Commissioner for the SA Revenue Service v Wyner (581/2002) [2003] ZASCA 122; [2003] 4 All SA 541 (SCA) (25 November 2003)

About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2003
>>
[2003] ZASCA 122
|

|

Commissioner for the SA Revenue Service v Wyner (581/2002) [2003] ZASCA 122; [2003] 4 All SA 541 (SCA); 2004 (4) SA 311 (SCA); 66 SATC 1 (25 November 2003)

THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Case No: 581/2002
REPORTABLE
In the matter between
COMMISSIONER FOR THE SA REVENUE SERVICE
Appellant
and
CATHERINE MARCIA WYNER
Respondent
Before: Howie P, Navsa, Nugent, Cloete JJA, Southwood
AJA
Heard: 6 November 2003
Delivered: 25 November 2003
Summary: Profit on sale of immovable property –
whether of capital or revenue nature – intention of purchaser at
time of acquisition
to make profit on resale.
JUDGMENT
SOUTHWOOD AJA
[1] The Commissioner for the South African Revenue
Service (‘the Commissioner’) appeals against the whole of the
judgment and
order of the Full Court of the Cape of Good Hope
Provincial Division (‘the Full Court’) upholding the respondent’s
appeal against
the judgment and order of the Cape Income Tax Special
Court (‘the Special Court’). The Special Court confirmed the
assessment
issued in respect of the respondent for the 1996 year of
assessment which included in the respondent’s gross income the
profit
received by the respondent from the sale of erf 484, Clifton,
(‘the property’). The Commissioner appeals with the leave of the
Full Court, leave having been granted in terms of s 20 (4) (b) of the
Supreme Court Act 59 of 1959 – see
Commissioner of Inland
Revenue v Tuck
1989 (4) SA 888
(T).
[2] On 29 August 1994 the respondent purchased the
property for R802 000 with the intention of selling the property
within a
year at a profit. Just over a year later, on 4 September
1995, the respondent sold the property for R2 850 000.
After deduction
of certain expenses the respondent made a profit of
R1 530 947 on which the Receiver of Revenue, Cape Town, sought to
levy tax in
an amount of R701 132, 96.
[3] The respondent objected to the inclusion in the
assessment of the profit of R1 530 947 on the ground that the profit
was received
on the realisation of a capital asset. The objection was
disallowed. The respondent then appealed to the Special Court. The
Special
Court (per Traverso J, the members concurring) found that the
purchase and sale of the property was a profit-making scheme and
dismissed
the appeal and confirmed the assessment.
[4] The respondent then appealed to the Full Court. In
upholding the appeal the Full Court (per Conradie J, Nel and
Blignault JJ concurring)
noted that usually the purchase of a
property with the intention of reselling it as soon as possible would
indicate a scheme of profit-making
which would make the proceeds of
the transaction subject to tax. However, the court reasoned that
there was a public law or public
policy dimension to the case which
the Special Court had overlooked. This was that the Council of the
City of Cape Town (‘the Council’)
from whom the respondent leased
the property had decided for policy and developmental reasons not to
give notice of termination to
the respondent. The Full Court found
that while the respondent did not have common law ownership of the
property, the mix of private
rights and public forbearance that she
enjoyed gave her a
sui generis
claim to the property that was
close to ownership and that had the respondent been the owner of the
property and sold it at the time
she did, the proceeds would without
a doubt have been of a capital nature. The Full Court found that the
respondent was to all intents
and purposes entitled to treat the
property as her own. The respondent should therefore notionally be
put in the same category as
one who, by force of circumstance, is
forced to sell her home. The view of the Full Court was that the
respondent was compelled to
sell the property because in the
circumstances which had developed and over which she had no control
the respondent could no longer
afford to keep it. Her primary concern
was to salvage what she had invested in the property. She had nothing
but the property and
could not afford to lose it. It is the
correctness of these findings which must be decided in this appeal.
[5] The Commissioner’s counsel contended that in
certain respects these findings are not supported by the facts, that
they ignored
the true juristic nature of the transactions involved
and that the facts showed clearly that in purchasing the property
when she
did and then selling the property when she did, the
respondent was engaged in a scheme of profit-making.
