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[1988] ZASCA 45
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Tuck v Commisioner for Inland Revenue (45/88) [1988] ZASCA 45; [1988] 2 All SA 453 (A) (16 May 1988)
IN THE SUPREME COURT OF SOUTH AFRICA
(
APPELLATE DIVI5I0N
)
In the matter between:
NELSON RAYMOND TUCK
. . Appellant
and
COMMISSIONER FOR INLAND REVENUE
Respondent
CORAM
: CORBETT, VAN HEÊRDEN, SMALBERGER, VIVIER, JJA, et BOSHOFF
AJA.
DATE OF HEARING
: 4 May 1988
DATE OF JUDGMENT
: 16 May 1988
J U D G M E N T
CORBETT
JA:
During the year of
assessment ended 28 February 1982 the appellant, Mr N R Tuck, received 826
shares in American Home Products Corporation,
of New York ("American Home"), in
terms of what was called a "Management Incentive
/ Plan"
2
Plan". The value of the shares at the date of receipt, in March 198l, was R20
977. In assessing appellant to income tax for the 1982
tax year respondent, the
Com-missioner for Inland, Revenue, included this amount of
R20 977 in
appellant's taxable income. Appellant objected
to this inclusion and, his
objection having been disallowed, appealed to the Transvaal Income Tax Special
Court.
The Special Court (presided over by Melamet J), having heard evidence
and argument, held that the amount of R20 977 constituted a
receipt of a capital
nature and that it was, therefore, not taxable. The Court accordingly allowed
the appeal, set aside the assessment
and referred the matter back to the
respondent for re-assessment. Respondent appealed to the Transvaal Provincial
Division ("TPD"),
which allowed the appeal with costs and substi-tuted an order
dismissing the appeal and confirming the assessment. With leave of
the TPD
appellant now appeals
/ to
3
to this Court and seeks the restoration of the order of the Special
Court.
The essential facts are not in dispute and may be summarized as followsl In
1949 appellant, a registered pharmacist, entered the employ
of a company called
Wyeth Laboratories (Pty) Ltd ("Wyeth") as sales manager. In 1951 he was
appointed managing director and general
manager of the company and he continued
in that position until his retirement in September 1979 at the age of 65
years..
Wyeth was incorporated in South Africa in 1947
as a
wholly-owned subsidiary of American Home. It manu-
factures certain pharmaceutical products and nutritional
foods and markets these products in South Africa.
In its first year of operation after appellant had joined
the company Wyeth registered sales to the value of about
£100 000 and a pre-tax profit of C12. Under appellant's
/ management
4
management, however, the company prospered and by 1979 its
sales had risen to R13 311 000 and its pre-tax profit to R3 362 000.
Appellane playad a prominent role in the pharmaceu- tical industry. He served
upon a number of pharmaceutical commissions and committees.
Mr Trollip, an
attorney with considerable experience of the pharmaceutical industry, who gave
evidence before the Special Court,
stated that, of all the people he met in the
industry, he regarded appellant "as probably the outstanding personality".
Appellant's
particular strengths were his knowledge and experience in the
marketing sphere and the very good relationships that he had been able
to build
up over the years with the various public authorities concerned with the
pharmaceutical industry.
In 1967 American Home introduced the aforementioned Management Incentive Plan
("the Plan") for its employees and the employees of
its subsidiaries in
different parts
/ of
5
of the world. The Plan is set forth in a printed document, which was attached to
the letter of objection and marked "1A" and which
forms part of the case
dossier. I shall re-fer to this document as "Annexure lA". Annexure 1A, which
is headed as follows-
"American Home Products Corporation Management Incentive Plan"
is divided into eight paragraphs. Paragraph I, headed
"Purpose", reads as follows:
"The Management Incentive Plan ('the Plan') is designed to provide for awards
to selected salaried employees in executive, administrative,
technical,
professional or other important capacities, who indi-vidually, or as members of
a group, con-tribute in a substantial
degree to the success of the Company, thus
affording to them a means of participating in that suc-cess and an incentive to
contribute
further to that success".
