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REPUBLIC OF SOUTH AFRICA
IN THE TAX COURT OF SOUTH AFRICA
(HELD AT KWAZULU-NATAL LOCAL DIVISION, DURBAN)
Case numbers: IT 77406 & IT 77357
In the matter between:
COMPANY EG APPELLANT
and
THE COMMISSIONER FOR THE RESPONDENT
SOUTH AFRICAN REVENUE SERVICE
and
In the matter between:
COMPANY LS APPELLANT
and
(1) REPORTABLE: YES / NO
(2) OF INTEREST TO OTHER JUDGES: YES / NO
(3) REVISED.
24 August 2026 _________________
DATE SIGNATURE
THE COMMISSIONER FOR THE RESPONDENT
SOUTH AFRICAN REVENUE SERVICE
J U D G M E N T
This judgment has been handed down remotely and shall be circulated to the parties
by way of email / uploading on Caselines. The date of hand down shall be deemed to
be 24 August 2026.
SIWENDU J:
Introduction
[1] This appeal concerns the additional assessments of the appellants made by the
Commissioner for the South African Revenue Service (“SARS”) for the 2023 year , more
particularly, the proper income tax treatment of rental income derived from the properties of
the appellants, Company LS Investments Shareblock (Pty) Ltd ( “Company LS ”) and
Company EG Investments Shareblock (Pty) Ltd ( “Company EG ”). The appellants are
collectively referred to as either “the companies” or “the appellants” and/or “the taxpayers”.
Both appeals raise substantially the same issues of fact and law and were heard together.
[2] The appellants were originally incorporated as ordinary private companies during
1994 and 1995 respectively. During 1997, a special resolution was adopted to convert them
into share block companies, thus registering them as share block companies under the
Share Blocks Control Act 59 of 1980 (“SBCA”).
[3] The respective memoranda of association record the appellants’ principal object as
that of ownership of immovable property and t he operation of a share block scheme .
Company LS is the registered owner of several commercial properties situated in
Ladybrand, Harrismith, Virginia, Stilfontein and De Aar, amongst others. Company EG is the
registered owner of the property known as 0[...] W[...] Street, Pietermaritzburg, from which
the Wooden Square Shopping Centre is situated. The properties are utilised exclusively for
commercial purposes and are let to third -party commercial tenants under written lease
agreements concluded between the commercial tenants and the appellants.
[4] Prior to the 2023 year of assessment , SARS had consistently issued assessments
[4] Prior to the 2023 year of assessment , SARS had consistently issued assessments
reflecting a NIL taxable income in respect of both appellants. Following verification of the
appellants’ 2023 tax returns, SARS disallowed certain deductions, concluding that the rental
income received was taxable in the hands of the appellants.
[5] SARS issued the appellant with additional assessments of their income for the 2023
year of assessment, in terms of section 99(2)(a), alternatively section 99(2)(b), of the Tax
Administration Act 28 of 2011 ( “the TAA ”), on the basis that there had been a
misrepresentation or non -disclosure of material facts. SARS further levied interest in terms
of section 89quat(2) of the Income Tax Act 58 of 1962 (“the ITA”).
[6] The tax dispute concerns whether rental income generated from commercial
properties constituted “gross income” as defined in section 1 of the I TA,1 which accrued to,
or was received by the appellants, or whether the rental income accrued to the shareholders
of the respective share block companies.
[7] The appeal proceeded on a stated case, based on documentary evidence discovered
by the parties. No oral evidence was led. The court is accordingly required to determine the
issues based on the agreed documentary record, the authenticity and admissibility of which
are not in dispute, and to draw the appropriate legal conclusions from those agreed facts.
Common cause facts
[8] The following facts are common cause; namely that: The appellants are duly
incorporated share block companies as contemplated in the SBCA , which regulates the
operations of share block schemes. 2 During the 2023 year of assessment, they were the
registered owners of the immovable properties forming the subject of the respective share
block schemes. The properties were utilised exclusively for commercial purposes and were
let to third-party commercial tenants. The written lease agreements were:
(a) Concluded directly with the appellants;
1 According to s 1 of the ITA, “ ‘income’ means the amount remaining of the gross income of any
person for any year or period of assessment after deducting therefrom any amounts exempt from
person for any year or period of assessment after deducting therefrom any amounts exempt from
normal tax under Part I of Chapter II ”; “ ‘Gross income ’, in relation to any year or period of
assessment, means—
(i) in the case of any resident, the total amount, in cash or otherwise, received by or
accrued to or in favour of such resident; or
(ii) in the case of any person other than a resident, the total amount, in cash or
otherwise, received by or accrued to or in favour of such person from a source
within the Republic, during such year or period of assessment, excluding receipts
or accruals of a capital nature, but including, without in any way limiting the scope
of this definition, such amounts (whether of a capital nature or not) so received or
accrued as are described…”;
For the definition of “received by” see Lategan v Commissioner for Inland Revenue 1926 CPD
203 (Lategan) at 209 ; for the definition of “accrued to” see Geldenhuys v Commissioner for
Inland Revenue 1947 (3) SA 256 (C) at 266; Commissioner for Inland Revenue v People’s Stores
(Walvis Bay) (Pty) Ltd 1990 (2) SA 353 (A) an unconditional legal entitlement.
2 “ ‘Share block scheme ’ means any scheme in terms of which a share, in any manner
whatsoever, confers a right to or an interest in the use of immovable property.”
(b) The tenants granted suretyship in favour of the appellants to secure their
obligation under the lease agreements; and
(c) The tenants paid the appellants , who issued the tenants with the relevant tax
invoices, accounted for V alue Added Tax (“VAT”) on the rental received and
received the rental income.
[9] The 2023 income tax returns disclosed amongst others, rental income of
approximately R12 ,3 million in the case of Company LS and approximately R7 ,7 million in
the case of Company EG. The appellants claimed deductions for repairs, maintenance and
for amounts described as “distributions” to share block holders resulting in a Nil taxable
income.
[10] After the submission of the 2023 income tax returns, SARS notified both taxpayers
on 13 November 2023 and on 1 February 2024, respectively, that their returns either did not
correspond with information in its possession or had been selected for verification. SARS
requested additional information concerning, amongst other matters:
(a) The nature of the income received;
(b) The deductions and allowances claimed;
(c) Distributions made to share block holders; and
(d) An explanation of certain entries reflected in the annual financial statements.
[11] SARS required an explanation from Company LS regarding:
(a) The deductions claimed in respect of distributions to share block holders;
(b) Whether the income of approximately R12 ,3 million constituted exempt levy
income or taxable rental income;
(c) Whether rental was collected on beha lf of a partnership notwithstanding the
absence of immovable property reflected in the balance sheet;
(d) The claim for repairs and maintenance expenditure when the property was
not reflected in the annual financial statements;
(e) The treatment of dividends paid, including the absence of a DTR02
declaration and supporting resolutions; and
(f) The treatment of an interest-free loan reflected under “Other Financial Assets”
for purposes of section 64E(4) of the ITA.3
[12] In relation to Company EG, SARS sought a detailed explanation concerning:
(a) The repairs and maintenance expenditure of R2 493 509, and the nature of
the expenditure;
(b) The apparent absence of immovable property reflected in the financial
statements, the basis upon which the expenditure was deductible;
(c) Explanations concerning an interest -free loan of R11 457 978 reflected under
“Other Financial Assets ” and enquired why no dividend in specie had been
declared in terms of section 64E(4) of the ITA; and
(d) An explanation why Company EG claimed the distribution to share block
holders amounting to R4 507 955 as an allowance, since the income was not
levy income, but rental income, insurance claim proceeds and interest
received and the section of the ITA the allowance was based on.
