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[2008] ZASCA 156
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Maguire v Commissioner for the South African Revenue Service (731/07) [2008] ZASCA 156; 2009 (4) SA 345 (SCA); [2009] 2 All SA 347 (SCA); 71 SATC 41 (27 November 2008)
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THE
SUPREME COURT OF APPEAL
REPUBLIC
OF SOUTH AFRICA
JUDGMENT
Case No:731/07
ROBIN FRANK MAGUIRE Appellant
and
COMMISSIONER FOR THE SOUTH
AFRICAN REVENUE SERVICE Respondent
Neutral citation:
Maguire
v The Commissioner For the South African Revenue Service
(731/07)
[2008] ZASCA 156
(27 November 2008)
Coram:
FARLAM, MTHIYANE,
HEHER JJA, LEACH et MHLANTLA AJJA
Heard:
4 NOVEMBER 2008
Delivered:
27 NOVEMBER 2008
Summary:
Income
Tax – Capital or revenue – Payments in terms of
successive agreements in Restraint of Trade made before Act 30
of
2000 operated – whether taxpayer had given up resource in
exchange for payments – whether accruals part of taxpayer's
gross income.
______________________________________________________________
ORDER
On appeal from:
the Tax Court
of South Africa, Johannesburg (Satchwell J sitting as President of
the Tax Court).
1. The appeal is upheld with costs, including those
occasioned by the employment of two counsel.
2. The order of the court
a quo
is set aside and replaced with an order in
the following terms:
'(a) The appeal is upheld.
(b) The 1998 assessment and the portions of the 1996
assessment relating to the amounts of R350 000 and R1 250 000 are set
aside
and referred back to the Commissioner for reassessment on the
basis that the amount of R350 000 which accrued to the taxpayer under
the 1992 agreement, the amount of R1 250 000 which accrued to the
taxpayer under the 1996 agreement and the amount of R3 000 000
which
accrued to the taxpayer under the 1998 agreement did not fall within
the taxpayer's gross income.'
JUDGMENT
FARLAM JA
(Mthiyane, Heher
JJA, Leach et Mhlantla AJJA concurring)
[1] This is an appeal against a decision of the Tax
Court for the Transvaal in which appeals brought in respect of an
amount of
R1 250 000 (which was included in the appellant's income
for the 1996 year of assessment) and an amount of R3 000 000 (which
was
included in his income for the 1998 year of assessment) were
disallowed. The judgment of the Tax Court has been reported: see
ITC
1813, 68 SATC 255.
[2] The amounts in question were paid to the appellant
pursuant to two agreements which subjected him to what were described
therein
as restraints of trade. These agreements, which were
concluded in 1996 and 1998 between the appellant and International
Latex Products
(Pty) Ltd, were preceded by an earlier agreement in
virtually the same terms concluded in 1992 between the appellant and
another
company, Macmed Health Care Limited, when he entered that
company's employment, in terms of which an amount of R350 000 was
paid
to the appellant as consideration for a restraint of trade. The
Commissioner for the South African Revenue Services raised a revised
additional assessment for the 1996 year against the appellant on the
basis that the sums of R350 000 paid to him pursuant to the
1992
agreement and R1 250 000 paid to him pursuant to the 1996 agreement
were of an income nature and accordingly subject to income
tax. A
further revised additional assessment was raised against the
appellant for the 1998 year on the basis that the sum of R3
000 000
paid pursuant to the 1998 agreement was also of an income nature. The
Commissioner's contention was that the 1992, 1996
and 1998 agreements
were not genuine restraint of trade agreements and that in reality
the payments made pursuant thereto constituted
remuneration for the
appellant's services.