[6] The Respondent’s counsel supported the findings
and conclusion of the Full Court. His primary contention was that the
respondent
had not engaged in a scheme of profit-making and he raised
a number of arguments in support of this contention.
[7] Although there is no single all-embracing test of
universal application for determining whether a particular receipt is
one of
a revenue or capital nature, it is well established that if
the receipt is ‘“a gain made by an operation of business in
carrying
out a scheme of profit-making”, then it is revenue derived
from capital productively employed and must be income’ –
Overseas
Trust Corporation Ltd v Commissioner of Inland Revenue
1926 AD
441
at 453;
Commissioner for Inland Revenue v Pick ‘n Pay
Employee Share Purchase Trust
1992 (4) SA 39
(A) at 56H-57G and
the cases there cited. This means that receipts or accruals will bear
the imprint of revenue if they are not fortuitous,
but were
designedly sought for and worked for –
Commissioner for Inland
Revenue v Pick ‘n Pay Employee Share Purchase Trust
supra at
57F-G.
[8] Two factors which are always of great importance in
deciding whether the proceeds of the sale of property are of a
revenue or
capital nature are the intention with which the taxpayer
acquired the property and the circumstances in which the property was
sold
–
Malan v Kommissaris van Binnelandse Inkomste
1983 (3)
SA 1
(A) at 10B:
Berea Park Avenue Properties (Pty) Ltd v
Commissioner for Inland Revenue
[1994] ZASCA 167
;
1995 (2) SA 411
(A) at 413J-414A.
[9]
In
Natal Estates Limited v Secretary for Inland
Revenue
1975 (4) SA 177
(A) at 202G-H Holmes JA said –
‘
In deciding whether a case is one of realising a
capital asset or of carrying on a business or embarking upon a scheme
of selling
land for profit, one must think one’s way through all of
the particular facts of each case.’
[10] Both parties relied on the following passage from
the judgment of Corbett JA in
Elandsheuwel Farming (Edms) Bpk v
Sekretaris van Binnelandse Inkomste
1978 (1) SA 101
(A) at
118A-E:
‘
Where a taxpayer sells property, the question as to
whether the profits derived from the sale are taxable in his hands by
reason of
the proceeds constituting gross income or are not subject
to tax because the proceeds constitute receipts or accruals of a
capital
nature, turns on the further enquiry as to whether the sale
amounted to the realisation of a capital asset or whether it was the
sale of an asset in the course of carrying on a business or in
pursuance of a profit-making scheme. Where a single transaction is
involved it is usually more appropriate to limit the enquiry to the
simple alternatives of a capital realisation or a profit-making
scheme. In its normal and most straightforward form, the latter
connotes the acquisition of an asset for the purpose of reselling
it
at a profit. This profit is then the result of the productive
turn-over of the capital represented by the asset and consequently
falls into the category of income. The asset constitutes in effect
the taxpayer’s stock-in-trade or floating capital. In contrast
to
this the sale of an asset acquired with a view to holding it either
in a non-productive state or in order to derive income from
the
productive use thereof, and in fact so held, constitutes a
realisation of fixed capital and the proceeds an accrual of a capital
nature. In the determination of the question into which of these two
classes a particular transaction falls, the intention of the
taxpayer, both at the time of acquiring the asset and at the time of
its sale, is of great, and sometimes decisive, importance. Other
significant factors include,
inter alia
, the actual activities
of the taxpayer in relation to the asset in question, the manner of
its realisation, the taxpayer’s other
business operations (if any)
and, in the case of a company, its objects as laid down in its
memorandum of association. The aforegoing
principles are trite and
require no supportive citation of authority. They have been stated
and restated, in various forms, by this
Court on numerous occasions.’
