice is 'a proper one according to the reality
of a situation which is common in business arrangements',
Meyerowitz
added that
'in
view of the uncompromising language of paragraph (c
)(ii)
which
does not admit of a possible construction supporting this practice,
that paragraph should be legislatively amended to support
the
practice'.
[75]
Silke on South African Income Tax Vol 1 page 4 - 177 para 4.68 is of
the same view, pointing out that 'SARS has usurped the
function of
the legislature' and suggests that an amendment to paragraph (c
)(ii)
is
necessary to give effect to the 'otherwise commendable objective of
SARS'.
[76]
The above two examples given by Mr Trengove of instances where
paragraph (c
)(ii)
should
not and is not applied literally, do not apply directly to the facts
of this case. These are simply two examples of instances
where the
literal application of paragraph (c
)(ii)
is
not followed by our courts and by SARS itself.
[77]
Paragraph (c
)(ii)
concerns
amounts received in respect of "services rendered or services to
be rendered", a phrase capable of a wide and
narrow
interpretation. It includes services rendered by an independent
contractor and services rendered under a contract of employment.
Mr
Trengove submitted that the context, history and purpose of paragraph
(c
)(ii)
show
that a narrow interpretation is the proper one. He illustrates the
further anomalies that are created when paragraph (c
)(ii)
is
applied literally to the services of an independent contractor such
as MCC in this case, as opposed to the services of an employee,
with
the following example and we quote from his heads of argument:
Take
an example of an owner who employs a contractor to build a house for
R1m. The contractor in turn employs a sub-contractor to
build a house
for R800 000.00. There is no diversion between the substance and the
form of their contracts. On completion of the
house, the owner pays
the contractor R1m. The contractor in turn pays the subcontractor
R800 000.00. But if paragraph (c)(ii)
is applied to these facts, the
sub-contractor is deemed to have received the full R1m (because it
rendered the service of building
the house) and the contractor is
deemed to have received nothing. This can clearly not be correct.
There must be a further limitation
read into paragraph (c
)(ii)
to
avoid such an absurd result.
[78]
We do not repeat herein the full argument addressed in the heads of
argument by Mr Trengove in support of these submissions
because in
our view it is not necessary to decide the issue of the correct
interpretation of paragraph (c)(
ii)
on
this point in these proceedings.
[79]
In our view it has been clearly demonstrated that the meaning of
paragraph (c
)(ii)
in
the context of this case is obscure and uncertain. This is relevant
to the question whether the State has proved beyond reasonable
doubt
that the appellants acted with the necessary mens rea. If MCC's
income tax returns were wrong in not reflecting the commissions
waived because those commissions must be deemed to have accrued to
MCC, the question of mens rea remains to be considered.
[80] In
considering the mens rea of the first and second appellants, we do so
on the assumption, but without deciding that the commission
waived by
MCC must be deemed to have accrued to MCC and that, for this reason,
it formed part of MCC's gross income.
[81] It was
common cause during the course of argument between the State and the
appellants that both the main charge of fraud and
the first
alternative charge of contravening of section 104 (1)(a) of the
Income Tax Act require proof of mens rea in the form
of intention or
dolus. We agree with counsel in this regard.
[82] The first
appellant did not testify as to his own state of mind. The second
appellant gave evidence and denied that he knew
that the commissions
waived by MCC had to be included as part of its gross income.
[83] We first
consider the implications of the first appellant's decision not to
testify or call any witnesses.
[84]
In
Osman
and Anor v Attorney & General Transvaal
1998
(4) SA 1224
(CC) and
S
v Boesak
[2000] ZACC 25
;
2001
(1) SA 912
(CC) the Constitutional Court dealt with an accused's
right to remain silent at the trial. In Osman it was put as follows
at paragraph
[22]:
"Our
legal system is an adversarial one. Once the prosecution has produced
evidence sufficient to establish a
prima
facie
case,
an accused who fails to produce evidence to rebut that case is at
risk. The failure to testify does not relieve the prosecution
of its
duty to prove guilt beyond reasonable doubt. An accused, however,
always runs the risk that, absent any rebuttal, the prosecution's
case may be sufficient to prove the elements of the offence. The fact
that an accused has to make such an election is not a breach
of the
right to silence. If the right to silence were to be so interpreted,
it would destroy the fundamental nature of our adversarial
system of
criminal justice".
This
statement was endorsed in
Boesak
at
paragraph [24].
'The right to
remain silent . . . arises again at the trial stage when an accused
has the right to be presumed innocent, to remain
silent, and not to
testify during the proceedings. The fact that an accused person is
under no obligation to testify does not mean
that there are no
consequences attaching to a decision to remain silent during the
trial. If there is evidence calling for an answer,
and an accused
person chooses to remain silent in the face of such evidence, a court
may well be entitled to conclude that the
evidence is sufficient in
the absence of an explanation to prove the guilt of the accused.
Whether such a conclusion is justified
will depend on the weight of
the evidence'.
[85] The first
appellant therefore had the choice whether to testify. In making this
decision he is required bear in mind that if
the evidence of the
state remains uncontested, a conviction may follow because the court
has concluded that the evidence is sufficient,
in the absence of an
explanation, to prove his guilt.
[86]
The magistrate considered the following aspects of the evidence to be
significant. The first appellant was an accountant. He
had worked for
SARS for 5 years. However, he did not work in their VAT section as
the magistrate found. Thereafter he worked as
a financial manager at
Fancourt before he started FMC. He advised clients on various tax
related issues - and he
'obviously
has at least a working knowledge of Tax Law'.
The
magistrate appears to conclude that this constituted evidence calling
for an answer from the first appellant. The magistrate
puts it as
follows:
'If accused 1
honestly believed that the income tax treatment of the 'sacrificed'
commissions were correct, he should have explained
to the court why
he held that belief. I do not find it strange that he elected not to
testify. He would unquestionably have experienced
major problems
during cross-examination explaining such belief'.
[87] Turning
to the evidence implicating the first appellant in respect of count
1, the magistrate pointed out that at the time
the commissions were
'sacrificed', the first appellant was employed as the financial
manager at Fancourt - and that he would have
known that SARS would be
unaware of the fact that MCC had earned the commissions because MCC
had not issued invoices in respect
of the commissions while Plattner
issued an invoice for R1,14m to the purchaser while reflecting a
selling price in its books of
R1,5m. This, the magistrate concluded,
justified the inference that the first appellant had 'facilitated the
misrepresentation'
to SARS by the second appellant and by MCC. The
magistrate ended his comments regarding first appellant's mens rea in
respect of
count 1 with the comment:
'If he did not
(facilitate the misrepresentation) he should have told us that'.