As appears from the remainder of Annexure 1A, the Plan
is administered by a committee (para. III), which each
year determines the individual employees eligible to receive
/ awards
6
awards under the Plan and the awards to be made from a
fund known as the Award Fund (para. IV). In each year
of American Home, on the recommendation of the committee, in accordance with
a formula, which is related to the fi-nancial success
of the company's business
operations. There are three types of award: (i) a cash award, (ii) a contingent
cash award and (iii) a
contingent stock award (paras. II and V). In this case
only the third of these, the contingent stock award, is of relevance.
A contingent stock award is made from a large block of unissued American Home
shares kept for this purpose, known as the Corporation's
Common Stock (para. V).
Where a con-tingent stock award is made the amount of the award is con-verted
into a certain number of shares,
regard being had to the market price of such
shares on the New York Stock Exchange at the end of the calendar year for which
the
/ award
7
award is made. At that stage, however, no shares are
delivered to the employee concerned; American Home merely
of the number of shares so determined. Moreover, pending delivery, no
particular shares are earmarked for the account of the employee,
nor does he
have the rights of a stockholder in respect thereof. Nevertheless, the company
annually determines the dividends which
would have been paid on the shares
credited to each contingent award account and the account is further credited
with shares equivalent
to the total amount of the dividend (para. VI(3)).
Leaving aside the case of an employee who diés or is discharged from
the employ of the company or whose employment is terminated
for some other
reason prior to retirement (for which eventualities the Plan makes special
provision — see para VI(4)(a), (b)
and (c)), the shares standing to the
credit of an employee's contingent award
/ account
8
account at the time of his retirement are delivered to him
after his retirement in ten (approximately) equal annual
to the ex-employee having, up to the date of delivery,
complied with
certain conditions. This is provided for
in para. VI(4)(d) of the Plan, the
relevant portion of
which reads as follows:
"(d) No delivery from a
Contingent Award Account shall be made to any Employee after termination of
employ-ment unless he shall have to the date fixed for
such payment or delivery
(i) refrained from becoming or serving as an officer, director or employee of
any individual, partnership
or corporation, or the owner of a business, or a
member of a partnership which conducts a business in competition with the
Company
or renders a service (in-cluding, without limitation, advertising
agencies and business consultants) to com-petitors with any portion
of the
business of the Company, (ii) made himself avail-able, if so requested by the
Company, at reasonable times and upon a reasonable
basis to consult with, supply
information to, and otherwise cooperate with,the Com-pany and (iii) refrained
from engaging
/ in
9
in deliberate action which, as determined
by the Committee, causes substantial harm to the interests of the Company. If
these conditions are not fulfilled, no further
delivery shall thereafter
be made with respect to the Employee's
Contingent Stock Awards and all
his rights with respect to his Contingent Award Account shall thereupon be
forfeited."
In order to ascertain
whether there has been compliance with these conditions, former employees to
whom shares have been awarded under
the Plan are required each year to complete
a questionnaire giving details of any "business entity" with which the former
employee
may have become associated since his retirement. And it is only after
receiving and considering the completed question-naire that
the committee
determines the eligibility of the ex-employee to receive his annual instalment
of shares.
In terms of this Plan shares in American Home were over the years of his
employment awarded to appellant and
/ credited
10
credited to a contingent award account in his name. At the time of his
retirement his account stood at 7675 shares.
received delivery of 668 shares as an initial annual in-stalment. When
submitting his income tax return for the 198l tax year, appellant
enclosed a
letter, in which he explained the origin of the 668 shares and stated that at
current stock exchange prices and rates
of exchange as between US dollar and the
rand the total value of the shares as at the date of delivery was R14 251. The
letter went
on to submit that the shares were received partly as remuneration
for services rendered and partly as pay-ment for being restrained
from competing
with the company or doing anything causing harm to the company; and that half of
the amount received was in respect
of services rendered and half in respect of
the restraint, and that the latter receipt was one of a capital nature. The
letter concluded
by contending that accordingly only
/ half
11
half the amount received, viz R7 125, was taxable. This
was the amount reflected as taxable income in appellant's
return in respect of the 668 shares. Appel-
lant appears to have been assessed at that stage upon this
basis for the
198l tax year.
