Abbott v Commissioner for Inland Revenue

• Jurisdiction: South Africa
• Judge: Beyers JP, Diemont J and Corbett AJ
• Judgment Date: 19 August 1963
• Citation: 1963 (4) SA 552 (C)
• Hearing Date: 02 August 1963
• Court: Cape Provincial Division

Abbott v Commissioner for Inland Revenue
1963 (4) SA 552 (C)

1963 (4) SA p552

Citation	1963 (4) SA 552 (C)
Court	Cape Provincial Division
Judge	Beyers JP, Diemont J and Corbett AJ
Heard	August 2, 1963
Judgment	August 19, 1963

Flynote : Sleutelwoorde A

Revenue — Income tax — Super tax — Deductions lawfully or unlawfully made — Inclusion thereof in taxpayer's income in following year — Necessity of — Act 31 of 1941, secs. 27 (c), 28 (b).

Headnote : Kopnota

B Section 27 (c) of Act 31 of 1941 requires the inclusion in a taxpayer's income subject to super tax of any deduction in fact made for super tax purposes under section 28 (b) in respect of the last preceding year of assessment, irrespective of whether or not the deduction has been lawfully or correctly made. C

Case Information

Appeal from a decision in the Special Income Tax Court under sec. 81 of Act 31 of 1941, as amended. The facts appear from the reasons for judgment.

D. Meyerowitz, S.C., for the appellant.

P. Schock, Q.C. (with him W. G. Burger), for the respondent. D

Cur adv vult.

Postea (August 19th).

Judgment

E Corbett, A.J.:

This is an appeal from a decision of the Income Tax Special Court upon a case stated in terms of sec. 81 of Act 31 of 1941, as amended.

F The appellant carried on farming operations prior to and until August, 1955, when he discontinued such operations. During the year of assessment ended the 30th June, 1956, the appellant incurred an assessed loss in the carrying on of a trade (such trade apparently being the aforesaid farming operations) amounting to £31,394. In determining the appellant's income subject to super tax for this year of assessment, the G Commissioner, applying the proviso to sec. 28 (b) of Act 31 of 1941, limited the amount of such loss to be deducted in terms of sec. 28 (b) to the sum of £14,704. During the next ensuing year of assessment (i.e. the year ended the 30th June, 1957) appellant carried on no trade but received the following amounts as income: £103, being a debt recovered H but previously written off as bad, £1,078, being interest, and £3,303, being dividends received from public companies. On the 5th February, 1958, the Commissioner issued to appellant a notice of assessment in respect of the 1957 tax year. In terms of this assessment the assessed loss of £31,394, incurred in the 1956 tax year was carried forward and allowed as a set-off under sec. 11 (3) in the determination of the appellant's taxable income. After being set off against the income accrued, totalling £1,181, there remained an assessed loss of £30,213. Appellant's income subject to super tax was assessed at £2,300, which figure was arrived at by adding together the amounts of £3,303, being

1963 (4) SA p553

Corbett AJ

dividends from public companies (see sec. 27 (b) of the Act), and £14,704, being the deduction allowed under sec. 28 (b) in the preceding year of assessment (see sec. 27 (c)); and deducting from this total, amounting to £18,007, the sum of £15,707, being a set-off allowed in A terms of sec. 28 (b) By reason of the exemption provided for by sec. 30 (2) (c) this amount of £2,300 was exempt from super tax.

It is common cause that, inasmuch as the appellant did not carry on any trade during the 1957 tax year, the assessment of the 5th February erred in allowing the set-off under sec. 11 (3) for normal tax purposes and B also in allowing the set-off of £15,707 under sec. 28 (b) in determining the appellant's income subject to super tax. (See S.A. Bazaars (Pty.), Ltd v Commissioner for Inland Revenue, 1952 (4) SA 505 (AD); 18 SA Tax Cases 240). Had these errors not occurred, then it would seem, from the figures contained in the stated case, that the appellant would have been assessed with a taxable income of £1,181 and C an income subject to super tax of £19,188, this latter figure being made up as follows:

Taxable income (sec. 27 (a))	£1,181
Dividends (sec. 27 (b))	£3.303
Deduction allowed in 1956 (sec.) 27 (c))	£14,704
	£19,188

This error was in fact not discovered until February, 1961. In the meanwhile two further assessments had been issued, i.e. those for the E years of assessment ended the 30th June, 1958, and the 30th June, 1959. These assessments perpetuated the error. In the 1958 tax year the appellant did carry on a trade and he received a taxable income from various sources totalling £761 and a dividend income (from public companies) amounting to £4,654. The assessment for this tax year, issued on the 3rd June, 1959, allowed a deduction for normal tax purposes, F under sec. 11 (3), of the balance of assessed loss of £30,213 carried forward from the 1957 tax year and, in determining appellant's income subject to super tax, added to his dividend income the deduction of £15,707 allowed under sec. 28 (b) in respect of the 1957 year of assessment, (i.e. under secs. 27 (b) and 27 (c)) and deducted therefrom G an allowance of £18,061 under sec. 28 (b). This resulted in an assessed loss for normal tax purposes and a reduction of appellant's income subject to super tax to £2,300. It was again common cause that by reason of the fact that the taxpayer carried on no trade during the 1957 tax year, and despite the fact that he carried on a trade during the tax H year under charge, no allowance for an assessed loss should have been made in determining either appellant's taxable income or his income subject to super tax for the 1958 tax year. During the 1959 tax year the appellant did not carry on a trade but in an assessment issued on the 4th May, 1960, the same procedure was adopted. This again gave an erroneous result. Since the present appeal concerns the 1959 tax year, it is convenient to set forth the relevant figures relating to the assessment of taxable income for normal tax purposes and income subject to super tax for super tax purposes. These are as follows:

1963 (4) SA p554

Corbett AJ

Taxable income for normal tax purposes:
Assessed loss brought forward (sec. 11 (3))	£29,452
Less: Interest accrued	362
Assessed loss for the 1959 tax year	£29,090
Income subject to super tax:
Taxable income (sec. 27 (a))	nil
Dividends (sec. 27 (b))	£5,778
Deduction allowed in 1958 (sec. 27 (c))	18,061
	£23,839
Less portion of assessed loss (sec. 28 (b))	21,539
Income subject to super tax	£2,300

On the 24th February, 1961, the Commissioner, having reconsidered the basis of the assessment contained in the notice of assessment dated the D 4th May, 1960, issued an additional assessment in which he allowed no set-off of assessed loss under either sec. 11 (3) or sec. 28 (b) and determined the appellant's taxable income and income subject to super tax accordingly. The revised figures in this additional assessment were as follows:

Taxable income for normal tax purposes:
Interest accrued	£362
Income subject to super tax
Taxable income (sec. 27 (a))	£362
Dividends (sec. 27 (b))	5,778
Deduction allowed in 1958 (sec. 27 (c))	18,061
Income subject to super tax	£24,201

The reason for this additional assessment was stated by the Commissioner in an annexure to the notice of assessment, reading as follows:

'In view of the fact that during this tax year you had no income from G trade as defined in the Act, the assessed normal tax loss as at the 30th June, 1958, cannot be set off as was erroneously done in your original assessment.'

Appellant lodged objection to this assessment upon two grounds and, his objection having been disallowed by the Commissioner, he appealed upon the same...