It is clear from this passage that the acquisition of an
asset for the purpose of reselling it at a profit – even if it is a
single,
isolated transaction – will usually be regarded as a
profit-making scheme. See also
Edwards (Inspector of Taxes) v
Bairstow and Another
1955 (3) All ER 48
(HL) at 58. Although he
did not dispute the correctness of this proposition the respondent’s
counsel contended that it had not
been shown that the respondent was
a trader or that the property was floating capital. However, as
appears from the passage quoted,
the asset acquired for the purpose
of resale at a profit constitutes the taxpayer’s floating capital
and it is not necessary that
the taxpayer be characterised as a
trader.
[11] Since the respondent’s counsel argued that the
purchase and sale of the property was not a scheme of profit-making
and that
the respondent was merely disposing of the interest which
she had in the property, it is necessary to consider the salient
facts.
[12] These facts appear from the evidence of the
respondent, who was the only witness, and the documents. Where the
evidence of the
respondent and the contents of the documents do not
coincide the contents of the documents are taken to be correct. They
are contemporaneous
documents which were clearly prepared long before
litigation was contemplated. It is also clear that the respondent’s
husband assisted
her in entering into and executing the various
transactions and that he did so as her agent. There is no suggestion
that he exceeded
his authority or that he acted without her
knowledge.
[13] On 10 September 1973 the respondent and the Council
entered into a written agreement of lease in respect of the property.
The
lease included the following material terms:
(1) The lease commenced on 1 October 1973 and was for an
initial period of one year whereafter it was subject to termination
at any
time by either party giving the other party one month’s
notice in writing;
(2) Upon the rental being in arrears for seven days or
longer, the Council was entitled summarily to cancel the lease and
eject the
respondent;
(3) On termination of the lease for any reason
whatsoever, any improvements (whether necessary or otherwise) of the
land would become
the property of the Council without the payment of
compensation by the latter, but the Council could require the
respondent to remove
such improvements.
[14] At the commencement of the lease, the respondent
took over from the previous lessee of the property the bungalow
structure thereon
for approximately R38,000. Thereafter, during the
lease, the respondent demolished the bungalow, rebuilt it and
effected various
improvements to the property. The Receiver of
Revenue allowed amounts totalling R90 000 in respect of the cost of
these improvements
and no other amount was proved in the Special
Court.
[15] Prior to 1994 the properties at Clifton belonged to
the Council which leased them and permitted the lessees to build
bungalows
on them. The Council also permitted the lessees to dispose
of their bungalows to third parties and where this occurred, entered
into
leases with such third parties. The lessees were loosely
referred to as ‘bungalow owners’.
[16] The lessees of properties in Clifton agitated for
some years for greater security of tenure in respect of the
properties on which
their bungalows stood. Eventually, in 1986, the
Council adopted a scheme which would give bungalow site lessees the
option to purchase
the sites at a fair price and which would
safeguard lessees who did not wish to purchase or could not purchase
the sites they occupied,
and which would at the same time protect the
interests of the ratepayers and citizens of Cape Town.
[17] During December 1986 the Council advised the
respondent that the property would be offered to her at a price of
R228 000. However,
no such offer was made.
[18] The Council recognized that the lessees had
invested large sums in improving sites and accordingly recommended
the conclusion
of fresh leases for a period of 20 years at rentals
based on the site values and the introduction of a rent rebate
scheme. It was
also envisaged at that time that, on expiry of the 20
year lease, sites (and all improvements thereon) would revert to the
Council
for disposal by the Council.
[19] On 31 January 1994 the Council passed the following
resolution:
‘
1. That the Clifton Bungalow Sites be sold to
existing Lessees at market value.
2. That those existing Lessees electing not to purchase
the sites they currently lease, be permitted to continue to lease
their respective
sites for a period of 20 years in terms of a new
agreement which would provide for
inter alia
a market related
monthly rental; no assignment of the lease during the 20 year period,
except to spouses will be permitted.
2.1 That the Lessees shall have the option at any time
during the 20 year lease period to purchase their sites at the then
prevailing
market prices.
3. That in exceptional cases where undue hardship can be
shown to exist, the Executive Committee be authorised to determine a
rebated
lease rental considered in such circumstances to be fair and
reasonable subject to the proviso that such rental as may be
determined
shall escalate over a determined period of time to yield a
rental at the end of such period which will be market related.’