In the following year the appellant received a further instalment of 826
shares to the value (at the time of delivery) of R20 977
and again in his return
of income for the 1982 tax year appellant reflected half this amount, viz R10
488, as income for the year.
A let-ter accompanied his return in which he
referred to the earlier letter submitted with his 198l return and repeated the
submissions
in the 198l letter as to why only half the value of the shares was
shown as income.
On this occasion, as I have indicated, the res-pondent did not accept this
apportionment of the receipt relating to the shares, but
included the full value
of
/ the
12
the shares in his assessment of appellant's taxable income.
Furthermore he raised an additional assessment in respect
of the 1981 tax year. In the letter of objection written
on appellant's behalf by his attorneys in regard to the
1982 assessment
the following was stated:
"We point out that our client claimed only 50% of the value of the shares to
be in respect of a restraint and the balance was submitted
to be remuneration
for services rendered and therefore taxable. In doing this, our client was
motivated with the idea of being reasonable
to the Inland Revenue Directorate.
We submit, however, that on principle, since the essential and dominating nature
of the transaction
was the restraint, no part of the award was of a revenue
nature or taxable.
In the alternative, it is submitted that the award to our client was partly
in respect of services rendered and partly in respect
of a restraint and that an
apportionment is competent. A fair and reasonable apportionment would require
that more than 50% of the
value of the receipt would be of a capital nature, but
we have had some difficulty in finding a formula to quantify the amount.
Accordingly,
we suggest that, as originally returned by our client, a fair and
reasonable apportionment would be on a 50/50 basis."
/ Succinctly
13
Succintly put, the judgment of the Special Court was to the effect that the
dominant reason for the delivery of the shares to the
appellant in the year
under consideration was appellant's compliance with the first of the conditions
stated in para VI(4)(d), which
was described by Melamet J as "the restraint
undertaking". The payment was consequently for the sterilization, in part or in
whole,
of an asset of appellant's, viz the right to trade freely, and was thus a
payment of a capital nature and not taxable.
The judgment of the Court a
quo
has been reported (see
Commissioner
for Inland Revenue v Tuck
1987 (2) SA 219
(T) ). In terms thereof the TPD
held that, on the contrary, the dominant purpose of the Plan was to reward
excellence in management
and to spur on employees to continue to render such
service (see pp 223 J - 224 A); and furthermore that since the Plan did not
indicate
that allottees of shares were given their shares as
/ a
14
a
quid pro quo
for restricting their freedom to compete
(at most it
indicated a free choice to compete with the risk of a forfeiture of shares), the
principles relating to the sterilization
of an asset did not apply and the
receipt was consequently not of a capital nature (see p 224 C-H).
On appeal to this Court appellant's counsel, Mr Welsh, advanced two main
contentions: (i) that the causally relevant factor which
resulted in the receipt
by appellant of the shares in issue was appellant's com-pliance with the
restraint of trade provided for
in para VI(4)(d) of Annexure 1A and that
consequently the receipt was wholly of a capital nature; and (ii) that,
alterna-tively,
the receipt of the shares was attributable at least in part to
appellant's compliance with the restraint and that there should accordingly
be
an apportionment of the receipt as between income and a capital receipt.
/In
15
In support of the first of these contentions,
Mr
Welsh
referred to the dictum of Watermeyer CJ in the
case of
Commissioner for Inland Revenue v Lever Bros. and
Another
1946 AD 441
,at p 450, with reference to the
source of income, viz —
" that the source of receipts,
received as income, is not the quarter whence they come, but the originating
cause of their being received as income, and that this
originating cause is the
work which the taxpayer does to earn them, the
quid pro quo
which he
gives in return for which he receives them. The work which he does may be a
business which he carries on, or an enterprise
which he undertakes, or an
activity in which he engages and it may take the form of personal exertion,
mental or physical, or it
may take the form of employment of capital either by
using it to earn income or by letting its use to someone else. Often the work
is
some combination of these".
