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[2000] ZASCA 171
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NST Ferrochrome (Pty) Limited v Commissioner for Inland Revenue (526/97) [2000] ZASCA 171; 2000 (3) SA 1040 (SCA) (26 May 2000)
Case No 526/97
REPORTABLE
IN
THE SUPREME COURT OF APPEAL
OF
SOUTH AFRICA
In
the matter between
NST FERROCHROME (PTY)
LIMITED
Appellant
and
THE COMMISSIONER FOR INLAND
REVENUE
Respondent
CORAM: HEFER,
SCOTT, ZULMAN, PLEWMAN et STREICHER JJA
HEARD: 12
MAY 2000
DELIVERED: 26
MAY 2000
Deduction
in terms of s 12 C of Income Tax Act - meaning of “any person”
in subpara (d)(iv) of definition of “connected
person” in
s 1.
J
U D G M E N T
SCOTT
JA
/....
SCOTT JA
:
[1]
The
question
that
arises in this appeal is whether the expression “any person”
in subpara (d)(iv)
of the
definition of “connected person” in s 1 of the Income
Tax Act 58 of 1962 (as it read in 1994) is to be construed
as
including a company.
[2] The appellant owns and operates a furnace. Its
main business is the
production and sale of ferrochrome. It was incorporated
in pursuance of a joint venture agreement concluded between Samancor
Ltd
and Dippon Denko Co Ltd on 20 September 1993. In terms of the
agreement the shareholding in the appellant is held equally by
Samancor and Dippon Denko. Each appoints an equal number of
directors with equal voting rights. Each enjoys joint control.
[3] In terms of a written agreement of sale similarly
dated 20 September 1993 (but with a later effective date) the
appellant
purchased from Samancor a furnace situated at Tubatse for
the production of ferrochrome together with ancillary equipment and
the site on which the furnace was located for a total amount of R89
650 000. This amount comprised R89 623 760,88 in respect of
the
furnace and R26 239,12 in respect of the land. At the effective date
of the sale the tax value of the furnace was nil. The
original cost
price of the furnace to Samancor was R48 million.
[4]
Section
12 C of the Income Tax Act, broadly stated, permits the cost of
certain qualifying items of machinery and plant brought
into
use and used
by a taxpayer to be written off on a straight-line basis over 5
years at a rate of 20 per cent per annum. However,
in terms of s 12
C (4), if the asset in question which is brought into use by the
taxpayer was previously brought into use by
a “connected
person” in relation to the taxpayer and that “connected
person” was previously allowed a
deduction under
inter
alia
s 12 C, the
deduction available to the taxpayer under s 12 C is to be calculated
on the lesser of the cost of the asset to such
connected person or
the market value thereof on the date upon which the asset was
brought into use by the taxpayer. It follows
that if Samancor was a
“connected person” in relation to the appellant the
deduction allowable is to be calculated
on the cost of the furnace
to Samancor,
viz
R48 million; if it was not, the deduction is to be calculated on the
amount of approximately R90 million paid by the appellant
to
Samancor.
[5] In respect of the year of
assessment ended 30 June 1994 the appellant claimed a deduction in
terms of s 12 C calculated
on the amount of approximately R90
million. The respondent (“the Commissioner”) was of the
opinion that Samancor
was a “connected person” in
relation to the appellant in terms of s 1 and that the limitation
imposed by s 12 C (4)
was accordingly applicable. He therefore
issued an assessment on the basis that the deduction was to be
calculated on the lower
amount of R48 million. The appellant
objected and appealed successfully to the Special Court. The
Commissioner in turn appealed
to the Full Court of the Transvaal
Provincial Division (Van Dijkhorst, Kirk-Cohen JJ and Maritz AJ).
The appeal was upheld and
the order of the Special Court reversed.
The judgment is reported
sub
nom
Commissioner
for Inland Revenue v NST Ferrochrome (Pty) Ltd
1999(2) SA 228 (T). The appeal to this Court is with the leave of
the Court
a quo
.
