C W v Commissioner of Taxes; Commissioner of Taxes v C W (Pvt) Ltd

• Jurisdiction: South Africa

C W v Commissioner of Taxes;
Commissioner of Taxes v C W (Pvt) Ltd
1990 (2) SA 245 (ZS)

1990 (2) SA p245

A — C W v Commissioner of Taxes

Citation	1990 (2) SA 245 (ZS)
Court	Zimbabwe High Court
Judge	Smith J
Heard	June 17-18, 1987
Judgment	July 13, 1988

B — Commissioner of Taxes v C W (Pvt) Ltd

Citation	1990 (2) SA 245 (ZS)
Court	Zimbabwe High Court
Judge	Dumbutshena CJ, Gubbay JA, McNally JA, Manyarara JA, Korsah JA
Heard	December 12, 1989
Judgment	December 28, 1989

Flynote : Sleutelwoorde

Revenue — Capital gains tax — Compensation for 'external shares' compulsorily acquired by Reserve Bank of Zimbabwe under s 12A of D Exchange Control Regulations 1977 (Z) — Such compensation exempt from capital gains tax by virtue of s 10(f) of Capital Gains Tax Act 54 of 1981 (Z) — Taxpayer contested amount of compensation paid for compulsorily acquired external shares — Thereafter, by amendment to s 10(f) of Capital Gains Tax Act, exemption restricted to those who 'did E not contest' amount of compensation paid — Taxpayer assessed for payment of capital gains tax on compensation received — In appeal to High Court against disallowment of objection to assessment, Court finding that restriction of exemption intended to have retrospective effect and, although discriminatory, restriction not inconsistent with s 23 of F Zimbabwean Constitution — Court finding, however, that restriction contravening s 16(1)(c) of Constitution, which requires that 'adequate compensation' be paid for compulsorily acquired property — Court finding, further, that such restriction not saved by s 16(7) of Constitution, as penalising persons seeking to have constitutional rights tested in Courts G of Zimbabwe could not possibly be regarded as 'reasonably justifiable in a democratic society' — Section 18 of Finance Act 19 of 1985 (Z), whereby restriction introduced into s 10(f) of Capital Gains Tax Act, declared unconstitutional and of no force or effect — Such finding confirmed by Supreme Court.

Zimbabwe — Constitution of — Section 10(f) of Capital Gains Tax Act 54 H of 1981 (Z) providing for exemption from capital gains tax on compensation paid for 'external shares' compulsorily acquired by Reserve Bank of Zimbabwe — Section 18 of Finance Act 19 of 1985 (Z) amending s 10(f) of former Act by restricting exemption to those who 'did not contest' amount I of compensation paid — Amendment contravening s 16(1)(c) of Constitution which requires that 'adequate compensation' to be paid for compulsorily acquired property — Restriction not saved by s 16(7) of Constitution as penalising persons seeking to have constitutional rights tested in Courts J of Zimbabwe not 'reasonably justifiable in a democratic society' — Accordingly unconstitutional.

1990 (2) SA p246

Headnote : Kopnota

A The taxpayer, a company registered in Zimbabwe, appealed to the High Court against the disallowance of an objection to an assessment for capital gains tax issued by the Commissioner of Taxes in respect of the 1984 tax year. The taxpayer had been one of a number of holders of 'external shares' (shares in companies registered and trading outside of Zimbabwe), which were traded as 'external securities' on the Zimbabwe Stock Exchange. In terms of s 12A of the Exchange Control Regulations 1977 (Z) the Reserve Bank of Zimbabwe, acting on behalf of the Minister B of Finance, Economic Planning and Development (the Minister), compulsorily acquired the taxpayer's and others' external shares on 29 May 1984. The holders of such shares were paid compensation. The taxpayer, and certain others, objected to the amount of compensation paid, claiming that a further sum of 30% should be paid on the grounds that such external shares had traded at a 30% premium on the Zimbabwe Stock Exchange. They instituted action against the Reserve Bank for the recovery of such amount. The taxpayer later withdrew its claim after the C issue had been decided (unfavourably to the claimants) in a test case before the Supreme Court.