[88] Turning
to the events giving rise to count 4, the magistrate pointed out that
by this time, the first appellant was the accountant
for MCC and the
second appellant. As accountant, the magistrate concluded, the first
appellant 'clearly knew' that the commissions
waived were used to
acquire the Links membership and commented:
'If he did not
know this, he should have told us that'.
[89] Taking
the three counts of fraud relating to income tax together, the
magistrate concluded that the first appellant 'was patently
involved
in these transactions and indisputably knew that income tax would not
be paid by (MCC) when the transactions were concluded
in this manner.
In the absence of an explanation, the only reasonable inference is
that he knew that this was illegal'.
[90] The
magistrate appears to have reasoned as follows: Because the first
appellant knew the facts of the transactions and that
the commissions
were waived by MCC and enured to the benefit of Logoprops and Lodge
816, it was first illegal not to declare the
commissions as part of
MCC's gross income and secondly, that, in the absence of an
explanation, the first appellant must be held
to have known this to
be illegal.
[91] The
second appellant gave evidence and denied that he knew that the
waived commissions was part of MCC's gross income and required
to be
reflected as such in MCC's tax returns.
[92]
It is for the State to prove that the appellants knew or foresaw
(dolus), or ought to have known
(negligence)
that
in the circumstances of this case, the waived commissions did form
part of MCC's gross income. In our view, for the reasons
stated
hereunder, the State did not discharge this onus.
[93]
The State case in regard to the appellants' mens rea is based
entirely on circumstantial evidence. The two cardinal rules of
logic
set out
R
v Blom
1939
AD 188
at 202 - 203 must therefore be satisfied:
1. The
inference to be drawn must be consistent with all the proved facts.
If it is not, the inference cannot be drawn.
2. The proved
facts should be such that they exclude every reasonable inference
from them save the one sought to be drawn. If they
do not exclude
other reasonable inferences there must be a doubt whether the
inference sought to be drawn is correct.
[94]
We have found that the commission did not actually accrue to MCC. In
line with our assumption that for purposes of this judgment,
it was
nevertheless deemed to have accrued to MCC, the issue of mens rea
must be determined on the basis that the commissions must
be deemed
to have accrued to MCC in terms of paragraph (c
)(ii).
[95]
The court a quo first proceeded on the incorrect premise that mens
rea could be determined on the basis that the commissions
actually
accrued
or
that
it was deemed to have accrued
or
both.
If the commissions actually accrued to MCC the commissions cannot
also be deemed to have accrued to it. It cannot be both.
[96]
The question of the first and second appellants' mens rea in regard
to the main charge of fraud and the first alternative charge
is
therefore whether the state has proved that the appellants acted
dolo
malo,
that
is that they subjectively knew, or foresaw the possibility, that the
waived commissions were deemed to have accrued to MCC
and that they
proceeded to complete and sign MCC's tax returns with such knowledge
or foresight.
[97]
At the time that the commissions were waived by MCC and also when the
tax returns for the relevant tax years were submitted
by the first
and second appellants the authorative statement on the issue of
whether the benefits received by Logoprops and Lodge
816 constituted
"amounts" in their hands was that of the Appellate Division
in
Hershov's
case
where Centlivres CJ stated:
"the mere
fact that a taxpayer buys a commodity at a bargain price does not
entitle the fiscus to demand payment of income
tax on the difference
between the real value of the commodity and the price paid for it".
(At 491E-F)
This
is how the law was understood at the time. The judgment of the SCA in
Brummeria
was
handed down in September 2007. This was long after the events that
gave rise to the charges in this case. The statement of the
SCA in
Brummeria
clearly
applies to the law as it was between 1998 and 2002 when the
commissions were waived and the tax returns were submitted.
However,
the question is whether the only reasonable inference is that, at the
time the first and second appellants submitted MCC's
tax returns,
they appreciated the implication of paragraph (c
)(ii)
to
be in line with the principles set out subsequently in the Brummeria
judgment. To answer this, regard must be had to the law
as it was
understood at the time. One cannot judge the state of the appellants'
knowledge and foresight during the period between
1998 and 2002, in
the light of the statement of the law as pronounced by the SCA in
September
2007.
[98] It is
against this background that the question must be asked whether the
State has proven beyond reasonable doubt that the
first and second
appellants knew or foresaw the possibility that the waived
commissions must be deemed to have accrued to MCC.
In our view, the
State has not discharged this onus.
[99] The
second appellant testified that the transactions that involved MCC
waiving the commissions were entered into by the entities
controlled
by him as a means of funding the acquisition of the immovable
properties and the Links membership. This evidence was
confirmed by
the witnesses van Vuuren, du Plessis and Diesel. Over a period of
some 12 years, beginning in 1991, the second appellant,
openly and
without any attempt at concealment, from time to time made use of
this way of funding the acquisition of property. The
inference is
unavoidable that the waiver of commissions was not used as a device
to avoid paying income tax. The court a quo therefore
correctly, on
the evidence before it, held that 'there was not a conspiracy between
(the first and second appellants) regarding
this scheme'.
[100] We have
referred earlier to the magistrate's findings in regard to the first
appellant's mens rea. In our view, the magistrate
was wrong in
finding that the evidence adduced, seen as a whole, justified the
inference that the first appellant had acted with
the knowledge that
his conduct was unlawful. The facts simply do not prove that the
first appellant knew or foresaw the possibility
that the commissions
were deemed to have accrued to MCC.
[101] The
magistrate concluded that the second appellant had greater knowledge
of tax issues than he was prepared to disclose to
the court. Even if
this were the case, there is no evidence that justifies the (only
reasonable) inference that the second appellant
knew or foresaw that
the commissions waived by MCC were deemed to form part of MCC's gross
income in circumstances where the income
was not received by MCC and
where MCC did not receive anything in return for the waiver. The
magistrate stated, however:
I can however
not accept as reasonably possibly true his evidence that he did not
see the income tax advantage in dealing with the
commissions in the
way they did. Any businessman, and definitely a very successful
businessman like him, consciously structuring
his business in the
most tax-effective manner, would have realised that a major income
tax benefit will follow if these commissions
were not invoiced and
paid out by Plattner in the normal way. It is not possible that he
honestly believed that he (as MCC) did
not have to pay income tax on
amounts in excess of half a million rand earned at each of these
occasions. The income tax benefit
is so glaring that he would have
been extremely foolish not to utilise this scheme on a regular basis.
