Ernst Bester Trust v Commissioner of South African Revenue Services (282/07) [2008] ZASCA 55; 2008 (5) SA 279 (SCA) (26 May 2008)

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[2008] ZASCA 55
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Ernst Bester Trust v Commissioner of South African Revenue Services (282/07) [2008] ZASCA 55; 2008 (5) SA 279 (SCA); 70 SATC 151 (26 May 2008)

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
REPORTABLE
Case no: 282/07
In the matter
between
ERNST
BESTER TRUST
...
APPELLANT
and
THE COMMISSIONER
SOUTH AFRICAN REVENUE SERVICE
...
RESPONDENT
Coram:
HARMS ADP, NAVSA, HEHER, CACHALIA JJA and SNYDERS
AJA
Heard:
5 MAY 2008
Delivered: 26 MAY 2008
Summary: Income Tax – Act 58 of 1962 – sales of sand –
capital or revenue; s 22 – trading stock deduction – when allowed
– SARS practice.
Neutral citation:
This judgment may be referred to as Ernst Bester Trust v Commissioner
South African Revenue Service (282/2007)
[2008] ZASCA 55
(26 MAY
2008).
_____________________________________________________________________
JUDGMENT
__________________________________________________________________
HEHER JA
HEHER JA:
[1]
This is an appeal against a judgment of Davis J sitting in the Income
Tax Special Court, Cape Town. (The appellant will be referred
to as
‘the taxpayer’ in this judgment.) The learned judge dismissed the
taxpayer’s appeal against the refusal to sustain its
objections to
an assessment which treated sales of sand extracted from the
taxpayer’s farm, Klein Môrewag, during the years of
assessment
2000, 2001 and 2002 as revenue rather than capital
1
.
He also rejected an alternative submission that, in the event that
the Commissioner had properly categorised the nature of the income
as
revenue, the taxpayer was entitled to an opening stock deduction in
respect of trading stock held by it at the beginning of each
of the
years of assessment. Both issues were re-argued before us.
[2] The late Mr Van
Zyl Bester purchased the farm in 1965. He farmed grapes and
grain
on it until his death in 1989. About 1980 he was approached by
representatives of Malans Transport. They had identified a
commercially
attractive sand deposit on th
e
farm
(as they also did on neighbouring properties, see
Samril
Investments (Pty) Ltd v Commissioner, South African Revenue Service
2003
(1) SA 658
(SCA) and
Commissioner,
South African Revenue Service v Van Blerk
2000
(2) SA 1016
(C)). From time to time thereafter Mr Van Zyl Bester sold
sand to Malans Transport or an entity, Brickrush CC, which controlled
it.
[3] The taxpayer
acquired Klein Môrewag by bequest from Mr Van Zyl Bester. It
leased
the farm to the testator’s son, Mr Ernst Bester, who pursued on it
agricultural interests similar to those previously practised.
He was
the only witness to testify for either party before the tax court. He
was both a trustee and beneficiary of the Trust.
[4]
The taxpayer derived some income from the lease
2
but a great deal
more from sales of sand, irregular though they were for some years.
The circumstances which gave rise to such transactions
were described
by the witness. By the time the taxpayer acquired the farm its
potential to provide income by disposal of sand was
known to the
trustees. This sand did not provide a particularly productive base
for viticulture and when, not long after the taxpayer
took over, Mr
Ernst Bester was approached by representatives of Brickrush to sell
sand to it, he took the opportunity to re-establish
the vineyards
affected by the sale on more fruitful soil elsewhere on the farm.
This practice he subsequently repeated as and when
the opportunity
arose.
[5] As to the
substance of the agreement concluded between Mr Ernst Bester on
behalf of the taxpayer and Brickrush, the tax court
was largely
dependent on his say-so. Apparently there had been in existence a
written contract which was destroyed in a fire. The
witness produced
an unsigned copy of an agreement the origin and date of which was
uncertain. He testified that the terms of sale
were substantially as
reflected in that document and the court accepted his word.
[6] As reflected in
that document the terms material to the present dispute are the
following:
1.