Section 10 of the Capital Gains Tax Act 54 of 1981 (Z) provided for transactions which were exempt from capital gains tax. By an amendment to the Act promulgated on 28 October 1984, and made specifically retroactive to 1 April 1984, para (f) was introduced to s 10, in terms D of which amounts received for shares compulsorily acquired in terms of s 12A of the Exchange Control Regulations were exempt from capital gains tax. Section 10(f) of the Capital Gains Tax Act was amended in 1985 by the addition of a proviso thereto, to the effect that the exemption would apply only in respect of payment made by the Minister based on the market price of external securities compulsorily acquired as at 27 April 1984 or 29 May 1984; and to 'those holders of the securities concerned who did not contest such payment in terms of the... regulations'. The E proviso was promulgated on 1 November 1985. Its effect was that the taxpayer, having formally objected to the amount of compensation paid, was held liable for payment of capital gains tax on the compensation it had received. If it had not objected, there would have been no liability for capital gains tax. The taxpayer's objection to the assessment for capital gains tax for the year ended 31 March 1985 was disallowed. In an appeal to the High Court, the taxpayer relied on four main arguments as F to why the capital gains tax was not payable: (a) that the source of the capital gain on the sale of the shares was not in Zimbabwe; (b) that, since in terms of s 51(5) of the Zimbabwean Constitution an Act of Parliament comes into operation on the day of its publication in the Government Gazette or on such other day as might be specified, and since the amendment to s 10(f), which had been published on 1 November 1985, did not contain any provision that the amendment was to take effect from the beginning of a specific fiscal year or from a specified date, such G amendment could only be applied in relation to the fiscal year beginning 1 April 1985; (c) that the proviso to s 10(f) was discriminatory and as such was contrary to s 23 of the Constitution; and (d) that the proviso to s 10(f) was unconstitutional in that it contravened the provisions of s 16 of the Constitution. Section 16(1)(c) of the Constitution provided, inter alia, that no property of any description may be compulsorily acquired except under the authority of a law that 'requires the acquiring authority to pay promptly adequate compensation for the H acquisition'; and s 16(7) provided, inter alia, that nothing done under the authority of any law will be held to be in contravention of ss (1) to the extent that the law in question makes provision for the acquisition of any property in satisfaction of any tax or rate, unless it is shown that the provision or anything done under the authority of such provision was not reasonably justifiable in a democratic society. It was argued for the taxpayer in regard to (d) that, firstly, the taxing of the amount received by the taxpayer had the effect of reducing the 'compensation' paid to it and therefore it would not receive I 'adequate compensation' as required by s 16(1)(c) of the Constitution and, secondly, that the imposition of a tax on those persons who had approached the Courts in order to determine their constitutional rights was not reasonably justifiable in a democratic society.

Held, as to (a) above (the argument as to source), that since the taxpayer was a resident of Zimbabwe and its investment-dealing activities were, for all practical purposes, carried on in Zimbabwe, the income obtained by the taxpayer from the sale of its external securities J was from a source within Zimbabwe.

A Held, further, as to (b) above (the argument as to retrospectivity), that to interpret the proviso to s 10(f) of the Capital Gains Tax Act as applying to external securities acquired compulsorily after 1984 would be to strain the language used in the proviso and would lead to an absurdity: the selection of the dates 27 April and 29 May 1984 as the dates on which the price for such external securities was to be fixed would be meaningless and nonsensical if the proviso were to apply to securities expropriated after 1 April 1985; and the use of the past tense in the phrase holders 'who did not contest' the payment they B received indicated that retroactive effect was intended.

Held, further, as to (c) above (the argument as to discrimination), that while there was no doubt that the proviso to s 10(f) was intended to, and did in fact, have the effect of discriminating against those holders of securities who had contested the payment made for the external securities, the proviso was not inconsistent with the provisions of s 23 C of the Constitution.

Held, further, as to (d) above (the argument as to compensation/penalty), that the purpose of compensation was to place in the hands of the owner whose property was expropriated the full money equivalent of the thing of which he had been deprived.

Held, further, that in the case of the taxpayer, while the State had with the one hand placed the full money value of the external securities in its hands, it had with the other hand taken back part of that D compensation by way of capital gains tax.

Held, further, that it could never have been the intention that, once adequate compensation had been paid to a person whose property had been compulsorily acquired, the State could erode such compensation in any way: the protection afforded by s 16(1)(c) of the Constitution would thereby become illusory. The Constitution was a meaningful document and the protections afforded by the Declaration of Rights had to be fully E recognised and given effect to.

Held, accordingly, that the proviso to s 10(f) of the Capital Gains Tax...