[3] After hearing the evidence of the appellant, who was
the only witness to give evidence before it, the Tax Court found that
the
1992 agreement contained a valid restraint covenant and that the
consideration of R350 000 paid to the appellant was a capital receipt
in his hands and therefore not taxable. It accordingly allowed his
appeal in respect of that portion of the 1996 assessment which
related to the amount of R350 000 paid under the 1992 agreement. The
appellant's appeals in respect of the payment of R1 250 000
received
under the 1996 agreement and the payment of R3 000 000 received under
the 1998 agreement were disallowed and the portion
of the additional
assessment for 1996, in so far as it related to the payment received
by the appellant under the 1996 agreement
and the additional
assessment for 1998, were confirmed.
[4] As I have said the only witness to testify in the
Tax Court was the appellant. Not only was no evidence led to
contradict his
version but no document was put to him in
cross-examination which contradicted his evidence. The court made no
adverse credibility
findings against the appellant and did not
question his evidence that he considered the 1992, 1996 and 1998
agreements to contain
genuine restraint of trade covenants and that
the consideration he received for each did not represent disguised
remuneration for
services rendered or to be rendered. Its reasons for
holding that the payment of R1 250 000 made under the 1996 agreement
and the
payment of R3 000 000 under the 1998 agreement were not
payments in restraint of trade and therefore not of a capital nature
and
accordingly fell within his gross income appear in paras 54 to 80
(at 267B to 272B) of its reported judgment. I shall discuss them
after I have summarised the material portions of the appellant's
evidence.
[5] The appellant testified that he entered the employ
of Macmed Health Care Limited (which I shall call in what follows
'Macmed')
in 1992. On joining Macmed he was required to sign a
restraint of trade agreement (what I shall call in what follows 'the
1992
agreement'). Among other things, the appellant was restrained
while employed in any capacity within what was described as 'the
Macmed group' and for a period of two years as from the date of
termination of such employment from competing with any business
conducted by the Macmed group in the Republic, Botswana, Lesotho,
Namibia, Swaziland and Zimbabwe. The expression 'the Macmed group'
was defined, inter alia, as meaning 'the Company and all its
subsidiaries and associated companies from time to time during the
material times contemplated by [the] Agreement'.
[6] The appellant testified that he regarded the
provisions of the 1992 agreement as fair and reasonable. He stated
that if he had
taken up a position or employment with a competitor of
the Macmed group and used the information which he acquired while
employed
in the group, it would have had a severe effect on the
group's business. He testified further that the consideration of R350
000
was paid pursuant to a genuine restraint of trade in order to
prohibit him from inflicting damage to the group if he left. He
pointed
out that he was receiving substantial rewards and
remuneration for the services he rendered to the group. He also
stated that the
payment constituted compensation for what was
described in clause 4.2 of the agreement as 'the sterilisation of his
income earning
ability resulting from the undertaking of such
restraints of trade'.
[7] He also referred in his evidence to clauses 4.3 and
4.4 of the agreement which read as follows:
'4.3 The Employee expressly
acknowledges, and it is agreed between the parties, that in the event
of the breach by the Employee
of any of the terms of this Agreement,
the Employee shall, within 7 (seven) days of receipt of written
notice from the Company,
repay to the Company the entire amount of
the consideration paid to him in terms of clause 4.1 above, which
repayment shall be
without prejudice to any other remedies which the
Company may have in common law.
4.4 Notwithstanding the terms
and conditions hereof, it is agreed that, provided the Managing
Director of the Company at the time
be a person who is not on the
Board of Directors of the Company as at the date of signature hereof,
then and in such event should
the Employee cease to be employed at
such time by the Macmed group for any reason whatsoever, the Employee
shall be entitled to
refund to the Company the sum of R350 000-00
(Three Hundred and Fifty Thousand Rands) paid in terms of Clause 4.1
in which event
he shall be entitled to be released from the
provisions of Clause 3.'
[8] The appellant also testified that early in 1996 the
Macmed group entered into a joint venture with Kendall International
(an
international corporation and a member of Tyco International),
described in a document before the court as 'the Kendall Company
of
South Africa'. The appellant was given the responsibility of setting
up this company and became its managing director in April
1996. He
acquired knowledge as to Kendall International's manufacturing
processes, sourcing and pricing and had complete access
to its costs
throughout the world.
