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[2009] ZAGPPHC 152
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Commissioner for South African Revenue Service v Labat Africa Limited (A206/06) [2009] ZAGPPHC 152; 72 SATC 75 (11 December 2009)
IN
THE HIGH COURT OF SOUTH AFRICA
(NORTH
GAUTENG, PRETORIA)
Case No. A206/06
11
December 2009
In
the matter between
THE
COMMISSIONER FOR SOUTH AFRICAN REVENUE SERVICE
Appellant
and
LABAT
AFRICA LIMITED
Respondent
APPEAL
FROM DECISION OF JOOSTE A J
CORAM:
WEBSTER. LOUW. JJ ET SAPIRE. AJ
JUDGMENT
SAPIRE,
A J
This
is an appeal from a judgment of the Special Income Tax Court
comprising a Judge of this division and two assessors. Although
the
judgment touches on a number of matters the only question before this
court is whether the issue by a company of its own authorised
capital
in exchange for a trademark represents real consideration given by
the company for the purposes of Section 11 (gA).
It
is the contention of the Appellant that no expenditure was actually
incurred by the Respondent in acquiring the trade mark as
required by
Section 11 (gA),
Before
examining this question it is interesting to note that subsequent to
the events giving rise to this appeal the Act has been
altered to
provide in Section 84 that such an issue of shares is deemed to be
expenditure. This lead counsel for the Appellant
to argue that the
use of the word "deemed" used in the amendment was an
indication that but for the deeming section such
issue of shares
would not constitute expenditure. This argument is not convincing and
does not help us either way in deciding the
issue be lore us.
The
judgment of the court a quo is fulsome and deals with the issue with
reference to a number of previous decisions. One of such
decisions
was that of Goldblatt. J in the Johannesburg Tax Court, on the 20
lh
November 2003 (Case Number 10999). In that matter the taxpayer, a
company had bought the business of another company, and settled
the
purchase price by issuing some of its unissued share capital. A
Licence Agreement was one of the assets of the business which
had
been acquired. The taxpayer claimed a deduction in terms of Section
11 (gA) of the Act in respect of the expenditure incurred
in
purchasing the business. As in this case the Commissioner contended
that the taxpayer had not incurred any expenditure as contemplated
in
Section 11 (gA) because the consideration given consisted of shares
issued by the Appellant. In that case the Commissioner's
argument was
upheld. In upholding the Commissioner's contentions Goldblatt. J held
that expenditure in this connection should be
given its ordinary
dictionary meaning. That is the spending of money or its equivalent,
time or labour for example and the resultant
diminution of the assets
of the company making the expenditure. The Judge held that as an
issue of shares did not in any way reduce
the assets of a company it
was not an expenditure incurred.
The
Judge a quo observed that Goldblatt. J found support for his views in
paragraph 7.4 of Silke. South African Income Tax "Memorial
Edition". What appears there, was quoted in the Judgment of
Goldblatt. J. The Judge a quo observed that a perusal of the passage
in question reveals that the writer cited no authority for the
statements made therein.
The
Judge a quo accepted the argument advanced to the contrary that the
interpretation accepted in the Judgement of Goldblatt, J
ignores the
fact that the requirement of the section is that the company should
have incurred an unconditional legal obligation
and that if it has
done so the deductibility requirement is met and that the concept of
"expenditure actually incurred"
is not dependant upon the
making of payment as was clearly stated in Edgars Stores Limited v
CIR.
1988 (3) SA 876
A.
The
correctness of the view taken by the judge a quo is confirmed, on
analysis made even on the criteria of Goldblatt J that the
word
"expenditure" must be given its ordinary meaning. If the
agreement for the acquisition of the asset had been that
the seller
would purchase an agreed number of the unissued shares of the
purchaser at an agreed price, and that the proceeds of
such sale
would be applied to payment of the purchase consideration of the
asset, there could be no doubt that the transaction
would constitute
or involve an expenditure by the company of a portion of its share
capital.
It
is difficult to see any distinction between this construction of the
transaction and that provided for in the agreement with
which we are
concerned.
It
follows that the conclusion to which the judge a quo came is correct
and that the issue of shares by a company for the acquisition
of an
asset constitutes expenditure for the purposes of section 11 (gA) of
the Income Tax Act.
The
appeal should therefore be dismissed with costs.
SAPIRE,
A J
We
agree and it is so ordered.
WEBSTER,J
LOUW,J