3 “64E Levy of tax— (4)(a) Where, during any year of assessment, any amount is owing to a
company by—
(i) a person that is—
(aa) not a company;
(bb) a resident; and
(cc) a connected person in relation to that company; or
(ii) a person that is—
(aa) not a company;
(bb) a resident; and
(cc) a connected person in relation to a person contemplated
in subparagraph (i),
in respect of a debt, that company must, for the purposes of this Part, be deemed to have paid
a dividend to the person contemplated in subparagraph (i), if that debt arises by virtue of any
share held directly or indirectly in that company by a person contemplated in
subparagraph (i).”
[13] SARS subsequently issued Company LS with a notice of adjustment in which it
disallowed the repairs and maintenance deduction claimed under sections 11(d)4 and 23(g)
of the ITA , in the amount of R111 509. SARS further disallowed the claimed deduction in
respect of distributions to share block holders, resulting in an adjustment of R12 298 206,
and raised a deemed dividend in specie in terms of section 64E(4) of the ITA in respect of an
interest-free loan to Company LS Partnership, resulting in a further adjustment of R155 452.
SARS thereafter issued an ITA34C reflecting an additional assessment of R3 432 867.
[14] In respect of Company EG, SARS’s notice of adjustment disallowed the repairs and
maintenance deduction in the amount of R2 493 509 and the claimed deduction relating to
distributions to share block holders in the amount of R4 507 955. SARS further raised a
deemed dividend in specie in terms of section 64E(4) of the ITA in relation to an interest-free
loan to Company EG Partnership, resulting in a further adjustment of R150 162. SARS
issued an ITA34C reflecting an additional assessment of R2 407 677. Thus, SARS
concluded that the rental income constituted taxable income in the hands of the appellants.
[15] The appellants objected to the additional assessments on the grounds that:
(a) The companies are registered as share block companies;
(b) Sections 10(1) (e) and 10(1) (e)(i)(bb) of the ITA state that a share block is
exempt from income tax; and
(c) The profit was distributed to all share block holders who paid tax “on their
share of the profit in their entity”.
[16] The outcome of the objection was that SARS partially allowed it. Company LS’s tax
liability was reduced to R2 830 697, while Company EG ’s tax liability was reduced to
R1 575 543. Although the objections were partially upheld, SARS disallowed the amounts
described in the tax returns as “distributions to share block holders”, resulting in the present
appeals.
appeals.
4 Section 11 of the ITA states that: “For the purpose of determining the taxable income derived by
any person from carrying on any trade, there shall be allowed as deductions from the income of
such person so derived—
…
(d) expenditure actually incurred during the year of assessment on repairs of property
occupied for the pur pose of trade or in respect of which income is receivable,
including any expenditure so incurred on the treatment against attack by beetles of
any timber forming part of such property and sums expended for the repair of
machinery, implements, utensils and other articles employed by the taxpayer for
the purposes of his trade;.”
[17] The appellants rel y on IT3(b) tax certificates for 2023 reflecting the distribution of
R9 871 376 in respect of Company LS and R4 507 955 in respect of Company EG to
demonstrate that a direct distribution to share block holders during the relevant year of
assessment.
Grounds of appeal
[18] In this appeal, t he appellants claim that SARS fundamentally misconceived the legal
nature of a share block company established under the SBCA. They contend that, although
the immovable properties are registered in the names of the respective companies, the
economic entitlement to the rental income generated from those properties’ vests in the
individual shareholders by virtue of the statutory share block scheme and the Use
Agreements concluded pursuant thereto.
[19] Their case rests on five interrelated contentions:
(a) First, they contend that the Use Agreements confer upon shareholders the
“real right” to the use and enjoyment of the relevant properties together with
the economic benefits arising from those rights, including the rental generated
from tenants occupying the premises;
(b) Secondly, the companies merely received rental in a representative capacity
and act ed as conduits or agents for their shareholders. In adopting this
approach, the companies never became beneficially entitled to the rental
income;
(c) Thirdly, the shareholders, and not the companies, are the persons to whom
the rental income accrues for purposes of the definition of “gross income” in
section 1 of the ITA;
(d) Fourthly, the accounting treatment reflected in the financial statements does
not determine the proper tax consequences, which must instead be
determined according to the parties’ legal rights and obligations; and
(e) Finally, they contend that SARS’s approach results in the same rental income
being subjected to tax twice: once in the hands of the shareholders and again
in the hands of the companies (the double taxation).
SARS’s opposition
[20] SARS challenges the appellants ’ characterisation of the rental income. It contends
that as registered owners of the properties and parties to the lease agreements , the
appellants acquired the enforceable contractual right to receive the rental and accordingly
received the income for purposes of the definition of “gross income” in section 1 of the I TA.
Accordingly, the rental accrued to, and was received by, the appellants within the meaning of
the definition of “gross income”.
[21] SARS disputes the appellants ’ reliance on agency, cession, usufruct, and/or
accounting treatment, and maintains that none of those considerations displaces the
fundamental proposition that the appellants, as owners of the properties and parties to the
lease agreements, acquired the contractual right to receive the rental income and that such
income accordingly accrued to them for purposes of the ITA. It contends that:
(a) The subsequent distribution of rental income to share block holders in accordance
with the internal arrangements of the share block scheme does not alter the tax
character of the income at the point when it accrued to the companies or the
incidence of taxation. The tax consequences fall to be determined when the income
accrues to, or is received by, the appellants; and
(b) The SBCA does not exempt share block companies from liability for income tax on
rental derived from third -party commercial tenants. Properly construed,
section 10(1)(e) of the ITA distinguishes between levy income received by a
qualifying share block company, which enjoys statutory exemption, and other income,
including rental and interest, which remains taxable in the ordinary course , but with
the proviso of a limited exemption.
[22] Accordingly, SARS seeks an order dismissing both appeals, confirming the additional
assessments and awarding costs in terms of section 130 of the T AA on the basis that the
grounds of appeal are unreasonable.
Points in limine
grounds of appeal are unreasonable.
Points in limine
[23] Before the hearing, the appellants delivered a notice of intention to raise two
preliminary points which must be determined first. The first point involves a procedural
objection about the lawfulness of the verification process undertaken by SARS (the
verification complaint) and t he second point concerns the application of the contra fiscum
rule (contra fiscum rule complaint).