[102] The
magistrate's conclusion is that the second appellant's evidence
given, 6, 8 and 10 years after the transactions were done,
about his
appreciation of the income tax implications at the time, cannot
reasonably possibly be true. In our view, on all the
evidence, the
only reasonable inference is not that "he (as MCC)" knew or
ought to have known that the commissions were
deemed to have accrued
to MCC at the time.
[103] The
second alternative charge in counts 1, 3 and 4 is framed under
section 75(1)(c) of the Income Tax Act, which makes it
an offence for
any taxpayer who fails "to show in any return made by him any
portion of the gross income received by or accrued
in favour of
himself".
[104] The
State and the appellants accept that negligence is the required mens
rea for this offence.
[105]
The test for negligence is authoratively laid down in
Kruger
v Coetzee
1966
(2) SA 424
at 430E-F in the following terms:
For the
purposes of liability, culpa arises if:
(a) a Diligens
paterfamilias in the position of the defendant
(i) would
foresee the reasonable possibility of his conduct injuring another in
his person or property and causing him patrimonial
loss;
(ii) would
take reasonable steps to guard against such a currence; and
(b) the
defendant failed to take such steps.
[106]
The question to be asked is again related to the meaning and the
interpretation of paragraph (c
)(ii)
of
the Income Tax Act. The question is whether a reasonable accountant
in the case of the first appellant and a reasonable businessman
taxpayer in the position of the second appellant would have realised
that the waived commissions might have been deemed to have
accrued to
MCC in terms of paragraph (c
)(ii).
[107]
We agree with Mr Trengove's submission that whatever the proper
interpretation of paragraph (c
)(ii)
might
be, the meaning of paragraph (c
)(ii)
is
obscure and uncertain. The meaning of paragraph (c
)(ii)
is
relevant to the question of the first and second appellants' mens
rea, that is whether they knew or ought to have known that
the
commissions should have been included in MCC's gross income because
of the deeming provision contained in paragraph (c
)(ii).
[108]
In our view the State has not proved beyond reasonable doubt that a
reasonable accountant and a reasonable taxpayer would
have been aware
of the correct interpretation of paragraph (c
)(ii)
and
the implications of such interpretation. A reasonable person in the
position of the first and second appellants would at best
for the
State have taken expert advice on the issue of whether the waived
commissions must be deemed to have accrued to MCC. Had
they done so,
the answer they would then have received would probably have been in
line with the then knowledge and appreciation
of whether the waived
commissions constituted amounts in the hands of MCC. As indicated
earlier the pronouncement of the then Appellate
Division in
Hersov's
case
constituted the state of the law as understood by our courts at the
time.
[109] In our
view therefore the State has also not proved beyond reasonable doubt
that first and second appellants were negligent
in filling out the
relevant income tax returns.
[110] It
follows that the appellants were both wrongly convicted on counts 1,
3 and 4 on the main charge of fraud. They are also
not guilty on any
of the alternative charges on counts 1, 3 and 4.
[111] We now
turn to the conviction of the first appellant on the Vat related
charges, counts 5, 6, 7 and 9, each of which comprises:
1. a main
charge of common law fraud;
2. a first
alternative charge of theft;
3. a second
alternative charge of contravening section 59 (1)
6
(a)
read with sections 1 and 28 (1)
7
(a)
and (b) of the Value-added Tax Act, 89 of 1991;
4. a third
alternative count of contravening section 59 (1) (c) read with
sections 1 and 28 of the Value-added Tax Act;
5. a fourth
alternative count of contravening section 59 (1) (d) read with
sections 1 and 28 of the Value-added Tax Act;
6. a fifth
alternative count of contravening section 58 (d)
8
read with sections 1 and 28 of the Value-added Tax Act.
[112]
The basis of the charges against the first appellant on counts 5, 6
and 7 is that if MCC had included the
"sacrificed"
commissions
in its gross income the first appellant should have disclosed that
income in the MCC's VAT returns as MCC was a VAT
vendor.
[113] The
charge against the first appellant on count 9 relates to him making a
VAT input claim on behalf of Logoprops in respect
of Links
membership.
[114] Count 5
alleges fraud against SARS with theft and contravention of the VAT
Act in the alternative by the first appellant for
not including R709
250-00 commission income in the MCC's VAT return on which R107 695-00
VAT was payable.
[115] In count
6 a similar fraud against SARS with theft and contravention of the
VAT Act in the alternative is alleged against
the first appellant for
not including R665 700-00 commission income in MCC's VAT return on
which R93 198-00 VAT was payable.
[116] Count 7
alleges fraud against SARS with theft and contravention of the VAT
Act in the alternative by the first appellant for
not including R550
00000 commission income in MCC's VAT return on which R77 000-00
VAT was payable.
[117] As
regards count 9 it also alleges fraud against SARS with theft and
contravention of the VAT Act in the alternative by the
first
appellant for claiming a VAT input in the amount of R33 771-00 on
behalf of Logoprops in respect of the Links membership.
[118] The
first appellant was convicted on the main charge of fraud on counts
5, 6, 7 and 9. In relation to counts 5, 6 and 7 the
magistrate found
that the first appellant fraudulently misrepresented the MCC's income
to SARS by submitting MCC's VAT returns
for the relevant periods
without disclosing the correct VAT amounts.
[119] With
regard to count 9 the magistrate found that the first appellant had
fraudulently misrepresented to SARS that Logoprops
was entitled to
claim an input tax credit for the VAT when he knew that Logoprops had
not incurred the input tax in the course
of making taxable supplies.
[120] As
regards counts 5, 6 and 7 the first appellant contends that the
omitted commission amounts did not form part of the MCC's
gross
income and that VAT was not payable on those amounts.
[121] In
relation to count 9 the first appellant alleges that the VAT return,
in which the input tax was claimed, was not completed
and signed by
him. It was signed by Mrs Marsha Van Heerden. He contends that
accordingly vicarious liability does not apply.
[122] In so
far as it related to the involvement of the first appellant the
evidence of the second appellant was to the following
effect. In
about 1997 the second appellant engaged FMC (the first appellant's
bookkeeping firm) to provide bookkeeping and accounting
services and
to complete and submit the income tax and VAT returns of the second
appellant's family entities.
[123] The
bookkeeping and accounting services the first appellant and FMC
rendered to the second appellant and his family entities
from about
1997 were provided in the following manner.
1. The second
appellant gave FMC all invoices, cheque and credit card statements on
a regular basis. FMC wrote up their books of
account from these
source documents.