The Council then addressed a letter to the respondent
advising her of the terms of this resolution and informing her that
the price
of the property as at 1 December 1993 had been determined
at R802 000. Implementation of this resolution was to be subject to
objection
in terms of s 124 of the Municipal Ordinance. There were
objections.
[20] On 24 May 1994 the Council passed the following
resolution:
‘
1. That the objections to the sale of the Clifton
Bungalow Sites to the present Lessees be not upheld.
2. That the decision of Council dated 1994-01-31 to sell
the Clifton Bungalow Sites to the present Lessees at market value as
set
out in Schedule “A” column D folios 12-14, plus VAT if
applicable, be reaffirmed – the market prices stated to remain
valid
for a period of 3 months from the first day of the month
following the adoption by Council of this resolution.
3. That those Lessees electing not to purchase the Sites
they currently lease, be permitted, subject to the provisions of the
Municipal
Ordinance to continue to lease their respective Sites for a
period of 20 years in terms of a new agreement which would provide
for,
inter alia
a market related monthly rental as set out as
Schedule “C” Column D (folios 15-17).
3.1 That the Lessees shall have the option, at any time
during the 20 year lease period to purchase their Sites at the then
prevailing
market prices.
4. That in exceptional cases where undue hardship can be
shown to exist, the Executive Committee be authorised to determine a
rebated
lease rental considered in such circumstances to be fair and
reasonable subject to the proviso that such rental as may be
determined
shall escalate over a determined period of time to yield a
rental at the end of such period which will be market related.
5. That the Lessees be granted a period of 3 months from
the first day of the month following the adoption by Council of this
resolution
within which to sign the Deeds of Sale or Agreements of
Lease, as the case may be, failing which the Sites be offered for
sale at
the then current market values.’
The Council advised the respondent of the terms of this
resolution in a letter dated 3 June 1994.
[21] The respondent knew then that she had three choices
–
(a) to acquire the property (including the bungalow) at
the price of R802 000;
or
(b) to enter into a new lease whereby she could carry on
leasing the property for a period of 20 years. (This lease agreement
would
provide for a market-related monthly rental, determined every
three years, together with an option whereby the lessee would be able
to acquire the property at any time during the 20 year lease period
at a determined market value and it would provide that the building
structures and erections already existing on the land were the
property of the Council and that any additional buildings, structures
and erections which were in future erected on the land whether
necessary or otherwise, would immediately upon their construction
become the property of the Council without any payment of
compensation); or
(c) to vacate the property in order to afford the
Council an opportunity to sell it (together with the bungalow) at the
then current
market value to third parties.
[22] When she received this offer from the Council the
respondent did not have the means to purchase the property or to pay
a market
related rental.
[23] At about the same time various banks and financial
institutions approached the respondent to provide her with financial
assistance.
One of these banks was Investec Bank Ltd (‘Investec’)
which offered to provide bridging finance for a period of 12 months
to
enable the respondent to purchase the property and find a buyer
for it. On 5 August 1994 Investec described the nature of the
transaction
which it intended to enter into with the respondent as
follows –
‘
Terry and Catherine Wyner are purchasing their
Clifton Bungalow with a view to selling it within a year. The deal
that we have put
together gives them the opportunity to capitalise
all charges and interest during the year and settle the loan in one
lump sum when
the property is sold.’
The facility would amount to R1 030 000. This included a
cash advance of R880 000 and interest thereon at the rate of 14 % for
a period
of 12 months. Repayment in full would take place at the end
of 12 months and the facility would be secured by a first mortgage
bond
for the amount of R1 030 000.
[24] On 23 August 1994 the Investec Credit Proposal
confirmed the intention of the respondent to purchase the property
and then resell
it. It appears from the proposal that Investec was
aware that the price of R802 000 for which the respondent could
purchase the property
was much less than the market value. Investec’s
assessment of the market value was R2 550 000 which was said to
be ‘Still
Conservative’.
