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1986
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[1986] ZASCA 139
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Commissioner for Inland Revenue v Bulman (224/1985) [1986] ZASCA 139 (28 November 1986)
LL
Case No 224/1985
IN THE SUPREME COURT OF SOUTH AFRICA APPELLATE DIVISION
In the matter between:
COMMISSIONER FOR INLAND REVENUE
Appellant
and
ESTATE LATE M.H. BULMAN
Respóndent
CORAM
: RABIE CJ, JOUBERT, TRENGOVE, VAN HEERDEN JJA et. GALGUT AJA
HEARD
: 25 AUGUSTUS 1986
DELIVERED: 28 NOVEMBER 1986
JUDGMENT
/
VAN HEERDEN JA
...
2.
VAN HEERDEN JA
:
The late C D Bulman died on 20 September 1973. His widow and sole heiress,
Minnie Hayes Bulman ("the deceased"), died on 1 August
1980 and her estate
included 14 items of property which had also formed part of her husband's
estate.
On 28 September 1982 the Master of the Supreme Court, acting on behalf of the
appellant, issued an assessment for estate duty on the
respondent in his
capacity as executor of the deceased's estate. In determining the amount of duty
payable the Master made allowance
for a rebate of R27 065,39 in respect of the
said 14 items. This rebate was purportedly calcula-ted in accordance wlth the
proviso
to the First Schedule to the Estate Duty Act 45 of 1955.
The respondent lodged an objection against the
assessment in terms of s 24 (1) of the Act. He con-tended that the allowance
should have been R36 279,12
/and ...
3.
and that the duty payable in terms of the assessment was therefore some R9
000 in excess of the duty actually payable. The objection
was disallowed and the
respon-dent thereupon appealed to the Transvaal Income Tax Special Court in
terms of s 24 (2) of the Act.
The appeal was upheld and with the necessary leave
the appel-lant in turn appealed to this Court.
S 2 (1) of the Act provides that estate duty shall be charged in respect of
the estate of every person who dies on or after 1 April
1955. In terms of s 2
(2) the duty shall be charged upon the dutiable amount of the estate and shall
be levied at the rates set out
in the First Schedule. S 5 prescribes how the
value of property included in an estate is to be determined, and according to s
4 the
net value of an estate is arrived at by making a number of deductions from
the total value of all such property. In terms of s 4
A the dutiable amount of
an estate is the net
/value ...
4.
value thereof minus certain rebates.
The First Schedule makes provision for rates
of duty which increase on a
progressive block system
as the dutiable amount of the estate increases.
Thus,
when that amount does not exceed R50 000 the rate of
duty is 10 per
cent. On the next block, where the
dutiable amount is more than R50 000 but does not exceed R100 000, the rate
is 13%. The prescribed rates increase progressively until
the dutiable amount
exceeds R400 000. At that level duty becomes levlable at the maximum rate of
35%.
In so far as the proviso to the First Schedule is material for the purposes
of this appeal, it reads as follows:
"Provided that where duty becomes payable upon the vaiue of any ... property
... and duty has, upon the death of any person (hereinafter
re-
ferred to as the first-dying person), who died within ten years prior to the
death of the deceased, become payable upon the value
of that ... property
/the ...
5.
the duty attributable to the value of that ... property ...
but not exceeding ... an amount equal to the value on which duty has become
payable on the death of the first-dying person, shall be reduced by a percentage
according to the following scale:
if the deceased dies within two years of the death of the first-dying person
.. 100 per cent
if the deceased dies more
than six years, but not
more than eight
years
after the death of the
first-dying person .. 40 per cent
subject to a maximum reduction equal to so much of the duty previously
payable upon the death of the first-dying person as is attributable
to the value
of that ... property ..."
(I shall refer to property included in the estate of the second-dying which
also formed part of the estate of the first-dying as duplicated
property.)
/Since ...
6 .
'Since Bulman died some seven years before the deceased, it was common cause
that the duty attributable to the value of the 14 items,
as part of the
deceased's estate, fell to be reduced by 40%. It was also com-mon cause that in
determining the amount of the rebate
the value to be attributed to those items
was R262 302. The parties differed, however, as to the basis upon which the duty
attributable
to that value was to be determined, and that was the only issue
debated in the court a
quo
and in this Court.
The appellant's contention was that the duty attributable to the inclusion of
the value of duplicated property in the estate of the
second-dying is to be
calculated on a
pro rata
or proportionate basis. That basis calls for a
determination of the ratio which the net value of the duplicated property has to
the
net value of the total estate of the second-dying (cf
/
Meyerowitz
...
7.
Meyerowitz
, The Law and Practice of the Administration
of Estates, 5th ed, p 486). If the ratio is 1:3 then one third of the total duty
falls
to be reduced by the prescribed percentage (in
casu
, 40%).
The respondent, on the other hand, contended that the attributable duty is
the increased duty brought about by the inclusion of the
duplicated property in
the estate of the second-dying. In order to deter-mine the amount of the
increased duty a calculation has
to be made of the hypothetical duty leviable on
a dutiable amount arrived at with the exclusion of the value of such property
from
the net value of the estate. The difference between the amount of duty so
calculated and the duty leviable on the full dutiable amount
of the estate of
the second-dying represents, according to the respondent's contention, the
increased duty at-tributable to the value
of the duplicated property.
The phrase "the duty attributable to" also
/appears ...
8.
appears in s 13 (1) of the Act. S 13 (2), however, specifically provides how
such duty is to be determined.
By contrast, the proviso to the First Schedule
does not prescribe any method of determining the duty attri-butable to the value
of
the duplicated property.