The subject of the sale (‘Koopsaak’) was defined as ‘Sand geleë
op die Terrein’. In turn, the site (‘Terrein’) was
identified
as ‘Die gedeelte van die Eiendom wat aangedui is op die aangehegte
kaart as ABCDE en in geel ingekleur is’. That plan
was not proved
in evidence but some indication of the probable location and extent
of the site is derivable from a motivation submitted
by Brickrush in
support of its successful application for a mining licence to which
reference is made below. Mr Ernst Bester identified
the site on a map
of the farm on which the location of the sand deposit is also
indicated. As the surface area of the deposit far
exceeds that of the
site it would seem that the rights granted to Brickrush must have
been extended at some stage after the mining
licence application to
which reference is made below. The property, ‘Eiendom’, is
defined in the document as the farm Klein Môrewag,
Malmesbury.
2.
‘
4.
VERKOPING
4.1 Die EIENAAR
verkoop hiermee aan die KONTRAKTEUR die KOOPSAAK.
4.2 Aangesien die
partye nie voor die aanvang van verwydering van die KOOPSAAK presies
kan bepaal hoeveel sand op die TERREIN voorkom
nie, word ooreengekom
dat die koopprys wat die KONTRAKTEUR aan die EIENAAR sal betaal vir
gemelde KOOPSAAK, gelykstaande sal wees
aan die getal kubieke meters
sand verwyder vanaf gemelde gebied, vermenigvuldig met R3,50 (DRIE
RAND EN VYFTIG SENT), welke koopprys
betaalbaar is in opeenvolgende
maandelikse paaiemente nie later nie as die 10de dag van elke daarop
volgende maand. Voormelde prys
per kubieke meter sal jaarliks verhoog
word vanaf 1 Januarie elke jaar met ‘n persentasie waarop onderling
ooreengekom sal word.
4.3 Die KONTRAKTEUR
moet op eie koste volledige rekords hou van alle sand wat aldus deur
hulle van die TERREIN verwyder word. Hierdie
rekord is te alle
redelike tye vir die EIENAAR ter insae.’
3.
‘
6.2
Verpligtinge
van die Kontrakteur
In die uitoefening
van sy regte hierin vervat sal die KONTRAKTEUR:
. . .
6.2.7 alle
nie-sanddraende bogrond verwyder en eenkant plaas voordat met die
ontginning van sand in aanvang geneem word. Sodanige
bogrond sal van
tyd tot tyd soos en wanneer die EIENAAR dit mag versoek deur die
KONTRAKTEUR op eie koste teruggeplaas word op sodanige
gedeeltes van
die TERREIN waarvandaan sanddraende grond verwyder is en waar geen
verdere ontginning van sand gaan plaasvind nie,
maar nie later as 30
(DERTIG) dae na beëindiging van hierdie ooreenkoms nie. Op dieselfde
wyse sal die KONTRAKTEUR verplig wees
om by beëindiging van die
kontrak alle sodanige bogrond terug te plaas, soos hierbo beskryf;
. . .
6.2.12 die nodige
toestemming van alle staats- en alle relevante liggame verkry, om hom
in staat te stel om met sy bedrywighede voort
te gaan.’
4.
‘
6.3
Verbod
Die EIENAAR sal nie
die reg hê om gedurende die bestaan van hierdie ooreenkoms aan enige
derde party die reg te gee om sand te ontgin
op die EIENDOM nie.’
5. In terms of
clause 11.1 the contractor was required to restore the site by the
re-establishment of all non-sandbearing topsoil
on termination of the
contract.
[7] During or about
1994 Brickrush CC applied for and obtained a mining licence to mine
sand on the farm. The supporting motivation
included the following
averments:
‘
Die terrein
waarop die voorgestelde mynbou gaan plaasvind is ongeveer 600 meter
lank en 300 meter wyd (agtien hektaar).
Die gemiddelde
diepte van die ontginbare sand is 0,5 meter d.w.s. oor die totale
oppervlakte van agtien hektaar, ontginbare sand van
90 000 kubieke
meter. Die waarde van die sandbron teen die huidige markverwante prys
sal kapitaal aan die eienaar vir verdere boerdery-bedrywighede
beskikbaar stel.
. . .
Nege en dertig
profielgate is op die terrein gegrawe soos aangedui op die
uitlegkaart. ’n Aangehegte tabel wys die afsonderlike
profielgate
se dieptes aan, die profielgate se x en y koördinate en foto’s van
die afsonderlike gate.’
[8] Malans Transport
had, it seems, acquired rights over various farms which gave it the
ability to pick and choose its sources of
supply. No evidence was led
to establish the volume of sand which thus became available to the
purchaser, or the scope for the utilization
of such sources in the
open market. It is impossible to know whether all or any given part
of the sand deposit on Klein Môrewag
represented a commercially
valuable asset except in so far as Brickrush chose to separate and
remove measured quantities of sand
from time to time according to its
judgment of the market, location, price, quality or whatever other
factors may have influenced
its decision to exercise its rights on
that farm. None of these obvious factors was however explained or
enlarged on in evidence.