[25] By 28 August 1994 Investec had granted the
respondent the facility of R1 030 000 to enable the respondent to
purchase and pay
all related costs pertaining to the property and to
cover all interest for a period of one year. The respondent signed
the Deed of
Sale on 29 August 1994 knowing that she could sell the
property for a price well in excess of the purchase price of
R802 000.
[26] On 19 September 1994 the respondent and her husband
were listed with Seeff Estate Agents. On 5 October 1994 the
respondent took
transfer of the property. In March 1995 the
respondent gave a mandate to Seeff to sell the property and on
4 September 1995
the respondent sold the property for R2 850
000. Because there would be a delay in giving transfer the respondent
requested Investec
to extend the date for repayment of the facility
to 1 February 1996. The relevant Credit Proposal confirms the
transaction in the
following terms –
‘
Cathy Wyner is one of the Clifton Bungalow owners
that we structured a special deal for. She was wanting to sell the
bungalow, so
the deal was structured over 12 months with no payments.
The loan ends on 21 October 1995 and the residual plus all interest
is due
on that day. The house has been sold and the transfer is only
going through on 31 January 1996.’
[27] On receipt of the purchase price the respondent
repaid the Investec facility, paid the purchase price of another
property in
Clifton which she had bought and invested the balance of
the proceeds with Charter House Investments.
[28] It is clear from these facts that when the
respondent accepted the Council’s offer to purchase the property
for R802 000 she
knew that the property was conservatively valued at
R2 550 000 and that if she could find a buyer she would be able to
realise a
profit on the sale of the property; and that the respondent
and Investec had devised a scheme whereby the respondent could
realise
that profit. It is also clear that the respondent acted in
accordance with that scheme –
(1) she obtained the necessary financial assistance from
Investec to purchase the property and hold it for a sufficiently long
period
to enable her to find a buyer;
(2) she purchased the property with the fixed intention
of reselling it at a profit within a period of 12 months;
(3) she set about achieving her objective of making a
profit soon after she purchased the property – on 19 September
1994, before
she had taken transfer of the property, she gave her
particulars to the estate agent and in March 1995 she gave the estate
agent
a mandate to sell the property;
(4) she sold the property on 4 September 1994 for R2 850
000;
(5) she did not purchase the property to live in it.
On the face of it this was a scheme of profit-making as
described by Corbett JA in the
Elandsheuwel
case.
[29] Notwithstanding these facts and despite conceding
that if any other person had purchased the property with the
intention of selling
it for a profit the application of the usual
tests would probably result in the conclusion that the proceeds of
the sale were of
a revenue nature the respondent’s counsel argued
that the respondent had not engaged in a scheme of profit-making. He
submitted
that –
(1) the position of the respondent was
sui generis
.
As lessee of the property only she was able to purchase the property.
The ‘discount’ of R1 748 000 was not something
she
‘designedly sought for and worked for’ but was fortuitous: it
flowed from the respondent’s position as lessee and the Council’s
decision, over which she had no control, to offer Clifton properties
to the lessees at prices below their true market value;
(2) when the respondent purchased the property she
contemplated that she might or probably would have to sell it within
a year because
of her financial position but that that did not make
the respondent a speculator engaged in a scheme of profit-making: the
respondent
did not sell the property to make a profit
per se
,
but to enable the respondent to do what any sensible person would
have done in her situation: she disposed of the property which
she
had been fortunate enough to acquire at a discount to market value –
a fortuitous occurrence which was entirely beyond her
control – to
repay the Investec loan which she could not afford to service and
acquired a similar, cheaper residence in the same
area;
(3) there are two important features in this case –
the respondent’s evidence that she always wished to acquire the
property and
that the probabilities are overwhelming that she wished
to do so in order to live there – and that her disposition of the
proceeds
of the sale was entirely consistent with someone who was not
engaged in a scheme of profit-making;
(4) the fact that the respondent had lived on the
property for more than 20 years and had always wished to purchase it
in order to
live in it are important considerations which the Court a
quo properly took into account in recognising that the respondent had
an
interest in the property which she had realised due to force of
economic circumstances: this approach correctly recognised the fact
that there was a public law or public policy dimension to the
respondent’s relationship with the Council and that in a real
economic
sense the respondent’s intention was to salvage what she
had invested in the property;
(5) the choice faced by this court is whether to adopt a
narrow approach which focuses mainly on the purpose of purchasing the
property
with the intention of selling it some 12 months later and
the sale thereof, or to adopt a broader approach which takes into
account
the fact that the respondent had occupied the property for
more than 20 years as well as the fact that the respondent bought and
sold the property some 12 months later in the context of her prior
occupation as lessee, who had an ‘interest’ in the property
that
was no less real for being unexpressed.