[24] The appellants’ complaint is that SARS exceeded the permissible ambit of a
verification contemplated in section 40 of the TAA , and under the guise of a verification,
conducted what was in substance an audit contemplated in section 42 of the TAA without
complying with the procedural safeguards prescribed by that provision. The underlying
premise is that a verification and an audit are distinct statutory processes attracting different
procedural obligations. They submit that a verification is directed at confirming or validating
information furnished by a taxpayer, whereas an audit entails an independent investigation
into the correctness and completeness of the taxpayer’s affairs.
[25] With regard to the second point concerning the application of the contra fiscum rule,
the a ppellants contend that SARS adopted inconsistent and conflicting approaches to the
taxation of the appellants and related share block entities in relation to the treatment of
rental income. Furthermore, the appellants argue that SARS adopted an inconsistent tax
approach for the appellants and other related share block companies and treated the same
income differently in different assessments. It is said that the way the appellants have been
taxed results in double taxation . To the extent that there is uncertainty regarding the proper
interpretation of the relevant provisions of the ITA, such uncertainty should be resolved in
favour of the taxpayer.
[26] SARS objects to the raising and determination of both points in limine at this stage of
the proceedings and contends that the appellants are precluded on procedural grounds from
introducing new grounds of appeal . Neither of the points raised formed part of the
appellants’ objection or their Tax Court rule (TCR) 32 statement of grounds of appeal. The
issues on appeal are circumscribed by TCR 32 and 34 . SARS further contends that
permitting the points to be raised would occasion prejudice because they were not
foreshadowed in the pleadings.
foreshadowed in the pleadings.
[27] SARS seeks a dismissal of the points raised on the basis that they lack merit should
the court consider them. It disputes that it conducted an audit within the meaning of
section 42 of the TAA . It contends that the verification undertaken was based upon
information disclosed in the appellants ’ tax returns and the supporting documentation
furnished by them. The additional enquiries were directed at clarifying the nature of the
income received, the deductions claimed and the statutory basis relied upon by the
appellants, and verifying information disclosed in the returns , which fell squarely within the
powers conferred by section 40 of the TAA. It contends the matter could only be resolved
by leading oral evidence, which the appellants failed to do.
[28] In so far as the contra fiscum rule is concerned , SARS submits that it finds no
application in the present case because it is an aid to statutory interpretation where genuine
ambiguity exists. SARS is not obliged to perpetuate an incorrect interpretation of the law
merely because a different approach may previously have been adopted.
Whether the court should entertain the points in limine?
[29] The basis for SARS’s objection is that the preliminary points were not raised in the
appellants’ objection to the assessments and do not form part of their statements of grounds
of appeal. TCR 32(3) 5 precludes an appellant from introducing a new ground of appeal
unless it constitutes a ground of objection against a part or amount of the disputed
assessment not previously objected to under TCR 7. 6 TCR 34 7 further provides that the
issues on appeal are those contained in the statement of the grounds of assessment and
opposing the appeal, read with the statement of grounds of appeal and any reply.
[30] The appellants do not dispute that the points in limine were not expressly raised in
their objection or in their rule 32 statement. They contend, however, that the points arise
from the agreed documentary record and concern questions of law arising from facts already
before the court. They submit that they do not introduce a new factual basis for the appeal
but raise different legal consequences flowing from the same factual matrix. They further rely
on the fact that their intention to raise preliminary points had been intimated at the pre -trial
conference. The minute records, however, that neither party, at that stage, intended to take a
preliminary point.
[31] The starting point is the decision of the Supreme Court of Appeal (the SCA) in
Commissioner, South African Revenue Service v Free State Development Corporation. 8
There, the SCA recognised that a taxpayer is not necessarily precluded from advancing a
different legal argument where it is founded upon the same factual matrix. The enquiry is
one of substance rather than form. The court must therefore determine whether the
substance of the appellants ’ original objection and grounds of appeal sufficiently covered or
substance of the appellants ’ original objection and grounds of appeal sufficiently covered or
foreshadowed the points now sought to be advanced.
5 “The appellant may include in the statement a new ground of appeal unless it constitutes a ground
of objection against a part or amount of the disputed assessment not objected to under rule 7.”
6 “Objection against assessment
(1) A taxpayer who may object to an assessment under section 104 of the Act, must deliver a
notice of objection within 80 days after—
(a) delivery of a notice under rule 6(4) or the reasons requested under rule 6; or
(b) where the taxpayer has not requested reasons, the date of assessment…”
7 “The issues in an appeal to the tax court will be those contained in the statement of the grounds of
assessment and opposing the appeal read with the statement of the grounds of appeal and, if any,
the reply to the grounds of appeal.”
8 Commissioner, South African Revenue Service v Free State Development Corporation [2023]
ZASCA 84; 2024 (2) SA 282 (SCA) (Free State Development) para 41.
[32] The fact that a new argument involves no new evidence is not, however, dispositive.
The appellant’s right to appeal against an assessment or decision is conferred by
section 107(1) of the TAA and must be exercised in accordance with the TAA and the TCR. 9
As held by the SCA in Baseline Civil Contractors (Pty) Ltd v The Commissioner for the South
African Revenue Service ,10 the statements in terms of TCR 31, 32 and 33 constitute the
pleadings in the Tax Court and the issues for the decision are those that are traversed in
such statements. Therefore, the tax dispute resolution process prescribed by the TAA and
the T CR serves to define the issues between the parties and to prevent prejudice
occasioned by a party changing its case at a late stage. The question is accordingly whether
the points in limine are properly issues arising from the existing statements and record, or
whether they constitute new grounds of objection to the assessments.
[33] An appeal to the court is predicated on a decision by the Commissioner. There has
been no such decision on the points sought to be raised. The appellants’ objection to the
assessments was founded on the exemption in section 10(1)(e) of the ITA. The appellants
subsequently changed the bases of their complaint , and the freshly raised preliminary points
do not feature in the statement of grounds of appeal. They were raised belatedly on the eve
of the hearing.
[34] When assessed, t he preliminary points do not merely advance a different legal
argument; they introduce a fresh procedural challenge to the way SARS arrived at the
assessments and freshly allege an inconsistency in applying the ITA which does not form the
basis of the ir objection to the assessment or the grounds of appeal. The decision in Free
State Development Corporation does not support the appellants. It is impermissible for the
appellants to keep some points in reserve , and for those points to be raised at a later stage
appellants to keep some points in reserve , and for those points to be raised at a later stage
of the tax dispute resolution process , thus making up its case as it evolves through the
regulated tax dispute resolution mechanisms.
[35] Even if the verification complaint were to be entertained, it is necessary to determine
whether the complaint is legally capable of disposing of the assessments in an appeal to this
Court. I therefore consider the substance of the verification complaint, in the alternative.
9 Section 107(1) of the TAA states that: “After delivery of the notice of the decision referred to in
section 106(4), a taxpayer objecting to an assessment or “decision” may appeal against the
assessment or ‘decision’ to the tax board or tax court in the manner, under the terms and within
the period prescribed in this Act and the ‘rules’.”
10 Baseline Civil Contractors (Pty) Ltd v The Commissioner for the South African Revenue Service
[2026] ZASCA 20 para 10.
