Commissioner for Inland Revenue v Bowman NO

• Jurisdiction: South Africa
• Citation: 1990 (3) SA 311 (A)

Commissioner for Inland Revenue v Bowman NO
1990 (3) SA 311 (A)

1990 (3) SA p311

Citation	1990 (3) SA 311 (A)
Court	Appellate Division
Judge	Corbett CJ, Smalberger JA, Milne JA, Friedman AJA and Goldstone AJA
Heard	March 19, 1990
Judgment	March 27, 1990

Flynote : Sleutelwoorde B

Revenue — Income tax — Assessment — Finality of assessment — Income Tax Act 58 of 1962 — Company's assessments based on returns reflecting fictitious income — Company in fact not earning any income but paying C tax as assessed — Liquidator of company claiming back amounts of tax so paid from appellant — Whether payments constituted dispositions not for value — Section 26 of Insolvency Act 24 of 1936 — Court on appeal holding that, as there was no lawful obligation on company to pay tax, payments to Commissioner constituted dispositions of property without D value — Court further holding that liquidator not privy to company in liquidation but a third party so that assessment not binding on him — Nothing contained in Act 58 of 1962 which was inconsistent with provisions of s 26(1) of Act 24 of 1936 — No basis upon which to hold that provisions of latter had been overridden by former — Benefit which E taxpayer may enjoy from way in which State spends revenue collected by appellant too tenuous and speculative to constitute 'value' in terms of s 26(1) of Act 24 of 1936.

Headnote : Kopnota

A company, T (Pty) Ltd, had rendered income tax returns to the appellant which reflected fictitious income for the 1977 to 1982 years of F assessment, during which it had had no taxable income. The company received income tax assessments from the appellant based on such returns and paid the amounts as assessed without ever objecting to any of the assessments. When the company was subsequently liquidated the respondent, the liquidator of the company, claimed from the appellant in an action in a Provincial Division, repayment of each of the amounts paid by the company to the appellant pursuant to the abovementioned assessments, and alleged in his summons that the payments constituted G dispositions not for value and

1990 (3) SA p312

A were liable to be set aside in terms of s 26 of the Insolvency Act 24 of 1936. An exception that the summons was bad in law and lacked averments necessary to sustain an action was dismissed by the Court a quo. On appeal it was argued for the appellant, firstly, that, having regard to the provisions of the Income Tax Act 58 of 1962, the company had received value for its payments, viz its release from a lawful obligation to pay to the appellant the amounts assessed by him. The second ground of appeal was the contention that the provisions of s B 81(5) of Act 58 of 1962 were such as to make assessments of income tax final and conclusive, not only as against the taxpayer but also, on insolvency, as against a liquidator or trustee, and that the provisions of Act 58 of 1962 had to be deemed to have overridden the provisions of s 26(1) of Act 24 of 1936.

Held, as to the first ground of appeal, that in the instant case the payments were made in circumstances where there was no underlying obligation to pay any amounts at all to the appellant as the company had not earned any income. C

Held, further, having regard to all the circumstances under which the transaction was made, that the substance rather than the form thereof should be sought, and that, on the facts alleged in the summons, in substance no income tax was payable by the company to the appellant so that the payments did constitute dispositions of property not made for value.

Held, therefore, that the first ground of appeal had to be rejected.

D Held, as regards the second ground of appeal, that an assessment to which no objection had been made would undoubtedly become final and conclusive not only as between the appellant and the taxpayer but also as against persons privy to the taxpayer, eg his executor, but that the liquidator of a company was not privy to the company in liquidation but was a third party, so that an assessment was not binding on him.

Held, further, that there was nothing in Act 58 of 1962 which was in any E way inconsistent with the provisions of s 26(1) of the Insolvency Act and there was consequently no basis upon which the latter could be said to have been overridden by the former.

Held, accordingly, that the second ground of appeal also had to fail.

Held, further, as to the approach taken by the Court a quo that a payment of income tax could never be the subject-matter of a claim made under s 26(1) of Act 24 of 1936, as the services provided by the State F with the revenue it collected by way of tax were of value to every taxpayer, that the benefit which a taxpayer may enjoy from the manner in which the State spends revenue collected by the Commissioner was too speculative and tenuous to be regarded as 'value' within the meaning of s 26(1) of Act 24 of 1936. Appeal dismissed.

The decision in the Transvaal Provincial Division in Bowman NO v Kommissaris van Binnelandse Inkomste 1989 (4) SA 63 confirmed. G

Case Information

Appeal from a decision in the Transvaal Provincial Division (De Klerk J). The facts appear from the judgment of Goldstone AJA.

M C Maritz SC (with him P J J Marais) for the appellant referred to the following authorities: As to the finality and conclusiveness of the assessment operating against third parties, see Kahn v Commissioner for H Inland Revenue 1 SATC 170; Irvin & Johnson (SA) Ltd v Commissioner for Inland Revenue 1946 AD 483 (14 SATC 24); Turnbull v Commissioner for Inland Revenue 1953 (2) SA 573 (A) at 582G (18 SATC 336); Miller v Commissioner for Inland Revenue 1952 (1) SA 474 (A) at 483A - F (18 SATC 115). As to the fact that an assessment can only be questioned by lodging an objection in terms of s 81 of Act 58 of 1962, see Van Zyl NO I v The Master and Another 49 SATC 165 and Whitfield v Phillips and Another 1957 (3) SA 318 (A) at 345.

J V Lazarus SC (with him D M Ettlinger) for the respondent referred to the following authorities: As to the liquidator not being bound by any judgment against the insolvent or the company to which he was not a party, see Swadif (Pty) Ltd v Dyke NO 1978 (1) SA 928 (A) at 945; J Shokkos

1990 (3) SA p313

v Lampert NO 1963 (3) SA 421 (W) at 426 - 7; C P Smaller (Pty) Ltd v The Master and Others 1977 (3) SA 159 (T); Scharf NO v Dempers & Co 1955 (3) SA 316 (SWA) at 319; Estate Jager v Whittaker and Another 1944 AD 246 at 252. As to an assessment by a Commissioner being a mental act in the nature of a decision, see Irvin & Johnson (SA) Ltd v Commissioner for Inland Revenue 1946 AD 483 at 494; Miller v Commissioner for Inland B Revenue 1952 (1) SA 474 (A) at 483. As to the object of s 26 of Act 24 of 1936, see Estate Wege v Strauss 1932 AD...