On the
basis of this dictum Mr
Welsh
argued that, though
the making of the
original awards was a
conditio sine
qua non
of the receipt of the shares by the appellant,
/ the
16
the real causally relevant factor was appellant's com-
pliance with the
restraint condition; and that conse-
quently the whole of the receipt was of
a capital nature.
In this connection he referred to a statement by
Mr
Justice Schreiner sitting as President of the Swaziland
Court of Appeal
in the case of
Mathenjwa v R
(1970 - 1976)
Swaziland Law Reports 25,
at p 29. Having referred to
a decision of the Rhodesian Court of Appeal,
Schreiner P
stated:
"I am in respectful agreement with the
view expressed that
causa sine
qua non
, or what has been called 'but for' cause, is not a cause in the
law of cul-pable homicide. Indeed generally in law you seek the fact
that
actually produces the result or positively contributes to its production and not
a fact that only provides the occasion or opportunity
for the result to be
produced".
Mr
Welsh
also relied
upon certain other authorities,
particularly the judgment of this Court in
Commissioner
for Inland Revenue v Shell Southern Africa Pension Fund
/ 1984
17
1984 (1) SA 672
(A), where the issue was whether a lump
sum payment from a
pension fund to the widow of a de-
ceased member (where such payment was in
the discretion
of the committee administering the fund) was a lump
sum
benefit which became recoverable "in consequence of or
following upon"
the death of the member within the terms
of para (e) of the definition of
"gross income" in sec
1 of the Income Tax Act 58 of 1962. This Court
(
per
Nicholas JA) held that the problem was one of causation,
viz
whether, in a case where a lump sum becomes recoverable
as a result of the
exercise of the committee of its dis-
cretion, there is the required causal
connection between
the recoverability and the death of the member. In
the
course of his judgment Nicholas JA stated (at p 679
B-P);
"It is clear that the death of the member is a
conditio sine qua non
to
the recoverability of the lump sum: but for the death, there can be no
pension
/ granted . ..
18
granted to an eligible widow or eligible dependant, and hence nothing which
is commutable under rule 37 (3). A
conditio sine qua non
is not, however,
necessarily a causally relevant factor. (See Hart and Honoré
Causation
in the Law
at 107, 121-2.) As DENNING J pointed out in
Minister of
Pensions v Chennell
[1947] 1 KB 250
at 255 in
fine
, the latest event
in a train of physical events is not neces-sarily 'caused by' the first event.
The learned Judge said at 254 that
'the test of causation is to be found by recognizing that causes are
different from the circumstances in or on which they operate.
The line between
the two depends on the facts of each case'
and observed at 256 that an intervening cause or extraneous event may be so
power-ful a cause as to reduce what has gone before to
part of the circumstances
in which the cause operates.
The paradigm of the present case is an occurrence A (the death of a member)
which initiates a chain of events leading to the final
result B (the
recoverability of the lump sum benefit), one of the inter-vening events being
occurrence C (the exer-cise by the committe
of its discretion).
The question is whether the inter-vening cause C, which contributes to bring
about the result B, is of such a kind that
/it
19
it isolates the original cause A so as to relegate it 'to the status of a merely
historical antecedent or back-ground feature'
".
It was held that the decision of the
committee did con-
stitute the intervention of "an independent,
unconnected
and extraneous causative factor or event" (p 679 H)
which
isolated the death of the member from the final result;
and that,
therefore, the lump sum did not becomé recover-
able in consequence of
or following upon the death of
the member.