The verification complaint
[36] The appellants rely on the decision in Forge Packaging (Pty) Ltd v Commissioner for
the South African Revenue Service ,11 which aptly observed that the TAA does not define
either “verification” or “audit”, and as the appellants argue, the two concepts are not
synonymous. As the appellants contend, a “v erification” entails a process by which
information furnished by the taxpayer is checked or confirmed, whereas an “audit” involves a
more extensive investigation into the taxpayer's affairs.
[37] Two related factual questions arise which require a proper characterisation of
SARS’s inquiries before determining whether there was a procedural irregularity which
warrants the Court to set the additional assessment aside. These are whether on the agreed
facts:
(a) SARS conducted a verification or an audit; and
(b) The enquiries by SARS constituted a verification or assumed the character of
an audit.
[38] The appellants’ factual foundation rests on verification notices, SARS ’s requests for
further information, the taxpayers ’ responses and the subsequent additional assessments.
Other than the documents, there is no evidence of the factual context in which the enquiries
were made. The appellants do not seek to call on new evidence other than the record before
the court.
[39] I agree that t he features of the inquiries extended beyond requests for supporting
documentation and exhibited a greater level of interrogation of the tax returns . As pointed by
the SCA in GB Mining and Exploration SA (Pty) Ltd v Commissioner, South African Revenue
Service12 in terms of regulation A2 of the regulations issued under s 107 of the ITA13 any
return must “be accompanied by all such balance sheets, trading accounts, profit and loss
accounts and other accounts of whatever nature, as are necessary to support the
information contained in the return ”. There is no evidence whether the returns were indeed
accompanied by all information required.
accompanied by all information required.
[40] When viewed in the context of the information supplied in the tax return, the enquiries
were directed at understanding the basis of the tax returns. The court is satisfied in respect
of the information before it that the conflicting representations by the appellants in their tax
returns required an extensive verification of the information presented. The inquiries w ere
11 Forge Packaging (Pty) Ltd v Commissioner for the South African Revenue Service [2022]
ZAWCHC 119 (Forge Packaging).
12 GB Mining and Exploration SA (Pty) Ltd v Commissioner for the South African Revenue Service
[2014] ZASCA 29; 2015 (4) SA 605 (SCA) (GB Mining) para 29.
13 GN R105, GG 1011, 22 January 1965.
necessary to determine the nature of the income received, the deductions claimed and the
statutory provisions relied upon . The requests for additional information and the call for
explanation fell squarely within the powers conferred by section 40 of the TAA , to
understand and “verify” the correctness of the returns submitted by the appellants. I am
unable to conclude that the verification “crossed the line” to an audit without more evidence
to substantiate such a claim. The first point in limine therefore fails on that basis.
Whether an alleged procedural irregularity would vitiate the assessments
[41] Even if it is assumed, in favour of the appellants, that the enquiries undertaken by
SARS were an “audit” rather than a “verification”, the question remains whether such
procedural irregularity vitiates the additional assessments and thus constitutes a ground
upon which the Tax Court may set them aside in the exercise of its appellate jurisdiction.
[42] The appellants relied on Forge Packaging, which was decided in review proceedings
before the High Court. The taxpayer sought to review and set aside the assessment based
on SARS’ s alleged non -compliance with the procedural requirements of sections 42 and
106(5) of the TAA.
[43] In my view, the nature and scope of this Court's jurisdiction are relevant to the first
point in limine . That th e Tax Court is a specialised statutory tribunal and its jurisdiction is
conferred by the TAA read with the TCR to determine disputes concerning the correctness of
tax assessments and decisions of the Commissioner comes into play.14
[44] In the Commissioner for the South African Revenue Service v Poulter,15 the SCA held
that the Tax Court is not a High Court contemplated in s 166(e) of the Constitution. The SCA
did not disturb the finding by the Full Court in Poulter v Commissioner, South African
Revenue Service16 that the Tax Court does not exercise the High Court's review jurisdiction
Revenue Service16 that the Tax Court does not exercise the High Court's review jurisdiction
over the lawfulness of administrative action, but functioned as a court of revision,
empowered to reconsider the Commissioner's assessment on its merits and, where
appropriate, to substitute it with its own decision.17
14 Lion Match Company (Pty) Ltd v Commissioner for the South African Revenue Service [2018]
ZASCA 36 para 6 ; Metcash Trading Ltd v Commissioner, South African Revenue Service and
Another [2000] ZACC 21; 2001 (1) SA 1109 (CC) paras 47 and 55.
15 Commissioner for the South African Revenue Service v Poulter [2026] ZASCA 68 paras 43-46.
16 Poulter v Commissioner, South African Revenue Service 2026 (2) SA 633 (WCC) ( Poulter)
paras 18 and 35-16; the court explained that the Tax Court is a creature of statute established
under s 116 of the TAA and exercises the appellate jurisdiction conferred by s 107. It is not one of
the superior courts contemplated in s 166 of the Constitution, nor does it possess the inherent
powers contemplated in s 173.
17 Ibid paras 45; 48 and 52-53.
[45] Forge Packaging , on which the appellants rely , formed part of multiple appeals
before the Constitutional Court in United Manganese of Kalahari v Commissioner , South
African Revenue Service and Four Similar Cases (United Manganese).18 The Constitutional
Court expressly observed that the Tax Court ’s procedures are directed at ventilating the
merits of assessments, rather than determining review grounds .19 The Tax Court does not
have jurisdiction to conduct PAJA or legality reviews.20 It cautioned that the Tax Court should
not be understood as exercising review powers “through the back door” under the guise of a
tax appeal.21
[46] The appellants ’ complaint is not directed at the substantive correctness of the
additional assessments but at the procedure followed by SARS in arriving at them. The
alleged procedural irregularity is not one which this Court, exercising its appellate jurisdiction
under the TAA, is empowered to determine by setting aside the additional assessments. For
the reasons stated, the first point in limine must accordingly fail.
The second point in limine
[47] Turning to the contra fiscum rule, on the basis that SARS adopted an inconsistent
approach to the taxation of the appellants and related share block companies. They contend
that, in previous years and in relation to Company NN Share Block (Pty) Ltd, SARS
accepted that the rental income accrued to the share block holders rather than the company.
They submit that this inconsistent treatment creates uncertainty as to the proper
interpretation of the ITA and exposes the same income to possible double taxation. To the
extent that the relevant provisions are ambiguous, they contend that the ambiguity must be
resolved in favour of the taxpayer.
[48] The contra fiscum rule is a rule of statutory interpretation. As explained by the SCA in
Telkom SA SOC Ltd v Commissioner, South African Revenue Service ,22 where there is
Telkom SA SOC Ltd v Commissioner, South African Revenue Service ,22 where there is
genuine ambiguity in a statutory provision imposing a fiscal burden, the ambiguity should be
resolved in favour of the taxpayer. The rule does not arise merely because SARS may
previously have adopted a different interpretation or assessed another taxpayer differently.
18 United Manganese of Kalahari v Commissioner, South African Revenue Service and Four Similar
Cases [2025] ZACC 2; 2026 (2) SA 227 (CC) (United Manganese of Kalahari).
