Arenson v Commissioner for Inland Revenue

• Jurisdiction: South Africa
• Judge: Price J
• Judgment Date: 23 March 1948
• Hearing Date: 16 March 1948
• Court: Witwatersrand Local Division

Price, J.:

This is an appeal from a judgment of the Income Tax Special Court by way of a stated case under sec. 81 of the Income Tax Act, 31 of 1941 as amended. The appellant claimed that a sum of £739 1s. 1d., being the amount of a loss alleged to have been sustained by him in a certain profit-making transaction should be allowed against his income in respect of the year ending the 30th of June, 1943. The Commissioner for Inland Revenue disallowed this item, and the Commissioner's ruling was sustained by the Income Tax Special Court.

Price J

From the statement of fact it appears that the appellant and one Meyerson carried on business in partnership under the name of Allied Builders' Agencies.

'The business of the partnership consisted of obtaining orders from builders which were placed with merchant suppliers and secondly in financing builders in their building operations.'

The partnership drew a commission from the merchants in respect of the orders placed with such merchants and a further commission for furnishing security for the payments of such merchant's accounts. For financing builders the partnership charged a commission of 10 per cent. from such builders.

In 1937 one Naude, who was a so-called builder owner, which I presume means a builder by trade, who was to own the building which he himself proposed to erect - decided to build a house at Richmond (estimated to cost £2,400) on his own ground. The partnership assisted Naude with money for the carrying out of his project.

Instead of securing itself by means of a bond, the partnership itself took transfer of the ground, over which it passed a bond in favour of the United Building Society which agreed to advance £2,400 on the security of the ground with the house to be erected upon it. 'It was intended and so agreed that the partnership would transfer the property back to Naude on payment of the amounts due to it.'

Paras. 11, 12 and 13 of the stated case read as follows:

'11.

Naude died before the building operations were completed and his estate was not in a position to proceed with the construction of the building.

12.

At the date of Naude's death the cost of the erection of the building exceeded the estimate of £2,400 referred to in sub-para. (6) above and the partnership had advanced a sum of £3,500 on which it was entitled to 10 per cent. commission.

13.

At this stage an amount of £1,500 was required to complete the building and thenceforth the partnership retained the property as its own, which at that time in its uncompleted state would not have realised the moneys expended on it.'

Another builder was engaged by the partnership to complete the building and the partnership secured him by a second bond over the property for £1,500. Paras. 15 and 16 of the stated case then proceed as follows:

'15.

At this time the estate of the appellant's partner, Meyerson, was sequestrated as insolvent.

16.

The property was not considered to be worth the bonds registered against it and appellant took it over with the liabilities attached to it.'

Price J

A year later, namely on the 15th of November, 1942, the appellant sold the property at a loss of £739 1s. 1d. and this is the loss he has sought (so far unsuccessfully) to deduct from his income.

It is to be noted that the appellant was taxed...