[9] The key personnel of Macmed and the Kendall Company
of South Africa were required to sign restraint agreements pursuant
to the
creation of the joint venture. This was at the insistence of
Mr Len Flynn, who was the international representative for Kendall
on
the Tyco Corporation. The appellant stated that Mr Flynn was aware
that he had already signed the 1992 agreement and was accordingly
bound by the restraint contained therein, but that he was
uncomfortable with the fact that in terms of clause 4.4 of that
agreement
the appellant could buy himself out of the restraint for
R350 000. As a result of Mr Flynn's concern and the fact that the
turnover
of the Macmed group of companies had increased substantially
the appellant was required to enter into a second restraint of trade
agreement, viz the 1996 agreement, the wording of which was almost
identical to that of the 1992 agreement. The main differences
were
(1) that the employer with whom the appellant contracted was
International Latex Products (Pty) Ltd, which the appellant described
as 'the lead company within the Macmed Consumables Group' and of
which he was a director; (2) that the period of restraint, in
so far
as it was to operate after the termination of the appellant's
employment within the Macmed group, was to be six months;
and (3) the
consideration for the restraint was R1 250 000, which was also the
amount for which in terms of clause 4.4 of the agreement
(which was
otherwise identical to clause 4.4 of the 1992 agreement) the
appellant was entitled to purchase his release from the
restraint.
The appellant stated that the period of six months was regarded as
adequate in the circumstances and that the amount
of R1 250 000 was
tendered to prevent him from inflicting damage on the company (by
which I take it he meant the group).
[10] After the 1996 agreement was concluded the
appellant introduced a large number of products into the South
African market, acquired
valuable information that would have been of
great value to a competitor of the Macmed group and negotiated a
number of acquisitions
and joint ventures between the Macmed group
and other key players in the South African medical industry. The
turnover of the Macmed
group rose substantially during the period
from 1992 (when it was about R22 million) to 1996 (when it was about
R90 million) and
again to 1998 (by which time it was about R456
million). During 1998 the appellant received an offer of alternative
employment
from the Tyco Corporation, which offered to pay the Macmed
group the sums of R350 000 and R1 250 000 to enable the appellant to
be released from the restraints imposed by the 1992 and 1996
agreements. The appellant also received another offer to run a
syringe
plant in the Western Cape. He declined both of these offers.
By this time the Standard Corporate and Merchant Bank had, according
to the appellant, become heavily involved in the business of the
Macmed group and the Standard Bank, through its pension funds
and
associated companies, had become a major shareholder in the Macmed
group. The Standard Corporate and Merchant Bank representative,
Mr
Bruce Hempel was concerned that, because of the Standard Bank's
financial involvement with the group, the directors (including
the
appellant) should be, as the appellant put it, 'adequately
restrained'. The upshot was that the appellant was offered a further
restraint of trade so as to provide the Macmed group with sufficient
protection against the appellant's going into competition
with it. As
a result of this the 1998 agreement was concluded. It also was an
agreement between the appellant and International
Latex Products
(Pty) Ltd. Its terms were virtually identical with those of the 1996
agreement. The main differences were that the
period of the restraint
after termination of the appellant's employment with the group was
two years (as was the case with the
1992 agreement) and the
consideration paid for the restraint (which was also the 'buy-out'
amount in clause 4.4) was R3 000 000.
[11] The combined effect of the 1992, 1996 and 1998
agreements was that the appellant (if the proviso set forth in clause
4.4 of
each of the agreements applied) could obtain his release from
the restraints contained in clause 3 of each of the agreements by
paying a total of R4 600 000 back to the two companies in the group
which had provided the initial consideration for the restraints.
[12] I now return to the reasons given in the judgment
of the court
a quo
for
its decision that the amounts received by the appellant under the
1996 and 1998 agreements 'were not made pursuant to a Restraint
of
Trade'.