19 Ibid paras 94-96.
20 Ibid paras 47-49.
21 Ibid para 95.
22 Telkom SA SOC Ltd v Commissioner, South African Revenue Service [2020] ZASCA 19; 2020 (4)
SA 480 (SCA) at paras 18-19 states that: “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 ….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.”
Where the meaning of the legislation can be determined by applying the ordinary principles
of statutory interpretation, the rule has no application.
[49] In its essence , the complaint is principally directed at SARS's implementation of the
ITA rather than at any ambiguity in the language of the ITA itself. Whether SARS previously
adopted a different approach in assessing the appellants or another taxpayer does not
determine the proper interpretation of the statute. Nor does it broaden the scope of the
contra fiscum rule.
[50] The previous assessments do not, however, determine the proper legal construction
of the ITA, nor bind SARS to perpetuate an interpretation whic h it now contends is incorrect.
As will be seen in due course, the issue before the court is not whether SARS has acted
consistently in previous years, but whether, on a proper interpretation of the relevant
provisions of the ITA and the S BCA, the additional assessments issued for the 2023 year of
assessment are correct. The appellants ’ reliance on the contra fiscum rule is accordingly
misplaced.23 The second point in limine therefore cannot succeed.
[51] To the extent that the points in limine are relied upon to dispose of the appeals
without consideration of the merits, the Constitutional Court's observation in Spilhaus
Property Holdings (Pty) Ltd and Others v Mobile Telephone Networks (Pty) Ltd and
Another,24 stated that where reasonably possible, an appellate court should determine all the
issues before it rather than dispose of a matter solely on a preliminary point, particularly
where a further appeal may follow, is apposite. I accordingly consider the merits of the
appeals.
The merits
[52] The appellants advanced several interrelated arguments founded upon the SBCA,
the Articles of Association and the Use Agreement arrangements (the statutory instruments)
governing the share block schemes, as well as the ITA and SARS's previous assessments.
The tax appeal turns on whether:
The tax appeal turns on whether:
(a) The rental income in question accrued to the appellants for purposes of the
definition of “gross income” in section 1 of the ITA; and, if so,
(b) Whether the amounts are taxable in the appellants’ hands.
23 This basic principle of tax law is underscored by s 143(1) of the TAA, which provides that SARS
has a duty “to assess and collect tax according to the laws enacted by Parliament and not to forgo
a tax which is properly chargeable and payable”.
24 Spilhaus Property Holdings (Pty) Ltd and Others v Mobile Telephone Networks (Pty) Ltd and
Another [2019] ZACC 16; 2019 (4) SA 406 (CC) para 44.
[53] The enquiry is whether:
(a) The rental received by the appellants was for their own benefit, or merely on
behalf of the share block holders. To whom did the right to claim payment for
the rental accrue when the tenants became liable under the lease
agreements accrue; and
(b) The appellants implemented and operated the scheme in accordance with the
statutory framework governing share block companies.
[54] Those questions must be answered by reference to the statutory arrangements
governing the share block scheme and the contractual arrangements concluded to establish
whether the appellants conducted themselves in a manner consistent with the legal
structure.
The applicable statutory framework and relevant agreements
[55] The ITA does not define the expressions “received by” or “accrued to” appearing in
the definition of “gross income ” in section 1. Their meaning has been developed through
judicial interpretation.
[56] Geldenhuys v Commissioner for Inland Revenue ,25 held that an amount is “received”
for purposes of the definition of gross income only where it is received by the taxpayer on its
own behalf and for its own benefit. Furthermore, in Commissioner for Inland Revenue v
Genn and Co (Pty) Ltd,26 the court held that m onies received merely as an agent, trustee or
intermediary on behalf of another do not constitute receipts for the purposes of gross
income.
[57] In Lategan,27 the court held that an amount accrues when the taxpayer acquires a
right to claim payment or otherwise becomes entitled to it. That principle was further
developed by the Appellate Division in Commissioner for Inland Revenue v People's Stores
(Walvis Bay) (Pty) Ltd,28 where it was explained that the word “amount” in the definition of
gross income is not confined to money actually received but extends to every form of
property having a monetary value, including debts and rights of action. Such an amount
accrues when the taxpayer acquires an unconditional right to claim it.
accrues when the taxpayer acquires an unconditional right to claim it.
25 Geldenhuys v Commissioner for Inland Revenue 1947 (3) SA 256 (C) at 265-266.
26 Commissioner for Inland Revenue v Genn and Co (Pty) Ltd 1955 (3) SA 293 (A) at 301–302.
27 Lategan at 209-210.
28 Commissioner for Inland Revenue v People's Stores (Walvis Bay) (Pty) Ltd 1990 (2) SA 353 (A) at
363I and 365.
[58] Section 7 of the SBCA regulates the operation of a share block scheme. It provides,
in the material part, that the main object of a share block company is to operate a share
block scheme in respect of immovable property owned or leased by it. Section 7(2) requires
that a member be entitled to the use of “a specified part of the immovable property ” on the
terms and conditions contained in a Use Agreement concluded between the company and
the member. The Use Agreem ent is accordingly the instrument through which the statutory
right of use and occupation of the property is conferred upon a share block holder.
[59] Section 4 of the SBCA contains a deeming provision in terms of which, for the
purposes of the Act, a company is presumed to operate a share block scheme if any share
in the company confers upon its holder a right to, or an interest in, the use of the immovable
property, or any part thereof.
[60] Clause 8.1 of the Articles of Association (Articles) of the appellants prohibits the
transfer of shares “except simultaneously with and to the same transferee as a whole of the
other shares included in the same block.”
[61] Clause 4.2 of the Use Agreement regulates the holder ’s right to let or otherwise part
with occupation of the allocated premises. That right is not unfettered. A holder may let the
premises only with the consent of the share block company and remains responsible for
ensuring that the occupier complies with t he terms of the Use Agreement and the
management rules governing the use of the premises and the common areas. Significantly,
the company retains the right to evict an occupier who breaches those provisions. Nor does
the conclusion of a lease absolve the holder of his or her obligations to the company. The
share block holder remains contractually liable for any loss or damage occasioned to the
company by the occupier's breach of the Use Agreement.
Does t he implementation of the share block scheme support accrual of the rental
Does t he implementation of the share block scheme support accrual of the rental
income to the appellants or the share block holders?
[62] The overarching premise that income accrued to shareholders and not the appellants
is based on the statutory instruments , particularly the Use Agreements concluded in
December 1996. The appellants sought to draw a distinction between the operation of a
residential share block and a commercial share block. It was contended that all share block
holders have the right to occupy and use all areas of the property. In support of that
overarching contention, they advanced five related but distinct legal bases upon which it is
contended that the rental accrued directly to the share block holders:
(a) Firstly, that the Use Agreements concluded under the S BCA conferred upon
shareholders rights analogous to a usufruct, leaving the companies with “bare
dominium”;
(b) Secondly, that the rights to receive rental under the lease agreements were
ceded to the shareholders;
(c) Thirdly, the single Use Agreement regulated the rights of successive
shareholders in perpetuity;
(d) Fourthly, the companies acted merely as agents administering and collecting
rental on behalf of the shareholders and therefore never acquired the income
beneficially; and
(e) Fifthly, SARS’s previous assessments and the IT3(b) certificates demonstrate
that the rental income ha d consistently been treated as taxable in the hands
of the share block holders and not the companies.