In holding for the respondent the court a
quo
reasoned as follows:
" The word 'attributable' in '
The Compact Edition of the Oxford English
Dictionary
' bears the meaning
inter alia
'owing to or produced
by'.
If the word 'attributable' is given its ordinary dictionary meaning, it could
only mean the duty produced by the inclusion of the
value of the property in the
estate of the second-dying - in this case the appellant. The in-clusion of the
value of any property
in an estate, having regard to the progressive in-crease
in the rate of duty, results in a lia-bility for additional duty which is
directly attributable to that property.
We are of the opinion that the only method of determining the duty which has
resulted from or been caused by the inclusion of the
value of the property in
the estate, is by determining the amount of duty that would have been payable in
the estate if the value
of the property of
/the ...
9.
the first-dying had not been included in the dutiable amount
of estate and comparing that with the amount of duty that would be payable
if
the value of such property is included. The difference represents the duty which
is attributable to the inclusion of the value
of the property of the first-dying
in the estate of ... of the second dying ..."
The court found some support for its conclusion in the decisions in
Maskalik v Levett
1947 (4) S A 321
(W) at 324-5, and
Mans v Le
Riche
28 S A T,C 86, 92-3. Those decisions were, however, concerned with
contractual indemnities couched in language entirely different
from that of the
proviso, and in my view they do not have a bearing on the interpretation of the
phrase under consideration.
Nor, in my opinion, is the dictionary meaning of the word "attributable" upon
which the court relied of any assistance in resoiving
the issue in this appeal
since, whether the
pro rata
basis or the increased duty. formula is
adopted, duty will be "owing to" or "produced
/by" ...
10.
by" the inclusion of the duplicated property in the estate of the
second-dying. The meaning of "attribu-table" is indeed clear but
does not
provide the answer to the question whether the legislature intended that duty
should be attributed to the value of such
property as an amount distinct from,
and added onto, the remainder of the net value of the estate, or as an amount
which forms an
integral and inseparable part of the total net value.
On the approach of the court a
quo
the value
of duplicated property is regarded as the top portion, and not merely as
part, of the net value of the estate of the second-dying.
Hence the top bracket
of the duty leviable is attributed to the inclusion of that value in the estate,
as is illustrated by the following
example.
The net value of the estate of the second-dying is R300 000 and the dutiable
amount (allowing for the
/standard ...
11.
standard rebate of R50 000) is R250 000. The duty leviable on that amount is
R40 000. The value of duplicated property is R140 000
and if this amount is
excluded from the net value of the estate the dutiable amount is R110 000 and
the duty leviabie thereon R13
100. On an application of the respondent's
in-creased duty formula, which was adopted by the court a
guo
, the duty
attributable to the value of the dupli-cated property is R26 900 (i e, R40 000 -
R13 100), whilst the duty attributable
to the remainder of the net value of the
estate -which is R20 000 more than the value of the said property - is only R13
100.
It is important to bear in mind that duty is levied upon the dutiable amount
of an estate and not upon the separate values of items
of property included in
the estate. Hence duty can be said to be attribu-table to the value of a
specific item only in the sense
that, as an integral portion of the net value of
the
/estate ...
12
estate, it contributes proportionately to that value and therefore also
to the dutiable amount. There is accordingly no warrant for
regarding the value
of duplicated property as the top portion of the net value of the estate of the
second-dying for the purpose
of determining the duty attributable to it.
The following example serves to demonstrate the fallacy inherent in the
approach of the court a.
quo
. Assume that the estate of X (the
second-dying) in-cludes two properties of equal value, A and B, in-herited
respectively from the
estatesof Y and Z who both died less than ten years before
X. If the in-creased duty formula is applied to the value of A, the top
bracket
of the duty leviable in the estate of X will be attributed to that value. " And
if it is ap-plied in regard to B, that same
top bracket will be attributed to
B's value. The result may then well be that the aggregate of the duty attributed
to the
/values ...
13.
values of A and B will exceed the total duty leviable in the
estate of X, and that no duty can be attributed to the value of other
assets
included in the estate. Such a glaring anomaly can obviously not arise if a
proportionate share of the total duty is attributed
to the value of each
property.
Counsel for the respondent submitted that be-cause of two limitations
contained in the proviso the anomaly is more apparent than real.
Those
limitations are, firstly, that the value of duplicated property for the purpose
of the proviso may not exceed the value allocated
to such property in the estate
of the first-dying and, secondly, that the rebate calculated in ac-cordance with
the percentage scale
may not exceed the amount of duty attributable in that
estate to the value of the duplicated property. It is obvious, however, that
the
submission does not provide an answer in cases where the limitations are of no
practical significance.
/And .....
14.
And in other cases the limitations will not serve to remove
the anomaly but wili merely reduce its extent.
The above considerations lead me to the conciu-sion that the legisiature
intended that the duty attri-butable to the vaiue of dupiicated
property should
be determined on a
pro rata
basis. I consequently 'find it unnecessary to
deai with submissions of counsel for the appeliant relating to the concluding
portion
of the proviso which, so it was argued, support the appel-lant's basic
contention.
Counsei for the appellant intimated that in the event of the appeal being
upheid no order as to the costs thereof should be made.
He moreover conceded
that due to an arithmeticai error the rebate refiected in the Master's
assessment shouid have been R30 779,57
instead of R27 065,39.
The appeai is aliowed and the order of the court a
quo
is set aside.
The matter is, however, referred
/back ...
15.
back to the appellant for reassessment in accordance with his counsel's
concession.
H.J.O. VAN HEERDEN JA
RABIE CJ
JOUBERT JA
CONCUR
TRENGOVE JA
GALGUT AJA