[9] It seems clear
that Brickrush was free to exploit the deposit as it deemed fit or to
ignore it entirely without contractual penalty.
The evidence of
Bester shows that he and the taxpayer played no part in the
extraction or disposal of the sand, took no particular
interest in
its quality or quantification, was content to allow Brickrush to fix
the market price (the starting price for the contract)
and made no
effort to control the removal of sand from the site or to check the
volumes so removed. All that the taxpayer required
was due payment
per cubic metre of sand removed as and when it suited Brickrush to
exercise its rights. In the circumstances the
arrangement between the
parties resembled a mineral lease with royalty payments to the holder
of the rights.
[10]
The main contention of the taxpayer before the tax court was that the
proceeds derived from the sales of sand were capital in
its hands. In
its heads of argument the emphasis was shifted to the alternative
basis and before us counsel put forward the reliance
on capital
proceeds with obvious lack of conviction. That was understandable,
since to all intents and purposes the principles had
been clearly
established in
Samril
,
supra
and the argument
could only succeed if that judgment could properly be distinguished
on the facts.
[11]
In brief, this Court held in
Samril
,
(to quote from the headnote at 658H-659B, which correctly summarises
the ratio):
‘
. . . that the
usual test for determining the true nature of a receipt or accrual
for income tax purposes was whether it constituted
a gain made by an
operation of business in carrying out a scheme for profit-making,
which meant that the receipt or accrual should
not have been
fortuitous but designedly sought and worked for. However, it had to
be borne in mind that profit-making was also an
element of capital
accumulation, and accordingly every receipt or accrual arising from
the sale of a capital asset and designedly
sought for with a view to
the making of a profit could not be regarded as revenue. Each case
had to be decided on its own facts with
due regard to the distinction
between capital and the income derived from the productive use
thereof. It also had to be borne in
mind that s 82 of the Income Tax
Act 58 of 1962 cast the burden of proving that any amount is exempt
from or not liable to tax on
the person claiming such exemption or
non-liability. Thus, where the Court is not persuaded on a
preponderance of probability that
the income derived from the sale of
an asset is to be regarded as capital gain, it had to be included in
the taxpayer’s gross income.’
[12]
From the evidence adduced before the tax court to which I have
referred above there can be no doubt that the amounts received
by the
taxpayer from Brickrush represented gains made in the operation of an
ongoing scheme of profit-making over many years out
of the sales of
sand ostensibly at a market-related price. There was nothing of
chance in such a consequence. It was the result of
a contractual
relationship designed for that purpose. The taxpayer used the money
so derived to finance the development of the farms.
All this provides
prima
facie
evidence
that the income so derived was revenue.
[13]
I have referred earlier to the similarity of the parties’
arrangement to the terms of a mineral lease. Although such a lease
may exhibit certain elements of sale, the periodic payments made by
the lessee to the lessor are of a revenue nature: see
Modderfontein
B Gold Mining Co Ltd v CIR
1923
AD 34
at 46-47;
COT
v Rezende Gold and Silver Mines (Pvt) Ltd
1975
(1) SA 968
(RAD) at 970B-971A, 972B-H. It is not necessary to enquire
in such cases whether the land was acquired with a view to re-selling
the minerals at a profit. It is enough to say that the rental or
royalties are ‘the product of capital productively employed’
and
therefore constitute income:
COT
v Rezende
at
970H.
[14]
In the case of a mineral lease, the value of the land is diminished
by the extraction of the minerals, yet the owner’s compensation
(rent or royalties) is taxable. I agree with counsel for the
respondent’s submission that it does not matter whether the rent is
a fixed recurrent amount or whether it is linked to the quantity of
minerals removed (as in
Bellville-Inry
(Edms) Bpk v Continental China (Pty) Ltd
1976
(3) SA 583
(C) at 584H), or to the gross profits made by the lessee
(as in ITC 652 and the
Rezende
case
at 969G).
[15]
Thus, where the taxpayer permits another to enter his property and
remove sand against a monthly consideration calculated with
reference
to the volume removed, he is productively employing his capital asset
(the farm) in a way which is, at least for fiscal
purposes, not
materially distinguishable from a lessor under a mineral lease. As
was said by Innes CJ in the
Modderfontein
case,
above, (at 44) one must have regard not so much to the form as to the
real character of the transaction.