[63] SARS’s case is based on the common cause facts borne out by the title deed and
the lease agreements, that the companies : (a) are registered owners of the properties (b)
lessors in their own name and (c) are contractually entitled to receive the rental. It contends
that these facts and the physical receipt mean that r ental income vested in the legal owner ,
accrued and was received by the companies for the purpose of gross income.
[64] Whether the companies in fact operated and/or implemented the share block in the
manner contemplated by the legislation is material to the question of accrual. The operation
of a share block company requires consideration in light of the aim of the share bloc k,
namely, to manage communal interests in compliance with the statutory provision s in
section 7(2).
Were “real rights” accruing to share block holders created, and/ or the cession to
share block holders established?
[65] It is submitted that the above statutory instruments created “real rights” which vested
the rental income in share block holders for the purpose of accrual. It is said the companies
retained “bare dominium” over the properties , and a ny beneficial entitlement to the rental
income accrued directly to the holders.
[66] However, given that share block holders acquired shares in the appellants, a share is
[66] However, given that share block holders acquired shares in the appellants, a share is
a moveable inco rporeal consisting of a conglomerate of contractual personal rights entitling
the holder to an interest in the company , its assets and dividends .29 Shareholders are not
part owners of the enterprise or undertaking in law . The enterprise or undertaking is
29 Standard Bank of South Africa Ltd and Another v Ocean Commodities Inc and Others 1983 (1) SA
276 (A) at 288H.
something different from the shareholding.30 This principle is not altered by the registration of
a share block company.
[67] Importantly, section 1(c) of the SBCA makes plain that a “ share” in the share block
does not include a right to or an interest in the asset s of a company derived from a lease in
respect of such assets. As is evident from section 7 of the SBCA, the share in a share block
company vests the right of use of a defined unit to a share block holder. Although the right of
use relates to a property, it does not vest a holder with a real right as suggested. This
submission is inimical to the principles of company law and stands to be rejected.
[68] Furthermore, the appellants rely on the single Use Agreement concluded in 1996 as
the basis for the rights which they contend vest income to the share block holders . On a
proper construction of section 7(2) of the SBCA, there is a legal requirement to enter into a
Use Agreement with each member (share block holder) . Thus, every member (share block
holder) must have a signed Use Agreement between themselves and the company. In the
present cases, there is no individual agreement with each individual share block holder. The
evidence does not disclose specified parts of the units allocated to holders or successive
holders to which the Use Agreement relates as contemplated in section 7(2) of the SBCA.
Accordingly, which portion of the leased property is attributable to an identifiable unit holder
or holders is not apparent.
[69] There is, in addition , an inherent legal contradiction between the argument that
holders had “real rights” over the properties while , in the same breath , it is submitted they
enjoyed a “usufruct” over the same properties, which is a personal right in nature. Although it
is conceivable that the right to enjoy the fruits of the usufruct could be sold, let and alienated,
a usufruct is inalienable and cannot be transferred from a usufructuary to a third person.31
a usufruct is inalienable and cannot be transferred from a usufructuary to a third person.31
[70] As the registered owner of the property on which Wooden Square Shopping Centre
is located, Company EG , had approximately 26 tenants including Farm ers Market. The
tenants leased properties of varying sizes. Similarly, Company LS ’s properties in several
locations had, in the main, a single tenant, being either Groceries Shops or Others.
[71] When questioned about the proportion of the unit s allocated to each share block
holder as mandated by section 7(2), the appellants submitted the share block enterprise
operated and was administered as a collective scheme. In essence, t he single Use
Agreement operated as a “blanket document ”. They submitted the terms of the Use
Agreement bound successive share block holders. Such an arrangement is inconsistent with
the SBCA.
30 Randfontein Estates Ltd v The Master 1909 TS 978 at 980-982.
31 Durban City Council v Woodhaven Ltd 1987 (3) SA 555 (A) at 560C; Van der Merwe v Van Wyk ,
NO 1921 EDL 298 at 301.
[72] Clause 3.1 of Company EG 's Articles provides that the authorised share capital of
the company comprises 4 000 ordinary par value shares. Those shares are divided equally
between two share blocks. Share Block No. 1 relates to the Wooden Road frontage
buildings occupied by Bread Ahead and Foot Gear, whilst Share Block No. 2 relates to the
rear premises occupied by Price Store, the Waste Centre and the associated parking areas.
The evidence establishes that approximately 32 share certificates were issued to various
individuals and trusts.32 By contrast, Company LS's 2 000 ordinary shares were divided into
six share blocks corresponding with the six immovable properties registered in its name.
Successive shareholding had changed over time. The documentary evidence does not
demonstrate that specific units or defined portions of those properties were allocated to
successive shareholders in the manner contemplated by the statutory scheme.
[73] The appellants contended that the rights conferred under the Use Agreements
transferred to successive shareholders by way of cession, thus vesting the right to receive
rental directly in each holder. That contention is not supported by any contemporaneous
documentation evidencing the cession of those rights, nor by any documentation
demonstrating reciprocal acceptance of such rights by successive shareholders. The court
was referred to no written deeds of cession, amended Use Agreements, or other documents
recording the transfer of those rights as shareholdings changed over time.
[74] The difficulty with the appellants’ reliance on the collective operation of the scheme is
that the distinguishing feature of a share block company is not merely its registration under
the SBCA, but the statutory purpose for which it exists and the way that purpose is
implemented. The object of a share block company is to operate a share block scheme for
the benefit of its members, and section 7(2) requires that each member be entitled, under a
the benefit of its members, and section 7(2) requires that each member be entitled, under a
Use Agreement, to the use of a specified part of the immovable property. It is that statutory
nexus between the shareholding and the identifiable part of the property that distinguishes a
share block scheme from other types of property-owning enterprises.
[75] SARS correctly accepted that section 7(2) does not preclude the holder of a right to
the use of an identifiable unit from itself being a registered company with its own
shareholders. The critical requirement, however, is that the shares in the share block
company must remain linked to a spec ified part of the immovable property, and not to the
property as a whole.
32 The share certificates are dated 2 March 2001; 1 November 2004; 1 May 2005; 1 July 2005;
1 August 2005; 1 February 2006; 7 July 2006; 16 January 2007; 10 October 2013; 1 March 2015;
18 November 2015 and 19 June 2020.
Did the practical operation of the share block schemes support the accrual to share
block holders?
[76] Turning to the practical operation of the share block schemes, the objective
documentary evidence reveals that the lease agreements were concluded by the appellants
in their own names as lessors. In terms of those agreements, the tenants were contractually
obliged to pay rental to the appellants, who issued the tax invoices, levied and accounted for
VAT on the rental received, and assumed the contractual obligations of the lessor towards
the tenants.