[6] At the relevant time the definition of “connected
person” in s 1 was as follows:
“In this Act, unless the
context otherwise dictates, ‘connected person’ means
-
(
a
) in
relation to a natural person -
(i) any relative; and
(ii) any trust of which such natural person or such
relative is a beneficiary;
(
b
)
in
relation to a trust -
(i) any beneficiary of such trust; and
(ii) any connected person in relation to such
beneficiary;
(
c
) in
relation to a member of any partnership -
(i) any other member; and
(ii) any connected person in relation to any member
of such partnership;
(
d
) in
relation to a company -
(i) its holding company as defined in section 1 of the
Companies Act, 1973 (Act No 61 of 1973);
(ii) its subsidiary as so defined;
(iii) any other company where both such companies are
(as so defined) of the same holding company;
(iv) any person who individually or jointly with any
connected person in relation to himself, holds, directly or
indirectly,
at least 20 per cent of the company’s equity
share capital, members’ interest or voting rights;
(v) any other company if at least 40 per cent of the
equity share capital, members’ interest or voting rights of
both
such companies is held by the same persons; and
(vi) where such company is a close corporation -
(
aa
) any
member;
(
bb
) any
relative of such member or any trust which is a connected person
in relation to such member; and
(
cc
) any
other close corporation which is a connected person in relation
to the relative or trust contemplated in item (
bb
);
and
(
e
) in
relation to any person who is a connected person in relation to any
other person in terms of the foregoing provisions of
this
definition, such other person, and in this definition the
expression ‘beneficiary’ means any person who has
been
named in the will or deed of trust concerned -
(i) as a beneficiary; or
(ii) as a person upon whom the trustee of the trust
has the power to confer a benefit from such trust;”
The definition was amended by Act 21
of 1994 but the parties are agreed that the definition in its
amended form provides no assistance
in the present case. (Cf
Greeff
NO v Registrar of Deeds, Cape Town, and Another
1986(1) SA 175 (A) at 187 A - C.)
[7] As the appellant is a company, the relevant
paragraph of the definition was para (d). It is common cause that
subparas (d)
(i), (ii), (iii), (v) and (vi) were not applicable; in
other words, Samancor was not a “connected person” in
relation
to the appellant in terms of any of these subparagraphs.
The question in issue, is whether it was a connected person in terms
of subpara (d)(iv). This depends upon whether the words “any
person” are to be construed as including a company.
[8] The word “person” was defined at the
time in s 1 of the Income Tax Act so as to “include the
estate of
a deceased person and any trust”. It follows that
its meaning was not limited to a deceased estate or trust; it had a
wider meaning. Section 2 of the Interpretation Act 33 of 57 provides
that “unless the context otherwise requires or unless
in the
case of any law it is otherwise provided therein”, the meaning
of the word “person” is to include inter
alia “any
company incorporated or registered as such under any law” and
“any body or persons corporate or incorporate”.
The
words “any person” in subpara (d)(iv) of the definition
of “connected person” are accordingly to
be construed as
including a company unless the context indicates the contrary.
[9] Counsel for the appellant referred to various
features of the definition which they contended were indicative of
an intention
on the part of the legislature to limit the meaning of
the words “any person” in subpara (d)(iv) to natural
persons
only. They submitted, first, that the word “himself”
was inappropriate in so far as companies were concerned and its
use
therefore constituted an indication that only natural persons were
being referred to. I do not think there is merit in this
submission.
Once the word “person” is used in relation to a
company as well as a natural person I can see nothing
untoward in
the use of the corresponding pronoun “himself” in
relation to a company. That the provision could have
been rephrased
so as to avoid the use of “himself” is of little
consequence. Second, it was pointed out that in
terms of
s 29
of
the
Close Corporations Act 69 of 1984
only natural persons may hold
a members’ interest in a close corporation, not a company.
Accordingly, so it was argued,
“any person” had to be
construed as a reference to natural persons only. Again I do not
agree. The contention would
be valid if subpara (d)(iv) sought to
provide a definition of “connected person” solely in
relation to a close corporation.