2. FMC
prepared and submitted VAT returns for MCC and Logoprops every two
months. The second appellant normally did not see these
returns
because FMC would prepare, sign and submit them to SARS. FMC also
paid the VAT by direct electronic transfer from MCC's
bank account.
FMC merely informed the second appellant how much VAT had to be paid.
The second appellant's role was to ensure that
there was enough money
in the bank to meet the payments.
3. FMC
prepared annual financial statements and income tax returns of the
second appellant and his family entities. FMC determined
both the
accounting and the income tax treatment of all their income and
expenditure.
4. FMC
submitted the annual financial statements together with the accounts
and vouchers upon which they were based, to the auditors
to do their
annual audit. The auditors performed their audit in terms of section
300 and reported on them in terms of section 301
of the Companies Act
61 of 1973. Their audit reports were always unqualified.
5. Once the
financial statements had been audited, the first appellant presented
them and the income tax returns based on them to
the second appellant
for signature. The second appellant signed them, usually without any
explanation or discussion. He trusted
the second respondent to
prepare these documents correctly. He had the added comfort of
knowing that the auditors had audited the
annual financial statements
and had no reason to mistrust these experts.
6. MCC did not
generate and submit invoices for the commissions sacrificed.
[124] We first
consider the question whether the first appellant was correctly
convicted on counts 5, 6 and 7.
[125] Count 5
relates to the commission in the amount of R769 250-00 which was
sacrificed against the price of Lodge 816. Count
6 relates to the
Sadowsky transaction and the commissions in the amount of R665 700-00
that were sacrificed. Count 7 relates to
the commissions in the
amount of R550 000-00 which were sacrificed against the purchase of
the Links memberships.
[126] It is
common cause that the omitted commission amounts were not included by
MCC for output tax purposes. The State contends
that MCC should have
levied and paid VAT on the commissions sacrificed andplaced a
reliance on section 7 (1)
9
of the VAT Act for this contention. It argues that the first
appellant was aware that MCC had not made out invoices for the
commissions
sacrificed and that as the person responsible for the
preparation of the VAT returns he would also know that in the absence
of
invoices, the sacrificed commissions would not be reflected as
output VAT.
[127]
Regarding how the sacrificed commissions should have been treated
from the point of the VAT Act the magistrate found that
had MCC as a
VAT vendor included the sacrificed commissions in its gross income,
it should have levied and paid over VAT on those
amounts. The
magistrate reasoned that MCC's liability for output tax arose at the
time of the supply of the service in terms of
section 7 (1) of the
VAT Act.
[128]
He went on to state that the fact that MCC did not issue
invoices
to
Plattner could not assist it as it rendered
services
on
which VAT was payable. The magistrate accordingly held that he was
satisfied that
"potential
prejudice is always present when proper accounting and invoicing does
not take place".
[129]
In finding the first appellant to have had a requisite
mens
rea
for
fraud the Court
a
quo
had
this to say at paras 55 and 56 of its judgment:
"55.
Accused 1, as accountant and ex employee in SARS's VAT section
undoubtedly knew VAT had to be levied on services rendered.
It is
true that he did not sign all the VAT returns. The uncontested
evidence however is that accused 2 only dealt with him at
FMC. As
accused 1 was personally involved in Plattner's bookkeeping, he
clearly knew that the manner in which these transactions
were done
(Plattner not invoicing the accused for the actual purchase prices
and accused 2 and 4 in return not invoicing Plattner
for services
rendered) would result in accused 4 not levying and paying over VAT.
He did not have to sign the VAT returns personally
to realise this.
56. In the
absence of any explanation the court is satisfied that accused 1 had
the required intent regarding the non-payment of
VAT when he was
involved in these transactions. As the court has accepted as
reasonably possibly true (regarding count 4) that
accused 1 (when not
employed at Fancourt anymore) did not know about the "sacrifice"
of commission regarding the Mahon
Links membership transaction, it
follows that it is reasonably possibly true that he also did not have
intent regarding the VAT
treatment of these commissions relating to
count 7."
[130]
We disagree with the Court
a
quo's
finding
on how the sacrificed commissions should have been treated for
purposes of output tax. The Court
a
quo
found
that because MCC should have included the sacrificed commission
amounts in its gross income it follows that it should have
levied and
paid over VAT on those amounts.
[131] There is
no evidence to support its finding. In the first place in terms of
the mandate agreement concluded between MCC and
Plattner payment of
commission was subject to suspensive condition, namely upon
registration of transfer of the property sold.
Commission was not
paid if transfer did not take place.
[132]
Secondly, in terms of section 7 (1) of the VAT Act, VAT is levied and
paid on the supply by a vendor of goods or services
supplied by him.
Section 9 determines the time of supply and which is deemed to take
place at the time an invoice is issued by
the supplier or the
recipient in respect of that supply or the time any payment of
consideration is received by the supplier in
respect of that supply.
[133] The VAT
Practice Note No 4, paragraph 1 and SARS Ruling No 87 prescribing
when an estate agent must account for VAT collected
on his
commission, provides as follows:
"When
an estate agent (who is a registered vendor) earns a commission in
respect of the sale of a property, the agreement of
sale in question
will not be regarded as an invoice for determining the time of supply
of the agent's services in terms of section
9 (1) of
the Act .
The estate
agent will therefore be required to account for the output tax on the
commission in his tax return for the tax period
during which the
commission is actually paid to him (or released from his trust
account for this purpose) or during which he issues
a separate
invoice to the seller for the commission payable, whichever is the
earlier."
[134] The
magistrate was in the circumstances wrong to find that MCC's
liability for output tax arose at the time the service was
rendered.
In the present case MCC did not invoice Plattner for the sacrified
commissions nor did it receive payment of the sacrificed
commissions.
The service was therefore not supplied for purposes of VAT.
[135]
The next question is whether the State had proved that the first
appellant had an intention
(mens
rea)
to
defraud SARS.
[136]
Ms
Hendry
submitted
on behalf of the State that the only possible inference to be drawn
from the proven facts is that the first appellant
was aware of the
fact that there were no invoices for the set-off commissions and that
the first appellant as the person responsible
for the preparation of
the VAT returns for MCC was aware that in the absence of invoices the
set-off commissions would not be reflected
as output VAT.
[137]
Ms
Hendry
further
submitted that there was a prima facie inference that the first
appellant knew that VAT on the commission amounts sacrificed
was not
declared and there was no evidence to refute it as the first
appellant did not testify. For this proposition she relied
upon
S
v Boesak
supra
at para [24].