[16]
What was adduced by the taxpayer to gainsay that conclusion? Mr
Emslie, on its behalf, referred to six features, which cumulatively,
according to him, distinguished the case from
Samril
and rendered the
true nature of the transactions the disposal of a capital asset and
not the production of revenue. In this regard
the following reminder
in the judgment of the court
a
quo
warrants
repetition:
‘
It is trite that
distinguishing a case does not entail the mere discovery of different
facts. Courts distinguish cases upon a discovery
of what facts are
regarded as material in the previous case and which formed the basis
upon which the decision was predicated. (See
A
L Goodhart
(1959)
22 Modern Law Review 117).’
[17]
The first ground of distinction, so counsel submitted, was that the
taxpayer received no advance deposits for each tranche of
sand sold,
as the seller had in
Samril
.
Second, the taxpayer in
Samril
had one of its own
employees monitoring the quantity of sand removed while here the
appellant relied on the purchaser to carry out
that task. Third, the
taxpayer in
Samril
had an interest in
obtaining as high a price for its sand as possible to assist it to
obtain compensation for an expropriated portion
of its land; no such
consideration influenced the appellant. Fourth, in
Samril
,
he submitted, the purchaser of the sand mined it on behalf of the
taxpayer whereas Brickrush acquired the permit in its own name.
Fifth, the taxpayer’s role on Klein Môrewag was entirely passive.
Finally, the content of the agreement between the taxpayer and
Brickrush was so minimal as to fall short of trading in sand.
[18] The first four
features are distinctions without a difference. None affects the
essential (trading) nature of the transaction
between the taxpayer
and Brickrush. The alleged passivity of the taxpayer is misleading.
It was only so because the profit-making
transaction was so
constructed as to allow it that advantage without derogating from the
ongoing inflow of income to it. So also
the so-called ‘minimal’
transaction was sufficient to ensure the repeated separation and
removal of the sand for a market-related
return in the hands of the
taxpayer for every cubic metre taken off the property. The extent of
that return during the three years
of assessment with which this
appeal was concerned shows that its profits were very substantial.
There is no suggestion at all in
the evidence that, if the farming
operations were in anyway curtailed or rendered more expensive, the
result was any material negation
of such profits.
[19]
There being no merit in the distinguishing features raised on behalf
of the taxpayer, I conclude that the Special Court was correct
in
finding that it had not shown that the decision of the Commissioner
to treat the receipts from the sales as revenue in its hands
was
wrong
3
.
[20]
The second question concerns the taxpayer’s entitlement to an
opening stock deduction. In this regard its counsel blew hot
and cold
in regard to the basis for his submission. In his heads of argument
he accepted that such a claim could only arise after
separation of
the sand from the remainder of the land comprising the farm. However,
when the shoe pinched during oral argument, he
cast his client’s
lot upon the whole deposit
in
situ
.
Likewise, he initially invoked s 22 of the Income Tax Act 58 of 1962
as the source of the taxpayer’s entitlement, but finally
relied
upon an alleged practice in the Receiver’s office. I shall address
all of these possibilities.
[21] It is
convenient to commence with s 22, the effect of which is to grant a
deduction in respect of trading stock held by a taxpayer
at the
beginning of a year of
assessment. ‘Trading
stock’ is defined in s 1. It includes ‘(a) anything – . . .
(ii) the proceeds from the disposal of which
forms or will form part
of [the taxpayer’s] gross income, otherwise than . . .’ (the
exceptions are not presently relevant).
Section 22,
before
its supplementation by s 12 of Act 5 of 2001, which catered for
capital gains tax, provided (in so far as is relevant hereto):
‘
(1) The amount
which shall, in the determination of the taxable income derived by
any person during any year of assessment from carrying
on any trade
(other than farming), be taken into account in respect of the value
of any trading stock held and not disposed of by
him at the end of
such year of assessment, shall be─
(a)
in the case of
trading stock other than trading stock contemplated in paragraph
(b)
,
the cost price to such person of such trading stock, less such amount
as the Commissioner may think just and reasonable as representing
the
amount by which the value of such trading stock, not
being shares held by
any company in any other company, has been diminished by reason of
damage, deterioration, change in fashion,
decrease in the market
value or for any other reason satisfactory to the Commissioner;
. . .