The question of causation, especially in the
field
of delict, has been considered by this Court in a
number of recent cases (see
eg
Da Silva and Another v Coutinho
1971 (3) SA 123
(A), at pp 147 D - 148 E;
Minister of Police
v
Skosana
1977 (l) SA 31 (A), at pp 33 A-B, 34 F - 35
D, 43 E - 44 F;
Standard Bank of South Africa Ltd v
Coetsee
198l (1) SA 1131
(A), at pp 1138 G _ 1139 C;
S v Daniëls en 'n Ander
1983 (3) SA
275
(A), at pp 324 F
/325 E,
20
325 E, 331 B - 333 G; and
Siman 6 Co (Pty) Ltd v Barclays National Bank
Ltd
1984 (2) SA 888
(A), at pp 914 F - 915 B). I do not propose to canvass
fully the dis-cussion of this question in these judgments. Suffice it to say
that it is generally recognized that causation in the law of delict gives rise
to two distinct enquiries. The first, often termed
"causation in fact" or
"factual causation", is whether there is a factual link of cause and effect
between the act or omission of
the party con-cerned and the harm for which he is
sought to be held liable; and in this sphere the generally recognized test is
that
of the
conditio
sine qua non or the "but for" test. This is
essentially a factual enquiry. Generally speaking no act or omission can be
regarded
as a cause in fact unless it passes this test. The second enquiry
postulates that the act or omission is a
conditio sine qua non
and raises
the question as to whether the link
/ between ...
21
between the act or omission and the harm is sufficiently close or
direct for legal liability to ensue; or whether the harm is, as
it is said, "too
remote". This enquiry (sometimes called "causation in law" or "legal causation")
is concerned basically with a juridical
problem in which considerations of legal
policy may play a part. One of the factors which may cause the link between the
act or omission
and the harm to become too tenuous (resulting in the harm being
too remote) is the intervention of some independent, unconnected
and extraneous
causative factor or event, generally termeda
novus actus interveniens
.
(See generally 8 LAWSA paras 47-9.) The
Shell
case,
supra
, was an
instance of such a
novus actus interveniens
.
It follows from this that a
conditio sine qua non
may in fact be a
legally relevant cause provided that it passes the test of constituting
causation in law, but generally speaking
a fact which is not a conditio sine
/ qua
22
qua non
cannot constitute a cause in law (there may be exceptions -
see
Skosana
's case,
supra
, at p 35 C-D).
I am not sure that it is appropriate to apply the principles of causation, as
developed particularly in the criminal law and the delictual
field, when
con-sidering the problem as to how, from the income tax point of view, a
taxpayer's receipt should be characterized,
ie whether as income or as capital.
In the
Shell
case,
supra
, the Court was directed to these
principles of causation by the particular wording of para (e) of the definition
of "gross income".
In a case such as the present, however, it seems to me that
most problems of characterization could appropriately be dealt with by
applying
the simple test indicated by Watermeyer CJ in the passage quoted from his
judgment in the
Lever Bros
case,
supra
, viz. by asking what work,
if any, did the taxpayer do in order to earn the receipt in question,
/ what
23
what was the
quid pro quo
which he gave for the receipt?
The
quid pro quo
given by appellant in this case is to be found in the
Plan. In my opinion, it has two main elements. Firstly, there is the element
of
service given to the company, Wyeth, over the years, which so con-tributed to
the business success of American Home as to earn
appellant annual awards of
shares which were credited to his contingent award account in terms of the Plan.
It is conceded by Mr
Welsh
that this element is of a revenue nature.
Secondly, there is the element of re-straint of trade, flowing from condition
(i) in para
VI(4)(d) of the Plan, compliance with which is a pre-requisite to
appellant, receiving his annual instalments of shares over a ten-year
period.
There are, of course, two other con-ditions in para VI(4)(d), but on the
evidence condition (i) appears to have been the
most important one. It is
conceded by Mr
Marais
, who appeared on behalf of the
/ respondent
24
respondent, that the restraint of trade element is of a capital nature.
It seems to me that it would be totally unrea-listic to say that in this case
the
quid pro quo
given by the appellant for the receipt of the shares was
solely his compliance with condition (i) of para VI(4)(d). It is true that
had
he failed to comply with condition (i) appellant would have received nothing.