[138]
In this regard the Court
a
quo
found
that the requisite
mens
rea
had
been established on the part of the first appellant. This finding was
based on the ground that the first appellant, "as
an
accountant and ex-employee in SARS' VAT section, undoubtedly knew
that VAT had to be levied on services rendered".
It
accordingly concluded that in the absence of any explanation it was
satisfied that the first appellant had the required intent
regarding
the non-payment of VAT when he was involved in the relevant
transactions.
[139]
In our view there is no evidence either direct or circumstantial to
support the finding and the conclusion reached by the
Court
a
quo.
The
evidence is that the mandate agreement pursuant to which the
commission was payable, rendered the payment of commission subject
to
a suspensive condition, namely it was payable upon transfer of the
property. It was not disputed that MCC did not receive commission
if
transfer failed to materialise.
[140] MCC
waived the relevant commissions before it became unconditionally
entitled to them. It did not receive payment or consideration.
The
state witnesses from Plattner testified that MCC did not invoice it
for the relevant commissions nor did it receive payment.
Under
section 9 (1) of the VAT Act, VAT liability is triggered by either
the invoice or the receipt of consideration. There is
no evidence to
show that the first appellant knew that the law required him to
disclose the sacrificed commissions in the VAT returns
despite the
fact that MCC did not invoice Plattner for them and did not receive
payment.
[141] The next
question is whether the evidence adduced established the crime of
theft which is the first alternative to counts
5,6 and 7.
[142] The
first alternative charge reads:
"Theft
In that on
or about the dates mentioned in column 2 of annexure "A"
and at or near George in the Regional Division of
the Western Cape
accused no 1, 2 and 4 did unlawfully and intentionally steal the
amounts as mentioned in column 4 of annexure
"A" the
property of or in the lawful possession of the commission of South
African Revenue Services and/or Plattner Golf
(Pty) Ltd."
[143] A crime
of theft is committed by unlawfully and intentionally appropriating
someone else's property. A failure to pay a debt
even if it causes
the creditor to suffer loss does not constitute a crime of theft.
[144] There is
no evidence that either the first appellant or the second appellant
collected the sacrificed commissions, on which
the VAT would have
been payable, from Plattner and that being so, a conviction on a
charge of theft cannot be sustained.
[145] The
second, third and fourth alternative charges are statutory offences
under section 59 (1)(a), (c) or (d) of the Act.
[146] The
offences listed in this section relate to acts and omissions aimed at
evading the payment of VAT or to obtain an undue
refund. The maximum
period of imprisonment which could be imposed is 60 months.
[147] To
sustain a conviction for the offences under section 59 (1) (a), (c)
or (d) of the VAT Act, the State must prove that the
acts specified
in the section were committed with intent to evade the payment of tax
levied under the Act or with intent to assist
any other person to
evade the payment of tax payable by such other person under the Act.
[148] It was
submitted by the State that should the Court not confirm the
conviction on the main count it should convict the first
appellant
for contravening section 59 (1) (a), (c) or (d) of the VAT Act on the
ground that there was an obligation to levy and
pay VAT the moment
MCC sold the properties on which it earned the commissions sacrificed
and that if MCC did not receive payment
it should have passed a
credit note.
[149] We
disagree with the State's contention regarding when the obligation to
pay commission arose in terms of the mandate agreement.
The
obligation to pay commission did not arise immediately upon
conclusion of the relevant sale agreements for the sale of
properties.
The payment of commission in terms of the mandate
agreement was subject to the suspensive condition and if that
condition failed
payment would not materialise. It is therefore not
the sale but transfer of property which triggered the payment of
commission.
[150] There
was no evidence that at the time of the completion of the relevant
VAT returns the first appellant knew or foresaw that
the sacrificed
commissions constituted gross income of MCC and that they should have
been disclosed in the VAT returns.
[151] In the
circumstances there is no basis upon which it can be contended that
the first appellant contravened section 59 (1)
(a), (c) or (d) of the
VAT Act.
[152]
We next turn to deal with the fifth alternative to counts 5, 6 and 7
under section 58 (d) of the Act. This section makes it
an offence for
any person who
"fails
to comply with the provisions of section 14 or section 28 (1) or (2),
section 29 or section
30".
[153] An
offence contemplated in this section may be committed by a vendor or
a non-vendor.
[154] The
provisions of section 14 or section 28 (1) or (2), section 29 or
section referred to in section 58 (d) relate to the obligation
to
furnish declarations in form VAT 215 (declaration in respect of
imported services on the supply of imported services under section
14
(1), or to furnish the information required in form VAT 201 (Return
for remittance of value-added tax for VAT payable to SARS
or
Refundable to the vendor under section 28) or to form VAT 216 (Return
in respect of sale of goods towards the settlement of
a debt of the
owner of the goods under section 29).
[155] The
relevant provisions for the purpose of this case are contained in
section 28. This section prescribes the procedure for
submitting VAT
201 Return for remittance of VAT and paying VAT to SARS.
[156]
Mens
rea
in
the form of
culpa
is
a requirement for an offence under section 58 (d) of the VAT Act. The
test for negligence is whether a reasonable person in the
same
circumstances would have foreseen that the act or omission would
constitute a transgression of the statute concerned and,
having
foreseen, would have taken precautions to ensure that the
transgression did not occur.
[157] In the
present case the State must show that it was negligent for the first
appellant not to disclose the sacrificed commissions,
that is to say
it must show that if the first appellant had exercised reasonable
care, he would have foreseen that omitting or
excluding the
sacrificed commissions from the MCC's Vat returns constituted an
offence.
[158] The
question is whether a reasonable accountant in the position of the
first appellant, who had been told that the commission
amounts in
question had been sacrificed, would have foreseen that to exclude
them in the relevant VAT returns would constitute
a contravention of
section 58 (d) of the VAT Act and, having foreseen, would have taken
precautions to ensure that the sacrificed
commission amounts were
disclosed in the VAT returns.
[159] In our
view the State has not proved beyond a reasonable doubt that a
reasonable accountant in the position of the first appellant
would
have foreseen that to exclude the sacrificed commission amounts in
the VAT return would constitute a contravention of section
58(d) of
the VAT Act.
[160] As
indicated earlier, the basic rule is that the time of supply of
either goods or services is deemed to be the earlier of
the time any
payment is received by the supplier or an invoice is issued. The date
when any payment of consideration is received
by the supplier
triggers the time of supply, if it has not already arisen by
reference to the issue of an invoice.
[161] The
event which triggers the time of supply did not occur in the present
case as MCC did not invoice Plattner, (the recipient
of services) for
the commissions waived and neither did it receive payment of the
commissions sacrificed.
