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[1985] ZASCA 97
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Commissioner for Inland Revenue v Pretorius (206/84) [1985] ZASCA 97; [1986] 1 All SA 336 (A) (25 September 1985)
Case No 206/84
WHN
THE COMMISSIONER FOR INLAND REVENUE
Appellant
and
ABRAHAM JOHANNES PRETORIUS
Respondent
JOUBERT
JA.
IN THE SUPREME COURT OF SOUTH AFRICA APPELLATE DIVISION
In the matter between:
THE COMMISSIONER FOR INLAND REVENUE
Appellant
and
ABRAHAM JOHANNES PRETORIUS
Respondent
Coram
: CORBETT, JOUBERT, GROSSKOPF JJA et GALGUT, NICHOLAS
AJJA
Heard
: 9 September 1985
Delivered
: 25 September 1985
JUDGMENT
JOUBERT
JA:
/Sec
2
Sec 9(4)(b)
of the Transfer Duty Act 40 of
1949 (the"Act"), as amended, provides the following:
"No duty shall be payable -(b) where trust property is transferred by the
administrator of a trust to the persons
entitled thereto under
the will
or
other written instrument
in pursuance of which such administrator was
appointed." (My underlining).
The respondent ("Pretorius") applied in the Transvaal
Provincial Division
for a declaratory order against the
appellant (the"Commissioner") that he was
in terms of
the said section exempt from transfer duty in respect
of the
acquisition by or transfer to him from Orchid Trust '
of flat 201, Orchid
Flats, as well as garage 12 thereof.
The Commissioner opposed the
applications on the ground
/that
3
that the flat and garage had been transferred as a sectional
title unit to Pretorius not as a beneficiary under a trust deed, but
as a
purchaser pursuant to a separate agreement with the trustees of Orchid Trust.
According to the Commissioner such agreement constituted
a "transaction" for
purposes of the Act which was subject to transfer duty. The issue was therefore
whether or not Pretorius was
entitled to exemption from transfer duty in terms
of sec 9(4)(b) of the Act. LE ROUX J granted the declaratory order with costs.
With leave of the Court a quo the Commissioner appeals to this Court against the
whole of the judgment and order. The judgment
/appealed
4
appealed against is fully reported in 1984(2)SA 619 (T).
It is necessary to deal briefly with the factual background of the dispute
between the parties.
As from 1 April 1964 Pretorius has been the tenant of a flat in a block of
flats known as Orchid Flats which comprised 36 flats and
some garages. Orchid
Properties (Pty) Ltd (the "owner") was the owner of Orchid Flats. During
September 1980 a certain L.A. Stuart,
managing director of J de Moor (Pty) Ltd,
a company doing business as estate and rental agents which also administered
many blocks
of flats in Pretoria in= formed Pretorius "that his company intended
attempting
/a
5
a co-ordinated offer by the tenants of Orchid Flats to purchase
the building and thereafter obtain sectional title registration in
respect of
the building, which sectional title was to lead to each of the tenants obtaining
ownership of his or her individual flat.
This would obviate the possibility of a
speculator purchasing the building and thereafter selling the individual
flats
at the highest price which the market would bear". The
owner of Orchid Flats was not interested in applying for the opening of a
sectional title register in terms of Act 66 of 1971
which would enable the
tenants to obtain ownership of
their flats as sectional title units. Stuart
also
/explained
6
explained to Pretorius "that it would be necessary for each of
the tenants to contribute towards payment of the purchase price of
the Orchid
Flats as well as towards the other expenses necessary for the completion of the
project". Subsequently, at a meeting of
tenants Stuart elaborated on his
proposed project. He suggested the formation of a trust as the appropriate
device for the implementation
of his project. The trust would purchase Orchid
Flats from its owner for the benefit of the tenants who participated in the
project
by becoming beneficiaries under the trust. They would, however, have to
contribute towards the trust capital to enable the trust
to achieve
/its
7
its objects. Having bought the property the trust
for the opening of would apply a sectional title register.
It would then allocate and transfer the individual flats as
sectional title units to each of the tenants who were
trust beneficiaries.
According to Stuart no transfer
duty would be payable in respect of the
transfer of a
flat from the trust to a tenant as a trust beneficiary.
In
the event of any flat not being acquired by a tenant
such flat would be sold
by the trust to a member of the
public. It would seem that some of the
tenants,
including Pretorius, were in favour of accepting
Stuart's
proposals.