In that event the “any
person” could not be a company for the reason pointed out by
counsel. But the subparagraph
deals with a connected person both in
relation to companies and close corporations. One company can of
course hold the shares
of another. There is accordingly no reason
why “any person” cannot refer to both a natural person
and a company.
[10] A third feature of para (d) to which counsel
referred was its structure. It was contended that while subparas
(d)(i), (ii)
and (iii) dealt with companies, subparas (d)(iv) and
(v) dealt with the interest of natural persons in companies or close
corporations
and subpara (d)(vi) dealt with close corporations. In
other words, if “any person” and “persons”
in subparas
(d)(iv) and (v) respectively were construed as a
reference to natural persons the subparagraphs in para (d) would be
arranged
in a logical sequence. As far as subpara (d)(v) was
concerned, it was similarly argued that the reference to a members’
interest indicated that the members’ interest or shares
referred to in the subparagraph had to be held by “persons”
who were natural persons. What I have said with regard to the
reference to “members’ interest” in subpara
(d)(iv) applies equally to subpara (d)(v). But there is a more
fundamental objection to counsels’ contention. Subparagraphs
(d)(i)(ii) and (iii) relate to “connected persons” which
are companies, but so does subpara (d)(v). In other words,
if “any
person” in subpara (d)(vi) is to be construed as a reference
only to natural persons, subpara (d)(v) should
have preceded subpara
(d)(iv) if the subparagraphs were to be in logical sequence. The
sequence of the subparagraphs therefore
does not support counsel’s
construction. On the contrary it supports the opposing view.
[11] Finally counsel submitted that if “any
person” in subpara (d)(iv) were to be construed as referring
to a company
as well as a natural person the effect would be to
render subpara (d)(i) superfluous. The reason for this, it was
contended,
was that subpara (d)(iv), so construed, would result in
a company being a connected person in relation to another company
even
although the former held only 20 per cent of the latter’s
equity share capital or voting rights, while in terms of subpara
(d)(i) the connected person had to be the holding company of the
other for which control was necessary and not merely a 20 per
cent
interest.
[12] It is a well established rule
of construction that a statutory provision should, if possible, be
construed in such a way
that effect is given to every word so that
no word, clause or sentence, if it can be prevented, is construed to
be superfluous.
(See
S
v Weinberg
1979
(3) SA 89
(A) at 98 D - G.) Nonetheless, instances of obvious
superfluity are not uncommon in statutory provisions. There is an
example
in the very provision with which we are concerned. In view
of subpara (d)(vi) which expressly deals with taxpayers which are
close corporations, the reference in para (d)(iv) to a members’
interest and hence a taxpayer which is a close corporation
is
superfluous. This is because in terms of subpara (d)(vi) it is
sufficient in order to be a connected person in relation
to a close
corporation merely to be a member; the extent of the interest need
not be as much as 20 per cent. Reverting to subpara
(d)(i), it is
true that there would be a certain degree of overlapping if “any
person” in subpara (d)(iv) is construed
as including
companies, but subpara (d)(i) would not be rendered superfluous as
contended by counsel for the appellant. In terms
of subpara (d)(i)
the reference to “holding company” is as defined in s 1
of the Companies Act 61 of 1973. Section
1(4) of the Companies Act
defines holding company as the converse of a subsidiary. The
definition of a subsidiary is as follows:
“1(3)(a) For the purposes of this Act, a
company shall be deemed to be a subsidiary of another company if -
(i) that other company is a member of it and -
(
aa
) holds
a majority of the voting rights in it; or
(
bb
) has
the right to appoint or remove directors holding a majority of
the voting rights at meetings of the board; or
(
cc
) has
the sole control of a majority of the voting rights in it,
whether pursuant to an agreement with other members
or
otherwise; or
(ii) it is a subsidiary of any company which is a
subsidiary of that other company; or
(iii) subsidiaries of that other
company or that other company and its subsidiaries together hold
the rights referred to
in subparagraph (i)(
aa
),(
bb
)
or (
cc
).”