[162] Finally,
we turn to consider the conviction relating to count 9 (with theft
and contravention of the VAT Act in the alternative).
This charge
relates to the Links membership.
[163] In
relation to this count the evidence was that the second appellant (Mr
Le Roux) was invited by Plattner to apply for the
Links Golf Club
membership. He had to pay R250 000-00 for membership and R25 000-00
for subscription fee, which he did not have.
[164] The
second appellant then approached Mr Du Plessis, who at the time was
the financial controller at Fancourt and asked him
if MCC could waive
some of its commissions owed by Fancourt to it to pay for the
membership. Mr Du Plessis agreed and he authorised
Mr Lindegue to
implement the arrangement.
[165] At the
same time the second appellant needed money to upgrade his house in
London but lacked the necessary funds. He approached
his friend, Mr
Mahon, who at the time lived in London to assist him with funds. Mr
Mahon wanted to become a member of Links Golf
Club.
[166] The
second appellant undertook to pay for Mr Mahon's Links membership as
a way to repay Mr Mahon. The second appellant again
approached Mr Du
Plessis of Fancourt and asked him to pay for Links membership through
the sacrifice of commissions owed by Fancourt
to MCC. Mr Du Plessis
agreed and the arrangement was implemented.
[167] The
second appellant later transferred his Link membership to Logoprops
(Pty) Ltd which was his company that owned property
at Fancourt and
according to him that became necessary because in terms of Links Golf
Club rules one has to own property at Fancourt
to be eligible for
Links membership.
[168] The Vat
implications in relation to the Links membership transaction is that
FMC claimed on behalf of Logoprops VAT input
on the Links membership.
It claimed and received an input tax credit for the VAT component on
the Links membership fee in an amount
of R33 771 -00.
[169] The only
basis on which the State contends that the input VAT tax credit was
not justified, is that it was disqualified by
the provision of
section 17(2) (b) of the VAT Act. This section provides that the
vendor is not entitled to an input tax credit
in respect of
membership of any club, association or society of a sporting, social
or recreational nature.
[170] The
question is whether the amount of R250 000-00 and R25 000-00
constituted fees or subscriptions paid in respect of membership
of
the Links Golf Club.
[171]
After stating that Logoprops could only claim an input VAT credit if
the input tax was incurred in the course of making taxable
supplies,
the Court
a
quo
found
that it seemed improbable that Logoprops acquired the Links
membership in the course of making taxable supplies because unlike
MCC it did not sell Fancourt properties. It further stated that
Logoprops could not use the Links membership to entice potential
clients in buying property at Fancourt.
[172]
In paragraph 76 of its judgment the Court
a
quo
went
on to hold as follows:
"76.
If the court is wrong in making this finding, and the input tax was
indeed incurred in the course of making taxable supplies,
it is
self-evident that at least the annual dues of R25 000 (on which R3070
VAT was claimed) is a "fee or subscription in
respect of
membership of a club of sporting or social nature" and therefore
disqualified under s 17(2)(b) of the VAT Act.
Input tax in respect of
"any fees or subscriptions paid by the vendor in respect of
membership of any club, association or
society of a sporting, social
or recreational nature" can not be claimed according to s
17(2)(b). The defence correctly did
not suggest that these annual
dues should be categorised as a loan (as is the position regarding
the membership fee of R250 000
which is refundable). Accused 2
correctly conceded that this R25 000 is "an annual fee, that's
subscriptions".
[173]
In convicting the first appellant of VAT fraud the Court stated that
it was apparent, that the second appellant had acquired
the Links
membership in the name of Logoprops
"for
tax purposes"
and
the possibility that VAT could be reclaimed was the underlying
motivation. It accordingly held that
"in
the absence of any explanation the finding has to be made that
accused 1 (first appellant) knew that accused 3 (Logoprops)
was not
entitled to claim this input tax".
[174]
It is clear from paragraph 76 of its judgment that the Court
a
quo
was
not certain on how to characterise the amounts R250 000-00 and R25
000-00 paid for Links membership from the VAT point of view.
The onus
was on the State to prove beyond reasonable doubt that these two
amounts were subscriptions for membership of the Links
Golf Club and
were accordingly hit by the provisions of section 17 (2) (b) of the
VAT Act. The State did not lead evidence of what
the two amounts were
paid for. It did not adduce any evidence of the contractual
arrangement in terms of which the fee was paid.
[175]
In the circumstances the Court
a
quo
should
have acquitted the first appellant on this count as the State failed
to prove that the fee paid for Links membership was
disqualified from
input tax credit by section 17 (2) (b).
[176] There is
another basis upon which the first appellant's conviction on count 9
cannot stand. It is common cause that the VAT
201 form in which the
input tax was claimed was not completed by the first appellant but
Mrs Marsha van Heerden who worked for
FMC.
[177] There is
no evidence that the first appellant authorised Marsha Van Heerden to
claim the input tax or had knowledge of the
contents of the relevant
VAT return form in which input tax was claimed.
[178]
The first appellant was charged in his personal capacity. It was
pointed out by the Court in
Ex
Parte Minister of Justice: in Re Rex v Nanabhai
1939
AD 427
at 429:
""There
is no doubt that as a general rule a person is not criminally liable
unless he has what is called mens rea. This
is usually expressed by
the maxim: actus non facit reum nisi mens sit rea. This is a sound
rule, for a person is not to be subjected
to the stigma and other
consequences of a crime unless he had what is sometimes called a
guilty mind. And from this it follows
that in general a person is not
criminally liable for an act or omission, unless he himself has
committed or omitted the act or
has authorised it." (Rex v
Wunderlich,
1912,
T.P.D. 1118)
.
But vicarious liability of this kind can, of course, be imposed by an
Act of Parliament either expressly or by necessary implication.
In
the present case we have no such express imposition..."
[179] The
Court a quo should have acquitted the first appellant on the main
count in the absence of the evidence that he had completed
the VAT
201 return in which a Vat refund was claimed or had authorised the
person who completed it to claim the VAT refund.
[180] The next
question is whether the evidence presented established the crime of
theft which is the first alternative to the main
count. There is no
evidence that the first appellant completed the VAT return in which
the VAT refund was claimed or that he had
authorised the claim or was
aware of the claim.
[181] In view
of the fact that he was charged in his personal capacity and that
there is no evidence that he completed or authorised
the completion,
of the relevant VAT return or that he was involved in the calculation
of the VAT, there is also no basis for finding
him guilty on the
second, third, fourth, fifth alternatives to count nine.