[13] The court stated (in para 55 at 267D) that in
giving careful consideration to the 1996 and 1998 agreements it had
to follow
the 'principle that the court must not merely look at the
form of the relevant transaction but also at its real nature' (this
being
a quotation from the judgment of the Transvaal Special Court in
ITC
1338, 43 SATC 171
at 175).
[14] The court went on to say (in paras 61 to 65 at
268I-269F):
'61. One looks in vain to the
1996 and 1998 agreements to see what further right or asset the
taxpayer undertook to exchange or
surrender or sterilise to earn any
further consideration which could be characterised capital in nature.
The test indicated by
Watermeyer CJ in
CIR
v Lever Bros and Another
AD
441 at 450 that one should look to the originating cause of receipts
or ask what was the
"quid
pro quo
which he
gives in return for which he receives them" is, with respect,
apposite in this case. This test was repeated and applied
by Corbett
JA (as he then was) in
Tuck
[1988 (3) SA 819
(A)]
at 833D: ". . .what was the
quid
pro quo
which he gave
for the receipt?"
62. The restraints set out in
clause 3 of the 1996 agreement and the 1998 agreement are exactly the
same as those set out in the
1992 agreement, save as regards the
duration of the restraint upon termination of employment. The
taxpayer committed himself in
1992 to the surrender of those
attributes of his economic
persona
as set out in clause
3 of that agreement. To repeat the same clause in 1996 and 1998 does
not constitute a further surrender on
his part. These capacities have
already been given up. One cannot repeatedly exchange the same asset
to the same person but for
a different price each time.
63. The taxpayer has given up no
additional resource in exchange for the further payments in 1996 and
1998. He has undertaken no
supplementary restrictions on his income
producing capacity.
64. This view is fortified when
noting that the restraints in the 1992 agreement endured during
employment and for a period of two
years thereafter. However, in the
1996 agreement, the restraint period was reduced to that of six
months. There was certainly no
sacrifice on the part of the taxpayer.
This document, on the basis of which he received the payment of R1,25
million, purported
to impose a less onerous restraint period. The
1998 document did no more than confirm the restraint period of two
years as set
out in the still operative 1992 agreement.
65. It was never contended that
the time periods of the restraint, post employment, were cumulative.
Neither of the two subsequent
time periods were expressed to run from
expiry of the time period in the earliest or the next agreement. The
trigger to commencement
of these time periods was, in each case,
termination of the taxpayer's employment. Such trigger never
eventuated.'
[15] Later (in paras 68 to 69 at 280A-C) the court said:
'68. . . . the taxpayer
relinquished nothing in exchange for these payments. He surrendered
nothing at all. There is no capital
loss to him as a result of which
he received these payments. Absent any exchange there can be no
capital receipt to him.
69. If the 1996 and 1998
payments did not constitute consideration for any asset of the
taxpayer, then they are quite clearly attempts
to "top up"
the 1992 consideration paid for the restraints which the taxpayer had
given at that time and which still
continued. Such augmentation
cannot be a capital payment in exchange for restraint undertakings.
Not only had such undertakings
already been given four years
previously but capital payments cannot be made with retrospective
effect. It is a principle of tax
law that expenditure must be
incurred during the year of assessment. Macmed could not therefore in
1996 and thereafter in 1998
make payments for those freedoms which
had already been surrendered in the 1992 year of assessment.'
[16] In para 73 at 270G-H the court said:
'73. It is difficult not to
conclude that these documents are no more than off-the-shelf
precedents recycled when further sums of
money were to be paid to the
taxpayer. The terms and conditions of these documents have been shown
to be without force of effect.
Some of the terms are empty. The
documents appear to be meaningless save to provide a vehicle which
apparently justified payment
of the two sums of money.'
[17] In a portion of his judgment headed 'The Status of
these further payments' the court speculated without making a finding
as
to the nature of the relevant payments. It said (para 78 at
271E-F) that it was 'conceivable that the payments made were to
induce
the taxpayer to remain in the employ of the Macmed group'; in
which case they 'would be retainers'. It was also conceivable, the
court said (in para 79 at 271H), 'that these payments might have been
considered in the nature of bonuses paid to recognise services
already rendered in the course of employment and the contribution
which the taxpayer had made in the past to the growth and apparent
profitability of the Macmed group.'