(2) The amounts
which shall in the determination of the taxable income derived by any
person during any year of assessment from carrying
on any trade
(other than farming), be taken into account in respect of the value
of any trading stock held and not disposed of by
him at the beginning
of any year of assessment, shall─
(a)
if
such trading stock formed part of the trading stock of such person at
the end of the immediately preceding year of assessment be
the amount
which was, in the determination of the taxable income of such person
for such preceding year of assessment, taken into
account in respect
of the value of such trading stock at the end of such preceding year
of assessment; or
(b)
if
such trading stock did not form part of the trading stock of such
person at the end of the immediately preceding year of assessment,
be
the cost price to such person of such trading stock.
. . .
(3)
(a)
For
the purposes of this section the cost price at any date of any
trading stock in relation to any person shall, be the cost incurred
by such person, whether in the current or any previous year of
assessment in acquiring such trading stock plus, subject to the
provisions
of paragraph
(b)
,
any further costs incurred by him up to and including the said date
in getting such trading stock into its then existing condition
and
location, but excluding any exchange difference as defined in section
24I (1) relating to the acquisition of such trading stock.
(b)
The
further costs which in terms of paragraph
(a)
are
required to be included in the cost price of any trading stock shall
be such costs as in terms of any generally accepted accounting
practice approved by the Commissioner should be included in the
valuation of such trading stock.
. . .
(4) If any trading
stock has been acquired by any person for no consideration or for a
consideration which is not measurable in terms
of money, such person
shall for the purposes of subsection (3) be deemed to have acquired
such trading stock at a cost equal to the
current market price of
such trading stock on the date on which it was acquired by such
person: Provided that any capitalization
shares awarded by any
company to shareholders of that company on or after 1 July 1957 shall
have no value as trading stock in the
hands of such shareholders:
Provided further that options or any other rights to acquire shares
in any company which have been acquired
as aforesaid shall have no
value.’
[22]
The
raison
d’etre
of
s 22 was identified and discussed in
Richards
Bay Iron & Titanium (Pty) Ltd v CIR
[1995] ZASCA 81
;
1996
(1) SA 311
(A) at 315E-323E. See also
CIR
v Nemojim
(Pty)
Ltd
1983
(4) SA 935
(A) at 956G-957A.
4
[23]
Counsel for the Commissioner submitted that inherent in s 22 is the
premise that the section has no bearing on stock acquired
and wholly
disposed of during the same year of assessment. I agree. See
Richards
Bay Iron and Titanium
,
above, at 316H-I. Such transactions are relevant for tax purposes
purely for the purposes of s 11 (a) and for the amount of profit
or
loss that they contribute to the income statement.
[24] The evidence,
such as it is in the present case, demonstrates that Brickrush
purchased the sand on credit. Brickrush separated
the sand only when
necessary and removed it forthwith, paying each at month-end for the
volume so removed. It could not have taken
delivery (and, therefore,
acquired ownership) while the sand remained attached to the land.
Delivery probably occurred when, having
decided upon the exact
quantity it required, Brickrush extracted the sand, calculated its
volume and removed it from the site. There
is no suggestion that sand
was, after separation, allowed to lie or accumulate on the farm. From
these facts and inferences two conclusions
are inevitable. First,
that in the overwhelming majority of cases (the only possible
exception being separation at the end of a year
of assessment and
removal a day or two later) separation and disposal took place within
the same year and therefore s 22 was of no
application to the
separated stock. Second, because separation and transfer of ownership
were, to all intents and purposes, if not
simultaneous, then at least
part of one continuous process, the taxpayer never intended to create
or hold trading stock in the separated
sand for the short time
preceding removal from the farm. For this reason too, s 22 would not
have become a relevant factor in the
financial history of the sand.
[25]
For one or both of these reasons, no doubt, counsel for the taxpayer
realized that his client’s prospects of success could
not benefit
from s 22 if the stockpile only came into existence on separation. As
I have said he threw himself instead on the uncertain
ground of the
unseparated
in
situ
deposit.
[26] But the
taxpayer faces manifest problems in this regard. It its original
grounds of objection submitted to SARS in November 2004
its case was
stated as follows:
‘
If the proceeds
[received from Brickrush] are as a result of the disposal of trading
stock, then in terms of section 22 (4) and 22
(3)(a)(ii) the Trust
should be allowed a deduction of the market value of the trading
stock, either acquired or when the sand became
trading stock, ie on
extraction from the ground on or after October 2001.’