[182] The
conviction of the first appellant on counts 5, 6, 7 and 9 must
consequently be set aside.
[183] Finally,
we turn to the cross-appeal by the State. Pursuant to a notice filed
by the state in terms of Rule 67 (11) of the
Magistrates' Court
Rules, read with section 310 of Act 51 of 1977, the magistrate stated
a case setting out the facts and reasons
for his decisions. The
questions of law which the stated case poses are the following:
MINIMUM
SENTENCE LEGISLATION
1.
WHETHER
the
Regional magistrate erred in law in finding that the fraudulent
non-disclosure for income tax purposes of income in the amount
of
R769 250 (count 1), R665 700 (count 2) and R550 000 (count 4)
respectively, did not constitute "any offence relating to
fraud
involving amounts of more than R500 000" as envisaged in Part
11
of
Schedule 2 read with
section 51(2)
of the
Criminal Law Amendment Act
105 of 1997
; and
2.
WHETHER
the
Regional Magistrate erred in law in holding that the provisions of
Part
11
of
Schedule 2 read with
section 51(2)
of the
Criminal Law Amendment Act
105 of 1997
did not find application in the circumstances; and
ACQUITTAL
OF ACCUSED 1 AND 2 ON COUNT 2
3.
WHETHER
the
only reasonable inference to be drawn form the stated facts was that
fraud (or one of the alternative counts) was committed;
and
THE
ADMISSIBILITY OF OPINION EVIDENCE
4.
WHETHER
the
evidence of Mr Van Vuuren regarding how SARS applied the relevant tax
legislation to the circumstances which he investigated
in this matter
constitutes opinion evidence on matters of law and whether it was
correct to exclude such evidence; and
5.
WHETHER
the
evidence of Messrs Crisp, Fortuin and Silver in respect of the
correctness or otherwise of the tax treatment under scrutiny
in the
trial amounts to opinion evidence on matters of law and whether it
was correct to exclude such evidence.
[184]
In regard to the question of the admissibility of the opinion
evidence, Ms Hendry on behalf of the state informed us during
argument that the state does not ask for the matter to be referred
back to the regional court for the evidence which was excluded
to be
heard by the magistrate. The state also does not ask that this court
hear the evidence on appeal. The state made it clear
that it did not
want the answer to the questions posed by the stated case to affect
the outcome of this case at all. In the application
before the
magistrate, it was stated by the state that it wanted the matter
canvassed
'for
future reference only'.
The
issue has consequently become academic and will have no impact on the
conviction, acquittal or sentence of the appellants. We
must
therefore, as our courts haveconsistently done in the past, in these
circumstances, decline to give a decision on this point.
10
[185] We turn
to the questions posed in relation to the minimum sentence
legislation. The regional magistrate held that for three
independent
reasons, the minimum sentence provisions do not apply in this case;
1. The amounts
involved are less than R500 000.00;
2. The state
did not forewarn the appellants that it would rely on the minimum
sentence provisions and by its conduct created the
impression that it
did not; and
3. The
appellants were not convicted of scheduled offences for purposes of
the minimum sentence provisions.
[186] The
question of law reserved by the magistrate only applies to the first
ground on which the court a quo decided the issue
in favour of the
appellants. The point reserved is consequently entirely academic
because the decision not to apply the minimum
sentence provisions
will remain standing on the other two grounds even if this court were
to hold against the magistrate on the
first ground. Once again we are
not obligedto decide the issue and must, in our view, decline to
decide this academic issue.
11
[187] The
point reserved in respect of the acquittal of the appellants on count
2 relates to a profit of R 365 000 which arose from
the Sadowsky
transaction. It is not necessary in our view to restate the facts of
that transaction. The case reserved turns on
the alleged personal
liability of the first and second appellants for income tax, each for
one half of the aforesaid profit in
the amount of R 182 500 which
they did not disclose in their personal income tax returns.
[188] The
question reserved is 'whether the only reasonable inference from the
above (stated) facts (is) that fraud (or one of the
alternative
counts) was committed.'
[189]
The magistrate considered the facts relating to the transaction and
then made the finding of fact that
'It
seems clear that the profit of R 365 000 (the difference between R
1,7m selling price and R 1 335 000 buying price) on the original
Lodge 718 contracts, was earned by Lodge 718 Fancourt (Pty) Ltd when
the property was sold under the first morning contract. This
contract
was however cancelled later. Under the first afternoon contract, this
profit was relinquished. The benefit went to accused
3 (Logoprops)
(by way of a reduction in the purchase price of
House
2034. Accused 1 and 2 (Mr van Heerden and Mr le Roux) did not make
the profit. If Lodge 718 Fancourt (Pty) Ltd should be deemed
to have
made this profit, SARS should issue an assessment in this regard
against it".
These
findings of fact are part of the facts incorporated in the stated
case. The facts found show that one half of the profit went
to
Logoprops (a company controlled by the second appellant) and the
other half went to the first appellant's family trust. Regarding
the
profit that went to the first appellant's family trust, the
magistrate commented as follows:
'It
is difficult to avoid the inference that all is not above board
regarding this payment. I am, however, not convinced on the
current
evidence that the finding could be made that fraud (or any of the
alternative counts) were proven.
If
the payment of the R 182 500 to accused 1 's Family Trust
had
tax implications, SARS should issue an assessment in this regard.'
(our
emphasis).
[190] The high
water mark of the submissions by Ms Hendry, on behalf of the state
was that:
1.
the only inference to be drawn from the proven facts was
that
colloquially speaking and in the minds of the respondents (first and
second appellants) the R 365 000 was a profit which they
split
between them.
This
in our view does not assist the state. The finding of fact was that
the first and second appellants did not make the profit.
The fact
that during the trial there were loose referencesto the profit as
having been made by the first and second appellants,
personally, does
not justify the inference that it was in fact the appellants who made
the profits.
2 Further,
that, in the alternative, it should be found that the full benefit of
R 365 000 accrued to Lodge 718 Fancourt (Pty) Ltd
and that the first
and second appellant are guilty of contravening section 104(1)(a) of
the Income Tax Act because they had not
reflected the transaction in
their accounting records and in this way assisted Lodge 718 Fancourt
(Pty) Ltd to evade the payment
of income tax. The charge against the
first and second appellants was, however, that they committed the
offences by not reflecting
the amounts in their income tax returns
for the years in question.
[191] The
stated case posed does not raise a question of law. It raises
questions of fact which was decided, on the facts, in favour
of the
first and second appellants.