But equally had he not given service of a particular
quality over the years he
would have received nothing. And we are, of course, ex
hypothesi
concerned with the situation where there has been compliance; otherwise there
would have been no receipt to characterize. The mere
fact that the one element,
viz the service, occurred chronologically before the other, viz the compliance
with the condition, cannot,
in my view, alter the basic conclusion that the
quid pro quo
given by appellant for the receipt of his
/ shares
25
shares comprised both elements, viz service and
compliance
with the restraint.
In my opinion, it would be equally unrealistic to say that the
quid pro
quo
given by appellant was solely his excellent service during the years of
his employment. This was initially the contention put forward
on behalf of the
Commissioner, but in oral argument before us Mr
Marais
did not appear to
press the point with any enthusiasm.
Reverting to Mr
Welsh
's argument, I am of the view that even if one
applies the principles of legal causation referred to above, one reaches the
same conclu-sion.
Appellant's excellent service was obviously a
conditio sine
qua non
of the ultimate receipt of the shares and thus qualifies as a cause
in fact. Appellant's compliance with condition (i) was obviously
a contributory
cause in fact, but in my view it did not introduce an in-dependent, unconnected
and extraneous causative factor
/ of
26
of such significance as to relegate the excellent service
to the status of
a mere historical antecedent or back-ground feature. The service and the
restraint condition were part and parcel
of the same scheme and it rested with
appellant as to whether the restraint condition was com-plied with or not. Both
were, in my
ópinion, causally relevant factors. Appellant's main argument
cannot, therefore, succeed.
I turn now to the alternative argument. In this regard Mr
Welsh
pointed out, with reference to cer-tain decided cases, that, despite the absence
of statutory authorization, this Court had in the
past approved of the principle
of apportionment in dealing with the deductibility of expenditure which was
partly of a capital nature
and partly not (see
Secretary for Inland Revenue v
Guardian Assurance Holdings (SA) Ltd
1976 (4) SA 522
(A), at pp 533 E - 534
A;
Borstlap v Sekretaris van Binnelandse
/
Inkomste
27
Inkomste
198l (4) SA 836
(A), at p 849 E-G; and
Commissioner for
Inland Revenue v Nemojim (Pty) Ltd
1983 (4) SA 935
(A), at p 951 B-D); and
also with regard to deemed in-come under sec 7(3) of the Income Tax Act, where
there were elements of both
gratuitousness and consideration (
Ovenstone v
Secretary for Inland Revenue
1980 (2) SA 721
(A), at p 740 B-F). Counsel
contended that there was no reason why the principle of apportionment should not
be extended to the case
where a receipt, having re-gard to its
quid pro
quo, contained both an income element and an element of a capital nature.
Counsel for the res-pondent did not appear to dispute this
as a proposition of
law.
There is, so far as I am aware, no authority for this proposition in our case
law. Nevertheless, for reasons similar to those stated
in the cases quoted in
the previous paragrapn, it seems to me that in a proper
/ case .
28
case apportionment provides a sensible and practical solu-tion to the problem
which arises when a taxpayer receives a single receipt
and the
quid pro
quo
contains two or more separate elements, one or more of which would
characterize it as capital. It could hardly have been the intention
of the
Legislature that in such circumstances the receipt be regarded wholly as an
income receipt, to the disadvantage
of the taxpayer, or wholly as a capital
receipt, to the
of detriment of the
fiscus
. And it is/some interest to
note that the solution of apportionment in cases of this
nature has been
adopted in England (see
Tilley v Wales
(Inspector of Taxes)
[1943] UKHL 1
;
1943 AC 386
, at p 393/4, 398;
Carter v
Wadman ( H.M. Inspector of Taxes)
(1946) 28 TC
41, at pp 52/3) and in Australia (see
McLaurin v Federal
Commissioner of Taxation
(1961) 8 AITR l80
, at p 191).