[18] The court concluded this part of its judgment by
saying (in para 80 at 272A-B) that '[w]ether these payments were to
secure
future services or rewards in recognition of past services,
all of which would fall within the definition of "gross income",
this court is not called upon to decide.'
[19] As appears from the extracts of the judgment quoted
above, the basis of the court's finding, as was argued by Mr
Marais,
who appeared for the respondent in this
court, was that as the appellant had already disposed of his right to
trade freely, to the
extent specified in the 1992 agreement, no
further right was disposed of under the 1996 and 1998 agreements and
that the receipts
or accruals of R1.25 million and R3 million were
therefore not of a capital nature.
[20] In my view it is important, as the court
a
quo
said, not merely to look at the
form
of the transactions but to their real nature.
What was the real nature of the transactions? Is it correct that the
appellant gave
up 'no additional resource in exchange for' the 1996
and 1998 payments?
[21] Before endeavouring to find an answer to these
questions it will be appropriate to say something about the way in
which payments
received as consideration for submitting to a
restraint of trade were dealt with in our tax law before para (cA)
was inserted into
the definition of 'gross income' in s 1 of the
Income Tax Act 58 of 1962 by
s 13(1)(f)
of the
Taxation Laws
Amendment Act 30 of 2000
.
[22] Payments made to an employee in exchange for an
undertaking not to compete with his employer, ie payments for
agreeing to a
restraint of trade,have been held in a series of cases
to be of a capital nature. In adopting this approach our courts have
been
influenced by decisions in the United Kingdom.
[23] The first to which I wish to refer,
The
Glenboig Union Fireclay Co Ltd v the Commissioners of Inland Revenue
1922 SC (HL) 112,
12 TC 427
(HL), has often
been referred to by our courts. The taxpayer, who was a manufacturer
of fireclay goods and a merchant of raw fireclay,
was the lessee of
certain fireclay fields over part of which ran the lines of the
Caledonian Railway. In 1911 the railway company
exercised its
statutory powers to require part of the fireclay to be left unworked
(so as not to undermine the railway) on payment
of compensation. The
House of Lords, dismissing an appeal from the Court of Session in
Scotland, held that the compensation received
by the taxpayer was a
capital receipt, not subject to income tax. Lord Buckmaster said (at
114-5 of the SC report, and at 463 of
the TC report):
'In truth the sum was paid to
prevent the Fireclay Company obtaining the full benefit of the
capital value of that part of the mines
which they were prevented
from working by the railway company. It appears to me to make no
difference whether it be regarded as
a sale of the asset out-and-out,
or whether it be treated merely as a means of preventing the
acquisition of profit that would
otherwise be gained. In either case
the capital asset of the Company to that extent has been sterilised
and destroyed . . .'
[24] Lord Wrenbury in his speech also (at 116 of the SC
report, and at 465 of the TC report) regarded the compensation as
'the price
paid for sterilising the asset from which otherwise profit
might have been obtained' and accordingly not subject to income tax.
Lords Atkinson, Sumner and Carson concurred.
[25] In another decision of the House of Lords,
Beak
v Robson
1943 AC 352
(HL),
25 TC 33
(HL), to
which Mr
Marais
referred
us, an amount paid to a director of a company as consideration for
agreeing not to compete with the company for a period
after the
period of five years from the termination of his employment with the
company was held to be not subject to income tax.
[26] In 1952 the English Court of Appeal, in
Higgs
v Olivier
[1952] 1 Ch 311
(CA),
33 TC 136
,
held that an amount of £15 000 paid by a film company to Sir
Laurence Olivier for agreeing not to act in, direct or produce
any
film for anybody other than the company was not a taxable receipt.