/To
8
To give effect to his proposals Stuart as donor entered into a
deed of donation in trust (the "trust deed") on 17 October 1980 with
the two
initial trustees (of whom he himself was one), in terms of which he as settlor
created the Orchid Trust with an initial trust
capital of R100 in favour of the
bene= ficiaries. The latter comprised three categories of persons in the
following order of preference
viz: (i) tenants who occupied flats in the Orchid
Flats
on 1 October 1980; (ii) registered shareholders of the owner as at the
date of the acceptance of the offer by the trustees
/to
9
to purchase Orchid Flats; and (iii) such other persons as may
be nominated by the
trustees. The acceptance in writing on 28 October 1980 by
some of the tenants (including Pretorius) as beneficiaries of the benefits
stipulated in their favour in the deed of trust rendered the Orchid Trust, in
the circumstances of this case, irrevocable as a trust
inter vivos
. See
Crookes N.O. & Another v Watson & Others
, 1956(1) SA 277 (AD) at
pp. 288A, 306 H. For the purpose of this judgment I shall assume, without
deciding, that the Orchid Trust
is a valid trust. I also expressly
/refrain
10
refrain from deciding upon the validity of the wide power
which the deed of trust purported to confer on the trustees to select the
third
category of beneficiaries from the public at large.
In terms of a deed of sale dated 20 October 1980 the Orchid Trust bought
Orchid Flats from its owner for the sum of Rl 475 000-00.
A deposit of RlOO
000-00 was payable on the signing of the deed of sale while the balance of the
purchase price was payable against
transfer of Orchid Flats to Orchid Trust. The
latter duly acquired transfer of Orchid Flats. On 22 February 1982 Orchid Trust
succeeded
in having a sectional title register
/opened
11
opened in respect of Orchid Flats. As I have already
indicated, Pretorius received transfer of flat 201 and garage 12 as a sectional
title unit from Orchid Trust. The first question is whether Pretorius became
transferee thereof as a trust beneficiary pursuant to
the deed of trust or in
consequence of a separate contractual arrange ment between him and the trustees
of Orchid Trust.
It is obvious from a perusal of the trust deed as a whole that it sought to
implement Stuart's project, as described
supra
. The purpose of Orchid
Trust was to enable trust beneficiaries in accordance with their order of
preference to acquire ownership
of flats as
sectional
12
sectional title units. In terms of clause 18 of the trust deed
Orchid Trust will terminate when all sectional title units have been
transferred
to them. On 30 October 1980, Pretorius, who qualified as a trust beneficiary of
the first group of beneficiaries, completed
an application form in the
prescribed form for the allo= cation to him of flat 201 and garage 12 "for the
purchase sum of R43 000".
30% of the "purchase price" was payable within 7 days
of signing his application while the balance thereof was payable in cash against
registra= tion of a sectional title unit in his name (Clause 1). On signing the
application form Pretorius became "entitled
/to
13
to take occupation of the flat hereby purchased as and from
which date all benefits and risk shall pass on to the applicant (i.e.
Pretorius)"(Clause 3). Clause 7 of the application form records the
following:
"This application constitutes a contractual relationship between
applicant and the trustees for the time being of the Orchid Trust".
On the same
date the trustees of Orchid Trust accepted his application in writing "subject
to the terms and conditions as fully set
out in the said Trust Deed". The
application and its acceptance are contained in the same document, bearing the
title "Deed of Application
and Allocation" (Annexure "E" to the Founding
Affidavit). In paragraph 15
/of
14
of his Founding Affidavit Pretorius claimed that he had to
make a further contribution (presumably in excess of the "purchase sum
of R43
000") towards the capital of Orchid Trust. It appears from the correspondence
annexed to his Founding Affidavit that Pretorius
as a trust beneficiary was
responsible for his
pro rata
share of the total debt of Orchid Trust
proportionate to the value of the sectional title unit allocated to him. While
the agreement
in Annexure "E" has in= dubitably many of the characteristics
suggestive of a contract of purchase it is, for the purpose of this
judgment,.
not necessary to place it in a particular
/juristic
15
juristic niche. Even if it were construed as an innominate
contract the result would still be the same, viz. to confer on Pretorius
a
contractual right to claim from the trustees transfer in his name of flat 201
and garage 12 as a sectional title unit against payment
of his contribution to
Orchid Trust as a
quid pro quo
. The agreement in Annexure "E" therefore
constituted the
causa
of the transfer of flat 201 and garage 12 as a
sectional title unit to him by the trustees.