[30] The respondent’s counsel also argued that the
right to acquire an asset for less than its market value is an
accrual which
arose from her position as lessee and the Council’s
willingness to sell the property to her at a price well below market
value
and as such it was an accrual of a capital nature; and he
compared the respondent’s position to that of a legatee to whom a
property
is bequeathed in terms of a will. He contended that in
deciding whether or not to adiate the rational legatee will recognise
that
he or she will receive nothing in the absence of adiation and
will ordinarily adiate even if the property bequeathed is surplus to
his or her needs and will be immediately disposed of for this reason.
He submitted that what is received pursuant to adiation will
invariably be of a capital nature and that the proceeds of such
disposal will ordinarily be of a capital nature despite the legatees
intention on acquisition to dispose of the property as soon as
possible.
[31] It is immediately apparent that a number of
arguments raised by the Respondent’s counsel are in direct conflict
with the facts.
The respondent acknowledged that the descriptions of
the transactions in the Investec documents were correct. These
documents are
consistent with the respondent’s own evidence that
when she purchased the property she had the intention of reselling
the property
within a period of 12 months. She knew that she could
make a (considerable) profit and she intended to make such a profit.
She did
not purchase the property to live in it and she intended to
sell the property as this was an essential part of the scheme. She
required
the proceeds to repay Investec and pay for the other
property in Clifton which she had purchased. She obviously knew that
she would
still have other funds available to invest.
[32] The arguments that the right to acquire an asset
for less than its market value is an accrual and that the
respondent’s position
is comparable with that of a legatee to whom
a property is bequeathed in terms of a will ignore the juristic
nature of the transactions
whereby the respondent realised the profit
and they therefore do not assist the respondent. The amount on which
the Receiver of Revenue,
Cape Town, sought to levy tax did not accrue
to the respondent when the Council offered to sell the property to
her. It accrued to
her when she received payment of the purchase
price after she resold the property. With regard to a legatee the
respondent’s counsel
relied on
Commissioner for Inland Revenue v
Brooks
1964 (2) SA 566
(A) at 574-575 for his contention that
what is received pursuant to adiation will invariably be of a capital
nature and that the
proceeds of its disposal will ordinarily be of a
capital nature despite the legatee’s intention on acquisition to
dispose of the
property inherited as soon as possible. However that
case did not deal with such a situation. The issue for decision was
whether
the inheritance received by the heir was of a revenue or
capital nature. The Court held that it was of a capital nature. But
the
Court did not state that it is an absolute rule that the receipt
of an inheritance is a receipt of a capital nature. This will always
depend upon the facts. It must be emphasised that the present case is
not concerned with the receipt of the property and whether
such
receipt is a receipt of a capital or revenue nature. It is concerned
with the profit made on the resale of the property and
whether such
profit is a receipt of a revenue or capital nature. The
Commissioner’s counsel referred to
Commissioner for Inland
Revenue v Strathmore Exploration Ltd
1956 (1) SA 591
(A) in which
it was held that the mere fact that a property was acquired by way of
inheritance was not sufficient to justify a decision
that no part of
the proceeds of realisation is subject to tax. The Court found on the
facts that the acquisition of the inheritance
and its subsequent
disposal were suggestive of a carefully arranged and businesslike
plan (i e a profit-making scheme) and that the
taxpayer had not
discharged the onus of disproving this. Accordingly it held that the
profit was taxable. These cases illustrate
the importance of the
facts in every case and the dangers of reasoning by analogy. The
issue of whether the proceeds of the disposal
of a property by a
legatee who decided to adiate in order to make a profit on the
realisation of the inherited property are of a
capital or revenue
nature is not the issue to be decided in the present case.