The problem in this case is to establish an acceptable basis of
apportionment. The appellant has
/ all .
29
all along suggested apportionment on a 50/50 basis; and this was Mr
Welsh
's suggestion to us. Having regard to the inherent nature of the
receipt and its origin in the Plan, it is not possible to find an
arithmetical
basis for apportionment (cf.
Commissioner for Inland Revenue v Rand
Selections Corporation Ltd
1956 (3) SA 124
(A), at p 131; the
Nemojim
case,
supra
, at p 958), but I do not think that this should constitute an
insuperable obsta-cle. Mr
Marais
submitted in argument that appellant had
failed to adduce all relevant evidence in this regard and suggested, by way of
example,
that a highly-placed executive in American Home could have told the
Special Court how the company regarded the relative importance
of the service
and restraint elements. 1 do not think that this submission is sound. The Plan
and the actions of the company speak
for themselves and I doubt whether the
evi-dence of such an executive, if admissible, could have added anything of
substance.
/ It
30
It is obvious from the Plan that both elements are important factors in the
quid pro quo
which the em-ployee provides in return for receiving the
shares. If the employee does not provide the requisite service, he does
not
qualify for an award; if he fails to comply with the restraint, he forfeits the
award. The importance attached by the company
to the service appears from para I
of Annexure 1A which indicates that the very purpose of the Plan is to reward
service which has
contributed to the success of the company and to provide an
incentive for such service in the future. At the same time how seriously
the
company regards the restraint condition is illustrated by the evidence of
Kernick, who forfeited all right to the shares credited
to his contingent award
ac-count when he left the service of Wyeth to join a South African company which
produced a commodity, which
was not manufactured by Wyeth, but was manufactured
by other over-
/ seas
31
seas companies in the group, and who did not have his rights to this
contingent award account reinstated when
he rejoined the American Home group
some three years later; and by the fact that each year a potential recipient of
shares has to
first complete and remit to the company a questionnaire, designed
to check whether he has complied with the restraint or not, before
he receives
his shares. The duration of the restraint is also an indication of the
importance attached to this element by the company.
It is not possible to infer
that the one element is more important than the other and in all the
circumstances I consider that a
50/50 apportionment would be fair and
reasonable.
It follows that the appeal should be allowed and the matter remitted to the
respondent for reassessment in the light of this judgment.
The success of the
appeal naturally carries with it the costs of appeal. There
/ are
32
are no costs to be considered as far as the hearing before the Special Court
is concerned. As to the costs in the Court a
quo
, Mr
Marais
very
fairly conceded that appellant should be awarded these costs. This concession
was, in my view, correctly made. As I have shown,
the appellant submitted his
original return on the basis of a 50/50 appor-tionment of the receipt in issue;
and when objecting to
the respondent's assessment he put forward such an
appor-tionment as an alternative contention. Had the respon-dent not insisted
upon the viewpoint that the whole receipt was taxable, I have no doubt that no
litigation would have ensued. It is true that the
Special Court judg-ment gave
the appellant more than he was entitled to, but in his notice of appeal
respondent made no mention of
an apportionment: his attitude was still that the
whole receipt was taxable. Had he at that stage con-ceded that he was only
entitled
to a 50/50 apportionment
/ it .,.
33
it seems probable that appellant would not have contested the appeal. The
appellant would after all have got what he had asked for
all along. It,
therefore,seems appro-priate that respondent should bear the costs of the appeal
to the Court a
quo
.
The appeal is allowed with costs and there is substituted for the orders made
by the Special Court and the Court a
quo
the following order:
"The appeal is allowed and the matter is remitted to the Commissioner for
re-assessment upon the basis that only 50% of the receipt
in respect of the
American Home shares constituted taxable income in the hands of the
appellant."
The respondent is to pay
the costs of the appeal to the Court a
quo
.
M M CORBETT
VAN HEERDEN JA) SMALBERGER JA) Concur VIVIER JA) Concur
BOSHOFF AJA)