[77] The objective features of the lease arrangements demonstrate that, as between the
appellants and the tenants, the contractual rights and obligations vested in the appellants.
Since accrual occurs year by year, the contention that accrual to shareholders occurred
based on the 1996 Use Agreement, in respect of the lease agreement, is not tenable . The
economic rights could not have vested in individual share block holders. For this reason, the
practical implementation of the schemes differed from the appellants’ legal characterisation.
[78] To the extent that the appellants contend that they merely acted as agents for the
shareholders, collecting the rental on their behalf without acquiring any beneficial entitlement
thereto, the appellants accepted that there was no written mandate or agency agreement
recording an agency relationship between the appellants and the share block holders. When
pressed on the issue, it was submitted that the agency arose by implication from the
appellants’ status as share block companies and from the rights conferred under the Use
Agreements. In other words, the alleged agency was inferred from the statutory and
contractual framework rather than founded upon any express contractual mandate. While
the absence of a written mandate is not, of itself, decisive , and an agency may arise tacitly
or by implication, the evidential burden was on the appellants to establish the existence and
or by implication, the evidential burden was on the appellants to establish the existence and
scope of that relationship.33
[79] The tax invoices were issued by the appellants in their own names, they levied and
accounted for VAT on the rental received, and the appellants assumed the contractual
obligations of the lessor under the lease agreements. In addition, the appellants furnished
suretyships in their own names in relation to obligations arising from the leases. Those
features are more consistent with the appellants acting as principals in their dealings with
the tenants, rather than as agents on behalf of the share block holders. The alleged agency
finds no support in the contemporaneous documentation and is inconsistent with the way the
lease arrangements were implemented . The objective evidence leads to the conclusion that
33 Minister of Agriculture and Land Affairs and Another v De Klerk and Others [2013] ZASCA 142;
2014 (1) SA 212 (SCA) para 39.
the appellants contracted with the tenants as principals rather than as agents for the share
block holders.
[80] Another feature illustrating the divergence between the statutory framework and its
practical operation concerns the management of the common property, the collection of
levies and the distribution of rental income. As mandated by section 13 of the SBCA, Clause
26 of the Articles of both appellants require the establishment of a Levy Fund for the upkeep,
management and control of the immovable property. Share block holders were obliged to
contribute monthly to that fund in proportion to their respective shareholdings and, in turn,
bear a proportionate share of the costs associated with the management and maintenance
of the common property.
[81] Rather than levies being raised and administered through a dedicated Levy Fund as
required by the SBCA, the evidence shows that the rental income was pooled, expenses
were deducted by the appellants, and the net balance was thereafter distributed to the share
block holders. The appellants’ explanation for this deviation was that these functions were
performed in respect of the “collective operation ” of the share block schemes. Neither the
SBCA nor the appellant’s contractual documents with share block holders envisage or
mandate the “collective operation” relied on. A share block scheme can only be administered
with reference to the separate financial administration of individual units as required by the
SBCA. Section 13(1) states clearly that a share block company shall “establish and maintain
a levy fund”. No evidence was forthcoming of such funds, nor was there any evidence as to
how these funds were managed.
Is the appellants ’ financial information consistent with accrual to share block
holders?
[82] Company LS’s tax return reflected fixed property as an asset valued at R11 861 609.
The fixed property was, however, not disclosed as an asset in the financial statements even
The fixed property was, however, not disclosed as an asset in the financial statements even
though Company LS sought to claim a deduction for repairs and maintenance in respect of
the property. Company LS ’s financial statements reflect the value of the properties in the
sum of R11 861 609 as a “Company LS Partnership” unsecured , interest -free loan .
Company LS distributed R9 871 376 to share block holders , which was described as a
“distribution to share block holders” allowance in its tax return.
[83] Similarly, with Company EG , its tax return reflected a fixed property valued at
R11 457 978. This amount, which was disclosed as an “asset” made up of the cost of the
property amounting to R11 310 576, together with a motor vehicle valued at R147 402,
resulted in the total of R11 457 978. Here too, t he fixed property was not disclosed in the
financial statements even though Company EG sought to claim a deduction for repairs and
maintenance of R 2 493 509 in respect of the property. Company EG’s financial statements
reflect the value of the property in the sum of R11 310 576 as an “Company EG Partnership”
unsecured, interest-free loan. Company EG distributed R4 507 955 to share block holders ,
which was described as a “distribution to share block holders” allowance in its tax return.
[84] The appellants ’ case is that the economic benefits associated with the properties
vested in the share block holders and that the companies consequently had no beneficial
entitlement to the rental income. Yet the tax returns and financial statements do not reflect
that distinction: they record either the properties themselves, or amounts corresponding
substantially to their value, as assets associated with the appellants. The above disclosures
are significant, not only because their accounting treatment is determinative of the legal
rights and accrual in issue, but because they reveal an inconsistency in the way the
properties and the corresponding interests were recorded and accounted for.
[85] Firstly, the distribution of the net rental was not determined by reference to the rental
generated by a specified unit to which a share block holder’s rights were said to attach.
There is no evidence to demonstrate the proportionate distribution in relation to the varying
sizes of the units. Instead, the pooled net rental was distributed amongst shareholders in
proportion to their respective “shareholdings”. Secondly, the financial statements reflected a
pooling and distribution of “net profits” which is not consistent with the activities of a share
block company. The distribution supports the conclusion that the appellants operated as a
proprietary company and treated the rental as income in their hands. Despite the IT3(b)
Certificates produced as evidence of a distribution to share block holders, earlier inquiries by
SARS revealed that there had been no withholding dividend tax paid as required in
SARS revealed that there had been no withholding dividend tax paid as required in
section 64E of the ITA and this was not disputed.
[86] When questioned about these inconsistencies and the way the share block schemes
were accounted for in practice, the appellants accepted that the accounting treatment did not
accurately reflect the legal structure upon which the appellants rely. They attributed this to
what was described as accounting “shortcuts”. They maintained, on the strength of the case
in Pyott Ltd v Commissioner for Inland Revenue,34 that the matter must be decided based on
the provisions of the statutory formula contained in the ITA and not accounting entries in the
taxpayer's book of accounts . The errors in the financial statements could not alter the
underlying rights created by the share block scheme and the Use Agreements. The
submission cannot be sustained. The present appeal is not solely about the statutory
interpretation of the ITA provision but involves a determination of whether the appellants
operated a share block scheme.
34 Pyott Ltd v Commissioner for Inland Revenue 1945 AD 128 (Pyott).
[87] In Stellenbosch Farmers’ Winery Ltd v Commissioner, South African Revenue
Service; Commissioner, South African Revenue Service v Stellenbosch Farmers’ Winery
Ltd,35 took account of how financial receipts were treated in financial statements to
determine whether the receipts were of a capital nature, therefore not taxable. Similarly in
GB Mining and Exploration SA (Pty) Ltd v Commissioner, South African Revenue Service ,36
the SCA recognised the important evidential role of a taxpayer's financial statements and
accounts in corroborating the information contained in its tax return.