[33] The real issues are therefore whether the
respondent had a
sui generis
interest in the property that was
close to ownership and whether the respondent was obliged to realise
this interest in order to
salvage what she had invested in it.
[34] The respondent’s counsel was unable to define the
nature of the interest which the respondent allegedly had other than
that
disclosed in the documents. During the period 1973-1994 the
respondent was a lessee and after the first year she was a monthly
tenant.
On termination of the lease, for any reason whatsoever, any
improvements on the land whether necessary or otherwise, would become
the property of the Council without payment of compensation. The fact
that the respondent had incurred expenditure in rebuilding
the
bungalow and effecting other improvements on the land did not alter
the nature of her relationship with the Council or give her
any right
in respect of the property. Her rights were determined by the terms
of the lease agreement. She had the right to use and
enjoy the
property against payment of the rental. She was not the owner of the
property and she had no other real rights in respect
of the property.
Even if the Council had decided not to terminate the lease – a fact
which was not established – the property
was not an asset of the
respondent.
[35] The respondent’s counsel suggested that the
discounted offer made to the respondent gave her an interest. He was
not able to
explain how this occurred. While this was obviously a
very attractive offer it had no commercial value in itself. It was
an offer
made to the respondent only. It could not be transferred to
a third party. It also did not give any right in respect of the
property
itself. A further difficulty with the argument is that it
ignores the juristic nature of the transactions whereby the
respondent
made the profit. The respondent did not purport to dispose
of any (notional) interest which she may have had. She purchased the
property
for a price, took transfer and become the owner, and then
resold the property for a much higher price, thereby realising the
profit.
[36] The argument that the profit was not designedly
sought for and worked for and was fortuitous cannot be accepted. A
distinction
must be drawn between the making of the discounted offer,
which clearly was fortuitous, and the acquisition of the property for
resale,
which was anything but fortuitous. With the assistance of
Investec the respondent devised a scheme whereby she could make the
very
large profit which was inherent in the offer. She clearly seized
the opportunity to make this profit.
[37] The fact that the respondent acquired a cheaper
residence in the same area with the proceeds of the sale does not
alter the revenue
nature of the purchase and sale of the property.
The character of the proceeds from the sale of the property is
determined by whether
the property was purchased and held for
investment or for resale. If the second and cheaper property were in
the future to be sold,
the character of the proceeds of that sale
would be determined by assessing whether the respondent purchased the
cheaper property
for investment or for resale.
[38] In support of its conclusion the court
a quo
referred to ITC
1427 50 SATC 25
,
Commissioner for Inland Revenue v
Paul
1956 (3) SA 335
(A) and the majority judgment in
Commissioner for Inland Revenue v Pick ‘n Pay Employee Share
Purchase Trust
supra. All these cases were decided on facts which
are very different from the facts of the present case. In each case
the court found
on the facts of that case that the taxpayer had not
embarked on a scheme of profit-making. In the present case the facts
show clearly
and unambiguously that in buying and selling the
property the respondent was indeed engaged in a scheme of
profit-making.
[39] I therefore do not agree with the reasoning and
findings of the court
a quo
that the mix of private
rights and public forbearance gave the respondent a
sui generis
claim to the property which was close to ownership, that the
respondent was to all intents and purposes entitled to treat the site
as her own and that she should notionally be put in the same category
as someone who by force of circumstance is forced to sell her
home.
In my view this reasoning and the findings ignored the juristic
nature of the relevant transaction.
[40] The appeal is therefore upheld with costs, such
costs to include the costs consequent upon the employment of two
counsel. The
assessment issued in respect of the respondent for the
1996 year of assessment is confirmed.
________________
B R SOUTHWOOD
ACTING JUDGE OF APPEAL
CONCUR:
HOWIE P
NAVSA JA
NUGENT JA
CLOETE JA