[13] What is apparent is that subpara (d)(iv) of the
definition of “connected person” in the Income Tax Act
required
what it is convenient to call a lower level of control than
that required in terms of ss (i) (aa) of the definition of
subsidiary.
It follows therefore that there was some overlapping
and subpara (d)(i) could to this extent be said to be superfluous.
But
the same is not true of ss (i) (bb) of the definition of
subsidiary. In terms of this subsection a company will be the
holding
company of another even if its shareholding or voting rights
in that other is less than 20 per cent, provided only that it has
the right to appoint or remove the directors holding a majority of
the voting rights at meetings of the board of the other company,
ie
the subsidiary. It was not disputed that such a right to appoint or
remove directors can be acquired by agreement. (It is
unnecessary
for the present purpose to consider the effect of ss (i) (cc).)
[14] It follows that subpara (d)(i) includes as “a
connected person” a company that would not be a “connected
person” in terms of subpara (d)(iv) if the latter is construed
as applying to companies as well as natural persons. It
is true that
notionally subpara (d)(i) could have referred only to a part of the
definition of “holding company”
in the Companies Act but
I do not think that it is of any significance that the legislature
did not do so. This could in any
event have caused uncertainty with
regard to the meaning of “subsidiary” in subpara
(d)(ii). The point is simply
that subpara (d)(i) is not rendered
superfluous by construing “any person” in subpara
(d)(iv) as including a company.
[15] The various features of the definition of
“connected person” on which appellant’s counsel
sought to rely
must furthermore be considered in the context of the
definition read as a whole. The word “person” is used
repeatedly
throughout the definition. Leaving aside for the moment
subparas (d)(iv) and (v) in which the meaning of the word “person”
is in issue, what is apparent is that save for three instances the
word “person” clearly includes a company as well
as a
natural person. As to the three instances, the expression
“connected person” in subpara (d)(vi)(bb) is expressly
stated to refer only to a trust while in para (a) there is reference
on two occasions to a “natural person”. The
absence of a
similar qualification to the word “person” in subpara
(d)(iv) is further confirmation that it is to
be interpreted as
including a company.
[16] It follows that in my view
there is no proper basis for limiting the expression “any
person” in subpara (d)(iv)
to a natural person and that the
Court
a quo
was correct in holding that it applied equally to a company.
[17] An alternative argument
advanced on behalf of the appellant was that subpara (d)(iv) was at
least reasonably capable of
the construction which the appellant
sought to place upon it. Accordingly, so it was contended, the
contra fiscum
rule required that the subparagraph be so construed. Where there is
doubt as to the meaning of a statutory provision which imposes
a
burden it is well established that the doubt is to be resolved by
construing the provision in a way which is more favourable
to the
subject, provided of course the provision is reasonably capable of
that construction. (See for eg
Fundstrust
(Pty) Ltd (In Liquidation) v Van Deventer
1997(1) SA 710 (A) at 735 G - H;
Willis
Faber Enthoven (Pty) Ltd v Receiver of Revenue
and Another
[1991] ZASCA 163
;
1992
(4) SA 202
(A) at 216 C.) But where any uncertainty in a statutory
provision can be resolved by an examination of the language used in
its
context, there is no rule of interpretation which requires that
effect be given to a construction which is found not to be the
correct one merely because that construction would be less onerous
on the subject. (See for eg
Glen
Anil Development Corporation Ltd v Secretary for Inland Revenue
1975
(4) SA 715
(A) at 726
in
fine
- 727 H.)
For the reasons already given, I am satisfied that the construction
of subpara (d)(iv) advanced on behalf of the
appellant is not
correct. It follows that the alternative argument must likewise
fail.
[18] The
appeal is dismissed with costs.
D
G SCOTT JA
Concur
:
HEFER JA
ZULMAN JA
PLEWMAN JA
STREICHER JA