The agreement had been concluded in connection with the
film
Henry
V,
which Sir Laurence produced and directed
and in which he starred as the principal actor. Among the cases cited
by Sir Raymond Evershed
MR in his judgment were the
Glenboig
case and
Beak v
Robson.
He said (at 317-8 of the Ch report,
and at 146 of the TC report):
'I think that there is a true
analogy between such an arrangement as that [ie the agreement in the
Glenboig
case
not to work the fireclay in exchange for compensation] or between a
sale of one of a trader's capital assets and a restrictive
covenant
of a substantial character entered into by a trader relating to
trading.'
[27] Later in his judgment (at 319 of the Ch report,
and at 147 of the TC report) he said:
'I think that case
[Beak
v Robson]
is useful
as an illustration of the kind of approach which should be made in
considering the application of the taxing provision
to covenants of
this character.'
[28] The
Glenboig
case
was held to be not capable of being distinguished and was accordingly
directly applied in
CIR v Illovo Sugar Estates
Ltd
1951 (1) SA 306
(N). In this case certain
portions of the taxpayer's canefields were requisitioned by the
military and naval authorities, who agreed
to pay compensation for
the destruction of cane, the use of the canefields and the
cancellation of a lease. Hathorn JP (with whom
Carlisle and Selke JJ
concurred) held (at 310D) that the canefield was 'an essential part
of the equipment of the cane-grower's
income-producing machine and,
therefore, part of his capital'. The compensation paid was
accordingly held (at 310E-F) to have been
paid to the taxpayer 'for
the loss of its income-producing machine and consequently, it was a
receipt of a capital nature.'
[29] The
Glenboig
and
Illovo Sugar
cases
were referred to and described as 'well-known cases' in
Taeuber
and Corssen (Pty) Ltd v SIR
1975 (3) SA 649
(A). In this case an agency contract provided that upon termination
the principal would be entitled to require that for a period
of two
years after the termination the agent would not sell, or assist in
the sale of, any products in competition with the products
of the
principal, in return for which the principal was to pay the agent in
monthly instalments 60 per cent of the commission which
the principal
had paid the agent in respect of agency contracts executed during the
last twelve months of the agreement.
[30] This court held that the amount paid under this
provision was of a capital nature. Rumpff CJ said (at 662A-B) that
there was
no doubt that at the time of the cancellation of the
agreement the taxpayer 'had established an income-producing
structure. [This]
structure . . . consisted not only of premises,
personnel and the right to trade but also of certain specific
contractual rights
and duties,
inter alia,
those that flowed from the contract with [the
principal].'
[31] Later (at 663H-664A) he said:
'What the parties intended . . .
was a payment of a sum of money to restrain the [taxpayer], for a
period of two years, from earning
income by the sale of all products
competing with those of [the principal]. In the result, in my view,
that part of [the taxpayer's]
income-producing structure which had
sold only [the principal's] products was not only permanently
prevented from selling [the
principal's] products by the termination
of the agreement, but also effectively closed for two years to the
extent that it was
prevented, for that period, from selling all such
products as would compete with [the principal's] products, and the
amount payable
in terms of [the relevant clause] was intended to be,
and must be construed as, compensation for this closure.'
[32] The last decision to which I wish to refer in this
regard is
ITC
1338, 43
SATC 171
, a judgment delivered by McEwan J in the Transvaal Special
Court. In this case the taxpayer agreed with the company by which he
was employed, in return for the payment of R30 000, to be bound by
certain restraints, the most important of which prevented him
for a
period of two years after the termination of his employment form
being employed by or concerned in any rival undertaking
in the trade
in which he had worked his whole working life. Clause 4 of the
agreement provided, in effect, that in the event of
a change in
control of the company he could, upon repayment of the R30 000,
obtain his release from the restraint. (I pause here
to remark that
the person or persons who drafted the 1992, 1996 and 1998 agreements
apparently based clause 4.4 of the agreements
signed by the appellant
on clause 4 of the contract considered in
ITC
1338.)
