Boyd v Commissioner for Inland Revenue

• Jurisdiction: South Africa
• Judge: Centlivres CJ, Schreiner JA, and Hoexter JA
• Judgment Date: 18 June 1951
• Citation: 1951 (3) SA 525 (A)
• Hearing Date: 08 June 1951
• Court: Appellate Division

Centlivres, C.J.:

This is an appeal on a case stated by the Special Income Tax Court, the parties having duly lodged their written consents, H in terms of sec. 81 (1) (b) of Act 31 of 1941, as amended, to the appeal being heard by this Court without an intermediate appeal to a Provincial or Local Division.

During the year of assessment ending on June 30, 1949, the appellant received £78 15s. as dividends in respect of certain shares held by him in the Consolidated Diamond Mines of South West Africa, Ltd., to which I shall refer as the Company. The Company is a public company within the meaning of the Income Tax Act, is incorporated in the Union and has its registered office in

Centlivres CJ

Kimberley, where it keeps its principal share register. It has a branch share register in London but nothing turns on this, as the branch register is deemed by sec. 35 of Act 46 of 1926 to be part of the Company's principal register. The head office of the Company is in A Kimberley and the central management and control of the Company is exercised there and all dividends are declared there by the Company's board. The Company derives its income mainly from its diamond mining operations in South West Africa but a portion of its income is derived from investments in the Union. For the year ending on June 30, 1949, the B Company's profits were derived as to nine-tenths from sources outside the Union, namely from South West Africa, and as to one-tenth from sources within the Union. Those proportions have been accepted by the Commissioner for the purposes of sec. 46 of the Income Tax Act.

C In all previous years the recipients of dividends from the Company have been assessed by the Commissioner for super tax purposes only on a proportion of such dividends, namely the proportion which the profits of the Company from sources within the Union bore to its total profits from all sources. The profits of the Company which are earned in South West D Africa are subject to South West Africa income tax and in the hands of the Company are not subject to any taxation in the Union.

The question in issue in this case is whether the Commissioner was correct in including in the appellant's income subject to super tax the E whole of the dividend which accrued to him, viz., £78 15s. The appellant lodged an objection to the Commissioner's assessment on the ground that nine-tenths of that amount was derived from a source outside the Union, namely South West Africa, and that the Commissioner should have included in his income subject to super tax only one-tenth of that F amount, viz., £7 17s. 6d. On appeal to the Special Court it was conceded that that Court was bound by the case of Moore v Commissioner for Inland Revenue, 1938 T.P.D. 369, and in view of that concession that Court, without delivering a formal judgment, dismissed the appeal and confirmed the assessment.

G The sheet anchor of the argument of Mr. Pollak, who appeared for the appellant, was the case of Nathan v The Federal Commissioner of Taxation, 25 C.L.R. 183. The head-note to that case is as follows:

'Dividends received in England by a shareholder from a company incorporated in England and having its registered office and central management and control there, to the extent that they represent a H share of the profits of that part of the business of the company which is carried on in Australia, are derived from a source within Australia within the meaning of sec. 10 of the Income Tax Assessment Act 1915 - 1916, and therefore income of the shareholder taxable in accordance with the provisions of sec. 14 (b).'

In that case ISAACS, J., in delivering judgment said:

'The Legislature in using the word 'source' meant, not a legal concept, but something which a practical man would regard as a real source of income. Legal concepts must, of course, enter into the question when we have to consider

Centlivres CJ

to whom a given source belongs. But the ascertainment of the actual source of a given income is a practical, hard matter of fact.'

Mr. Pollak relied on the above case for the contention that ninetenths of the appellant's dividend was derived from a source not in the Union A but outside the Union, i.e. South West Africa. Before considering that case in detail, I shall refer to South African income tax cases which were referred to by Mr. Pollak in support of his contention. He submitted that INNES C.J., though apparently unaware of Nathan's case, favoured the view taken therein by reason of his remarks in Overseas B Trust Corporation, Ltd v Commissioner for Inland Revenue, 1926 AD 444 at p. 454, where the learned CHIEF JUSTICE said:

'Had those companies been going concerns engaged in mining operations in South West Africa there would be much to be said for the view that the shareholders drew their dividends from the same source as the companies.'

C Apart from the fact that the companies referred to by the learned CHIEF JUSTICE were South West African companies (see p. 450 of the Report) and that the dividends from such companies would apparently be declared in South West Africa, it is clear to my mind that the words quoted were obiter and were not intended by the learned CHIEF JUSTICE to give expression to his considered opinion.

D Mr. Pollak contended that the above remarks of INNES, C.J., were referred to without criticism by WATERMEYER, C.J., in Commissioner for Inland Revenue v Lever Bros and Another, 1946 AD 441 at p. 455. It is true that WATERMEYER, C.J. did not criticise the remarks of INNES, C.J., E but he merely said that...