The same contention
was repeated in the grounds of appeal under rule 11 of the Rules
promulgated under GN R467 of 1 April 2003. The
judgment of Davis J
was based on the stated premise. In his heads of argument the
taxpayer’s counsel submitted, as a matter ‘not
in issue’, that
the sand became trading stock in the hands of his client when it was
extracted from the land.
[27]
Because of the taxpayer’s approach from the outset the Commissioner
was not apprised of the case it was asked to meet during
the appeal.
5
Nor did counsel find
himself
with the facts necessary to sustain the legal argument. In this
regard two shortcomings stand out. First, there was no evidence
that
the whole or any part of the sand deposit ever transcended a notional
stock in trade given the
ad
hoc
nature
of the purchases and the absence of proof of the size of the market.
See in this regard
De
Beers Holdings (Pty) Ltd v CIR
1986
(1) SA 8
(A) at 32H-I. Second, the taxpayer acquired the trading
stock for no consideration. It was accordingly deemed by s 22 (4),
for the
purposes of s 22 (3), to have acquired the stock at a cost
equal to the current market price of the stock on the date of
acquisition.
However, its counsel was obliged to concede that no
evidence had been adduced to prove that price and that his reliance
on s 22 (3)
was accordingly without foundation. Indeed the only
scintilla
of
evidence in this regard suggested that the quantity of mineable sand
was not capable of accurate estimation.
[28]
The taxpayer’s counsel sought refuge in a so-called ‘practice’
which is described in Silke,
Income
Tax
,
para 8.112 as follows:
‘
The practice of
SARS is usually to permit as a deduction to a taxpayer who has
acquired trading stock for no consideration or for
a consideration
that is not measurable in terms of money the fair market value of the
trading stock at the date of acquisition. Therefore,
in the example
given, in the year inwhich the inherited stock becomes the taxpayer’s
trading stock SARS will allow as a deduction
the market value on the
date of inheritance, namely R50 000, so that, upon a subsequent
realization of the trading stock, the full
proceeds less the sum of
R50 000 will effectively be taxable.’
[29]
Counsel was unable to refer us to any statutory provision which bound
us to enforce or empowered us to adopt or sanction this
practice (of
which no evidence was in any event adduced). Nor is the formulation
capable of enforcement, since what is ‘normal’
within the
understanding of SARS is beyond the scope of judicial notice.
6
In any event, as I
have already found, no ascertainable part of the sand deposit could
fairly be described as trading stock held by
the taxpayer.
[30] The consequence
is that the appeal fails. The following order is made:
‘
The appeal is
dismissed with costs including those consequent upon the employment
of two counsel.’
__________________
J A HEHER
JUDGE OF APPEAL
HARMS ADP )Concur
NAVSA JA
)
CACHALIA JA )
SNYDERS AJA )
1
The
amounts in question were R81 228, R433 127 and R653 391
respectively.
2
A
fixed annual rental of R72 500 during the relevant tax years.
3
The
material facts in this appeal (and certain of the ‘distinctions’)
are closely analogous to those in the Canadian cases of
Orlando
v Minister of National Revenue
[1962]
CTC 108
and
Minister
of National Revenue v Lamon
[1963]
CTC 68.
So is the conclusion.
4
As
explained by De Koker and Urquhart,
Income
Tax in South Africa
,
para 11.9.1:
‘
The effect of the trading
stock provisions in s 22 is to postpone the deduction of the expense
of trading stock purchased until
the tax year in which that stock is
disposed of. The full cost of acquiring trading stock is deductible
under s 11
(a)
,
but the effect of this deduction is matched to the years of disposal
by means of the provisions governing closing stock and opening
stock.’ The respondent, in the papers before the tax court,
correctly described the section as ‘a timing provision’.
5
This
did not deter the Commissioner’s counsel from arguing strenuously
that an unseparated sand deposit was not capable of constituting
trading stock. It is unnecessary to pronounce on the correctness of
that submission.
6
De
Koker and Urquhart,
loc
cit
, say the
following:
‘
In practice the market value
of trading stock acquired for no consideration is allowed as a
deduction if that stock is not on hand
at the end of the year of
assessment in which acquired. This is clearly not authorized by the
Act, since the provision described
deals with the cost of trading
stock which forms part of opening or closing stock, but it is
submitted that, on a holistic interpretation,
this is the intention
of the legislature.’
The statute was not thus
interpreted to us by counsel and it is unnecessary to do so
mero
motu
.