[33] At 174 after referring to the principles laid down,
inter alia,
in
Taeuber
& Corssen, supra,
McEwan J said that
there could 'be no doubt that the same principles apply in the case
of an individual'. He continued:
'An employee who by means of a
covenant in restraint of trade surrenders a portion of his
income-earning capacity in return for
a payment of money, is parting
with a capital asset and the payment is of a capital nature.'
[34] He then referred with approval,
inter
alia,
to
Beak v Robson
and Higgs v Olivier.
[35] In my opinion the decision of the court
a
quo,
based as it was on the fact that the
restraint to which the appellant agreed in the 1996 and 1998
agreements was identically worded
to the restraint in the 1992
agreement, (which led the court to hold that the appellant had 'given
up no additional resource in
exchange for the further payments in
1996 and 1998') overlooks the fact that there
was
a further asset which the appellant gave up
in exchange for the payments. That was his right in 1996 to obtain
his release from
the 1992 restraint on payment of R350 000 and his
right in 1998 to obtain his release from the 1992 and 1996 restraints
on payment
of R1 600 000. In both cases on the undisputed evidence
his worth as an individual unfettered by a restraint was
substantially
in excess of the release consideration. This is what,
from a commercial point of view, induced his employer to pay him the
further
amounts.
[36] I cannot agree with the court's finding (in para 73
at 270G-H) that '(t)he terms and conditions of [the 1996 and 1998
agreements]
have been shown to be without force or effect' and that
they 'appear to be meaningless save to provide a vehicle which
apparently
justified payment of the two sums of money.'
[37] I have no doubt that if the appellant had left his
employment in the Macmed group while the companies in it were still
trading
and had wanted to work for a competitor his erstwhile
employers would have been able to obtain an interdict against him
unless
the proviso in clauses 4.4 of the three agreements applied and
he paid them R4 600 000. It would not have availed him (if the
proviso
applied) to tender R350 000 and to say that the other two
agreements were meaningless.
[38] When this point was put to Mr
Marais,
he attempted to meet it by saying that to
uphold this point would offend against the parol evidence rule. I do
not think there is
anything in that point. It is quite clear, when
all the agreements are looked at against the background of the
admissible evidence
on the point, what the parties intended. Mr
Marais
also submitted
that this was not the basis on which the appellant approached the
court
a quo.
Apart
from the fact that the notice of objection was wide enough to cover
the point, it must be remembered that the case was fought
in the
court below on the basis that the appellant was seeking to show that
the receiver's reason for seeking to tax the amounts
was his
assertion that they were amounts of remuneration disguised as
payments for agreeing to a restraint of trade. Finally Mr
Marais
contended that the point was not covered by
the notice of appeal. This is also not correct as the point in my
view is covered by
paragraph 4 of the notice of intention to appeal.
[39] In my view the appeal should succeed.
[40] the following order is made:
The appeal is upheld with costs, including those
occasioned by the employment of two counsel.
The order of the court
a quo
is
set aside and replaced with an order in the following terms:
'(a) The appeal is upheld
(b) The 1998 assessment and the portions of the 1996
assessment relating to the amounts of R350 000 and R1 250 000 are set
aside
and referred back to the Commissioner for reassessment on the
basis that the amount of R350 000 which accrued to the taxpayer under
the 1992 agreement, the amount of R1 250 000 which accrued to the
taxpayer under the 1996 agreement and the amount of R3 000 000
which
accrued to the taxpayer under the 1998 agreement did not fall within
the taxpayer's gross income.'
………………
IG FARLAM
JUDGE OF APPEAL
APPEARANCES:
FOR APPELLANT: P A SOLOMON SC
G D GOLDMAN
Instructed by
Cyril Ziman & Associates
Inc
Johannesburg
E G Cooper & Sons Inc
Bloemfontein
FOR RESPONDENT: P J J MARAIS SC
Instructed by
The State Attorney
Johannesburg
The State Attorney
Bloemfontein