[88] In the present matter, the entries in the appellants' tax returns and financial
statements are not relevant because they determine who was legally entitled to the rental
income, but because they form part of the contemporaneous evidence against which the
appellants' present characterisation of their affairs must be evaluated. They form part of the
broader contractual arrangements and objective evidence concerning the way the share
block schemes operated. The accounting records must therefore be considered together
with, rather than in isolation from, those other features. 37 The so called “ shortcuts” are
indicative of the operating model, which is in contravention of the SBCA, and clearly denote
that income received was received in the hands of the Share Block Companies, and not in
the hands of the share block holders.
[89] Sight cannot be lost that a t inception the appellants’ basis for objection to the
additional assessment was that since they are share block companies, their income is
exempt on account of section 10(1)(e) of the ITA.38 It bears emphasising that the appellants
adopted different positions regarding the nature and tax treatment of the income.
Section 10(1)(e) of the ITA exempts levy income received by or accrued to a qualifying share
block company. Interpretation Note 64 of 2012 39 explains that this exemption is limited to
block company. Interpretation Note 64 of 2012 39 explains that this exemption is limited to
levy income only, collected from members to defray expenses arising from the management
of their collective interests.
35 Stellenbosch Farmers’ Winery Ltd v Commissioner, South African Revenue Service;
Commissioner, South African Revenue Service v Stellenbosch Farmers’ Winery Ltd [2012] ZASCA
72; 2012 (5) SA 363 (SCA) para 35.
36 GB Mining paras 29-30.
37 Ibid 43.
38 "10 Exemptions—
(1) There shall be exempt from normal tax—
…
(e) (i) any levy received by or accrued to-
(aa) …
(bb) a share block company as defined in the Share Blocks Control Act from
the holders of shares in that share block company…”.
39 SARS Interpretation Note 64 of 2012 at 6.
[90] The appellants’ financial statements submitted to SARS as part of the verification
process do not reflect the disputed income as levy income. The Interpretation Note further
explains that the levy-income exemption and the basic exemption are applied in determining
the taxable income for the relevant year. Thus, while qualifying levy income may be exempt,
rental and other non-levy income remains taxable, subject to any applicable limited statutory
exemption, which at the current time is R50 000.40
[91] Where the appe llants subsequently contend that the information was incorrect, they
were required to provide evidence explaining the precise nature and extent of the error,
together with supporting documentation. The appellants have a duty to provide credible and
reliable evidence explaining the alleged error and substantiating the position they now
contend is correct.41 These discrepancies mean the matter could not be decided on a stated
case. The appellants were duty bound to lead evidence to explain them.
Conclusion
[92] Once the statutory and contractual framework is considered against the way the
schemes were implemented, the appellants’ contention that the rental income did not accrue
to or was not received by them cannot be sustained. The appellants ’ case depends upon the
proposition that the Use Agreements divested the companies of any entitlement to the rental
and vested that entitlement directly in the shareholders. The objective evide nce does not
support that proposition. The collective operation of the schemes (which is not catered for in
the SBCA) , the absence of identifiable allocations corresponding to successive
shareholders, the manner in which rental was collected and accounted for, and the absence
of any documented agency or cession are inconsistent with the direct accrual of the rental to
individual shareholders.
[93] The practical operation of the schemes has significance. The appellants concluded
[93] The practical operation of the schemes has significance. The appellants concluded
the leases in their own names, received the rental from tenants, issued the tax invoices,
accounted for VAT, administered the rental income and expenses, and thereafter distributed
the net proceeds to shareholders. The rental was pooled and distributed according to
“shareholding” rather than by reference to the rental generated by the particular unit said to
be allocated to a share block holder. This mode of operation cannot readily be reconciled
with the contention that the rental from each unit accrued directly to the holder of the
corresponding use right. On the contrary, the objective facts demonstrate that the appellants
received the rental in the first instance and that the shareholders subsequently received
distributions from the pooled net proceeds in the form of deemed dividends.
40 Ibid at 8.
41 GB Mining paras 29-30.
[94] Although the appellants produced revised financial statements as part of their TCR
32 statement, purporting to clarify the treatment of levy income, rental income and
distributions to shareholders, the deficiencies and inconsistencies in the original financial
statements and tax returns remained material. The appellants accepted that the revised
statements were not formal amendments to the original financial statements, but illustrative
schedules showing how the financial information should, according to them, have been
presented.
[95] I accordingly find that, notwithstanding the appellants' formal registration as share
block companies and the rights of use and occupation conferred by the Use Agreements,
those rights did not result in the rental income accruing directly to the shareholders. The
rental income was received by and accrued to the appellants for purposes of the definition of
“gross income” in section 1 of the ITA. The subsequent distribution of the net rental to
shareholders did not alter the character of the income when received or the person to whom
it accrued. The appellants' reliance on the collective operation of the share block schemes,
agency and cession is not supported by the evidence and does not displace this conclusion.
[96] What remains is the question of costs . The ordinary rule that costs follow the result
does not apply. SARS seeks the costs of suit against the appellants. An unsuccessful appeal
does not, without more, justify a costs order. In terms of section 130(1)(b) of the TAA,42 the
court may, on application by an aggrieved party, award costs where the appellant's grounds
of appeal are held to be unreasonable.43
[97] The appellants persisted with points in limine which were not part of their objection to
reverse the assessment and dispose of the appeal. The appellants further persisted with the
contention that the rental income accrued to share block holders. The reliance on the share
contention that the rental income accrued to share block holders. The reliance on the share
block form, even though the central factual premise and modus operandi upon which that
argument rested was not supported by the contemporaneous documentary evidence
renders the grounds of appeal unreasonable within the meaning of section 130(1)(b). A
costs order in favour of SARS on Scale C is accordingly justified.
42 Section 130(1)(b) states that “the tax court may, in dealing with an appeal under this Chapter and
on application by an aggrieved party, grant an order for costs in favour of the party, if—
…
(b) the ‘appellant’s’ grounds of appeal are held to be unreasonable;”
43 Capitec Ltd v Commissioner, South African Revenue Service [2024] ZACC 1; 2024 (4) SA 361 (CC)
para 97.
Order
[98] In the result, the following order is made:
1. The appeal by the appellants is dismissed.
2. The rental income was received by, and accrued to the appellants, thus the
income constitutes “gross income” taxable in the hands of the appellants for
the purpose of income tax.
3. The South African Revenue Service’s additional assessment of R1 533 009 in
respect of Company EG and R2 830 697 due by Company LS is therefore
confirmed.
4. The appellants are ordered to pay the respondent's costs of the tax appeals
on Scale C, including the costs of one counsel.
_____________________
SIWENDU J
JUDGE OF THE HIGH COURT,
KWAZULU-NATAL LOCAL DIVISION,
DURBAN
I agree.
_______________________________
MRS PATRICIA VAN ROOYEN
MEMBER OF THE TAX COURT:
COMMERCIAL MEMBER
I agree.
MRS RISHANI GARACH
MEMBER OF THE TAX COURT:
ACCOUNTANT
Case information
Date of Hearing : 28-30 April 2026
Further submissions : 24 July 2026
Date of Judgment : 24 August 2026