The argument of Mr
Goldstein
on behalf of Pretorius that Orchid Trust
was a growing trust since the beneficiaries also became new settlors who
/contributed
16
contributed towards the trust capital, cannot, in my opinion,
be substantiated by the express wording of the trust deed. I can find
no support
in the latter for the proposition that persons who became beneficiaries intended
to assume a dual function as beneficiaries
and new settlors. He also relied on
clause 7.3 of the trust deed for the contention that Annexure "E" had been
incorporated in the
trust deed and that Pretorius had accordingly in conse=
quence of the trust deed acquired a contractual right to claim from the trustees
transfer of flat 201 and garage 12 as a sectional title unit. Clause 7.3 of the
trust
deed provides as follows:
"A
17
"A Beneficiary must apply to the Trustees for the allocation of a flat and/or
garage on the prescribed application form as per Appendix
II and
which
application
forms part of this trust deed. The trustees shall have the right
to alter and amend the
application form
should they deem it
necessary."
(My underlining). It is clear from the context in
which the words "which application" are employed in clause 7.3 that they refer
to
"the prescribed form as per Appendix II" i.e. to the prescribed blank
application form. The latter was obviously incorporated in
the trust deed to
serve as an obliga= tory model. Clause 7.3 in its present form never purported
to incorporate in the trust deed
application forms which
/were
18
were completed after the execution of the trust deed. Had that
been the intention then one would have expected the relevant part of
the
sentence in question to have been worded as follows: "and which application form
upon completion thereof by a beneficiary will
form part of this trust deed". In
the last sentence of Clause 7.3 the expression "application form" likewise
refers to "the prescribed
form as per Appendix II". Had it been the intention to
confer on the trustees an express power to alter or amend unilaterally an
application form already completed by a beneficiary the last sentence of clause
7.3 could have been worded appropriately to express
that unequivocally. In its
present form clause 7.3, in my
/opinion .......
19
opinion, does not support the contention advanced by Mr
Goldstein
.
I accordingly agree with Mr
Joffe's
submission on behalf of the
Commissioner that the acquisition by Pretorius of flat 201 and garage 12 and the
transfer thereof to him
as a sectional title unit did not arise from the trust
deed but from the agreement in Annexure "E". This conclusion that Pretorius
became transferee of flat 201 and garage 12 as a sectional title unit pursuant
to the agreement in Annexure "E" and not in consequence
of the trust deed, is
the answer to the first question raised
supra
.
/The
20
The relevant provisions of sec 2(1) of the Act are as
follows:
"Subject to the provisions of section 9, there shall be levied - - - a
transfer duty - - - on the value of any property - - - acquired
by any person -
- - by way of a transaction or in any other manner - - - "
Section 1 of the Act defines the word "transaction" very
widely as :
"an agreement whereby one party thereto agrees to sell, grant, donate, cede,
exchange, lease or otherwise dispose of property to another,
or any act whereby
any person renounces any interest in or restriction in his favour upon the use
or disposal of property."
/Pretorius
20 (a)
Pretorius acquired flat 201 and garage 12 as a sectional
title unit by way of the agreement in Annexure "E" which falls within the
Act's
definition of a "transaction". Pretorius is therefore liable to pay transfer
duty as transferee of flat 201 and garage 12 as
a sectional title unit unless he
is in terms of sec 9(4)(b) of the Act exempted from paying transfer duty. The
second question is
accordingly whether he qualified for the said exemption from
transfer duty. Sec 9(4)(b) clearly envisages the situation where a trustee
transferred trust property to a person "entitled thereto" under a will or a
trust deed. What does "entitled thereto" mean ? The
Oxford
21
Oxford English Dictionary
s.v. "entitle" ascribes the
following meanings to "entitle", viz :
"I From TITLE = superscription, designation.
1.
- - -
- -
2.
- - -
- -
3. - - - - -
II From TITLE = 'right to possession'.
4. To furnish (a person) with a 'title'
to an estate. Hence g
en
, to
give (a
person or thing) a rightful claim to a
possession, privilege,
designation, mode
of treatment etc."
According to its ordinary sense the expression "entitled
thereto" as used
in the context of sec 9(4)(b) means
"having a rightful claim thereto". The exemption from
transfer duty is according to sec 9(4)(b) applicable
/where
22
where trust property is transferred by a trustee to persons
who have a rightful claim thereto (i.e. a right to claim transfer of such
property from the trustee) under the trust instrument. I have already in answer
to the first question found that Pretorius had a
right to claim from the
trustees transfer of flat 201 and garage 12 as a sectional title unit not in
consequence of the trust deed
but pursuant to the agreement in Annexure "E". The
answer to the second question is therefore that Pretorius does not qualify for
the exemption from transfer duty in terms of sec 9(4)(b). The
/appeal
23
appeal must therefore be upheld. In the result -
1.
The appeal is upheld with
costs. Such costs are to include the costs incurred by the employment of two
counsel by the appellant.
2.
The order of the
Court a
quo
is altered to read as follows
:
"The application is dismissed with
costs."
JOUBERT JA
CORBETT, JA
GROSSKOPF, JA
Concur. GALGUT, AJA
NICHOLAS, AJA