Case No 11935

• Jurisdiction: South Africa
• Judge: Binns-Ward AJ
• Judgment Date: 09 October 2006
• Docket Number: 11935
• Hearing Date: 09 October 2006
• Citation: 2007 JDR 0945 (CSpCrt)

Binns-Ward AJ

At issue in this appeal brought in terms of s 83 of the Income Tax Act 58 of 1962 is whether the appellant is a 'personal service company' as defined in paragraph 1 of Part I of the Fourth Schedule of the Act.

The issue has arisen because the Commissioner acting in terms of s 23(k) of the Act has in respect of the 2002 and 2003 years of assessment disallowed certain expenses as deductions from the gross income of the appellant.

Personal service company is defined as meaning:

'any company (other than a company which is a labour broker), where any service rendered on behalf of such company to a client of such company is rendered personally by any person who is a connected person in relation to such company, and-

(a)

such person would be regarded as an employee of such client if such service was rendered by such person directly to such client, other than on behalf of such company; or

(b)

such person or such company is subject to the control or supervision of such client as to the manner in which, or hours during which, the duties are performed or are to be performed in rendering such services; or

(c)

the amounts paid or payable in respect of such service consist of, or include, earnings of any description which are payable at regular daily, weekly, monthly or other intervals; or

(d)

where more than 80 per cent of the income of such company during the year of assessment, from services rendered, consists of or is likely to consist of amounts received directly or indirectly from any one client of such company, or any associated institution as defined in the Seventh Schedule to this Act, in relation to such client,

except where such company throughout the year of assessment, employs more than three full-time employees who are on a full-time basis engaged in the business of such company of rendering any such service, other than any employee who is a shareholder or member of the company or is a connected person in relation to such person.'

The qualifying criteria set out in paragraphs (a) to (d) of the definition have been stated disjunctively and accordingly, assuming that the relevant service rendered on behalf of

2007 JDR 0945 p2

Binns-Ward AJ

the company has been rendered by a connected person in relation to that company to a client of the company, the company falls within the definition if it satisfies any one of the four qualifying criteria unless it falls within the exception provided in respect of...