12
It is therefore not a question which is open for decision by this
court on appeal. It follows that the cross-appeal by the state
must
fail.
[192]
The appellants (respondents in the cross appeal) ask for the costs of
the cross appeal. A costs order is a matter of the discretion
of the
court. There is no reason why the normal rule that costs follow the
event should not be followed in this case. (See
Attorney
General, Transvaal v Lutchman
1959
(2) SA 583
(A) at 588 B-C).
[193] The
following orders are therefore made:
1. The appeals
by the first, second and third appellants against their conviction on
all the counts they were convicted on, are
upheld;
2. The first
appellant is acquitted on counts 1, 3, 4, 5, 6, 7 and 9 and his
conviction and the sentences imposed on the said counts
are set
aside;
3. The second
and third appellants are acquitted on counts 1, 3 and 4 and their
conviction and the sentences imposed on the said
counts are set
aside;
4. The
cross-appeal by the state is dismissed; and
5. The state
is ordered in terms of section 311(2) of Act 51 of 1977 to pay the
first, second and third appellants' cost in the
cross-appeal.
W.J. LOUW,
J
Judge of
the High Court
I
agree.
D.H. ZONDI
J
Judge of
the High Court
1
The
commission clause provided as follows:
9.2.
Commission
The CC shall be
entitled, in accordance with Company policy from time to time, to
receive commission:
9.2.1 of 2 per
centum on all sales in respect of corporate mansions, executive
lodges, family homes and erven ('resort property')
in the resort
development as the case may be, effected and concluded by the CC;
9.2.2 of 0,5 per
centum on all national and international sales of resort property
effected by or on behalf of the Company subsequent
to the effective
date.
This commission
will be payable once transfer has taken place.
2
S 104(1)(a) reads as follows:
(1) Any person who
with intent to evade or to assist any other person to evade
assessment or taxation-
(a)
makes
or causes or allows to be made any false statement or entry in any
return rendered in terms of this Act, or signs any statement
or
return so rendered without reasonable grounds for believing the same
to be true;
shall be guilty of
an offence and liable on conviction to a fine or to imprisonment for
a period not exceeding five years.
3
S 75(1)(c) reads as follows:
(1) Any person who-
(c)
fails
to show in any return made by him any portion of the gross income
received by or accrued to or in favour of himself or fails
to
disclose to the Commissioner, when making such return, any material
facts which should have been disclosed; or shall be guilty
of an
offence and liable on conviction to a fine or to imprisonment for a
period not exceeding 24 months.
4
Van
Zyl, stated: 'As daar geen oordrag is nie is daar ook geen kommissie
betaal nie.'
5
In
the Shipping Corporation of India v Erdoman Corporation 1994 (1) 550
(A) at 566E, Corbett, CJ stated: 'I do not find it necessary
to
consider, or attempt to define, the circumstances under which the
Court will pierce the corporate veil. Suffice it to say
that they
would generally have to include an element of fraud or other
improper conduct in the establishment or use of the company
or the
conduct of its affairs. In this connection the words
'device'
,
'stratagem',
'cloak'
and
'sham'
have
been used (see the discussions in
Lategan
and Another NNO v Boyes and Another
1980
(4) SA 191
(T) at 200E-202A;
Dithaba
Platinum (Pty) Ltd v Erconovaal Ltd and Another
1985
(4) SA 615
(T) at 624B-625J; and the recent decision of the English
Court of Appeal in the case of
Adams
and Others v Cape Industries plc and Another [1991] 1 All ER (Ch &
CA) at
1022b-j,
1024d-1025f)'.
6
(1)
Section 59 (1) reads as follows: Any person who with intent to evade
the payment of tax levied under this Act or to obtain
any refund of
tax under this Act to which such person is not entitled or with
intent to assist any other person to evade the
payment of tax
payable by such other person under this Act or to obtain any refund
of tax under this Act to which such other
person is not entitled-
(a)
makes
or causes or allows to be made any false statement or entry in any
return rendered in terms of this Act, or signs any statement
or
return so rendered without reasonable grounds for believing the same
to be true; or
(b)
.
..
(c)
prepares
or maintains or authorizes the preparation or maintenance of any
false books of account or other records or authorizes
the
falsifications of any books of account or other records; or
(d)
makes
use of any fraud, art or contrivance whatsoever, or authorizes the
use of such fraud, art or contrivance .
shall be
guilty of an offence and liable on conviction to a fine or to
imprisonment for a period not exceeding 60 months.
7
(1)
Section 28 (1) (a) and (b) reads as follows: Subject to subsection
(4), every vendor shall, within the period ending on the
twenty-fifth day of the first month commencing after the end of a
tax period relating to such vendor or, where such tax period
ends on
or after the first day and before the twenty-fifth day of a month,
within the period ending on such twenty-fifth day-
(a)
furnish
the Commissioner with a return reflecting such information as may be
required for the purpose of the calculation of tax
in terms of
section 16; and
(b)
calculate
the amounts of such tax in accordance with the said section and pay
the tax payable to the Commissioner or calculate
the amount of any
refund due to the vendor...
8
Section
58 (d) reads as follows:
Any
person who -
(a).......
(d)
fails
to comply with the provisions of section 14 or section 28 (1) or
(2), section 29 or section 30... shall be guilty of an
offence and
liable on conviction to a fine or to imprisonment for a period not
exceeding 24 months.
9
(1)
Section 7 (1) provides Subject to the exemptions, exceptions,
deductions and adjustments provided for in this Act, there shall
be
levied and paid for the benefit of the National Revenue Fund a tax,
to be known as the value-added tax-
(a)
on
the supply by any vendor of goods or services supplied by him on or
after the commencement date in the course or furtherance
of any
enterprise carried on by him;
(b)
on
the importation of any goods into the Republic by any person on or
after the commencement date; and
(c)
on
the supply of any imported services by any person on or after the
commencement date,
calculated at
the rate of 14 per cent on the value of the supply concerned or the
importation, as the case may be.
10
See
Attorney-General, Transvaal v Flats Milling Company (Pty) Ltd and
Others,
1958 (3) SA 360
(A) 370H-372G; Attorney-General, Free State
v Ramokhosi
1999 (3) SA 588
(SCA) at 593E-G.
11
See
Attorney-General, Transvaal v Flat Milling Co and Other, supra 374
DE.
12
See
Magmoed v Janse van Rensburg
[1992] ZASCA 208
;
1993 (1) SA 777
(A) at 808A-8099; S v
Basson
[2004] ZACC 13
;
2005 (1) SA 171
CC paras [46] - [49] at 192-194.