Commissioner for Inland Revenue v NCR Corporation of South Africa (Pty) Ltd

• Jurisdiction: South Africa
• Judge: Corbett JA, Viljoen JA, Smalberger JA, Vivier JA and Nicholas AJA
• Judgment Date: 10 March 1988
• Citation: 1988 (2) SA 765 (A)
• Hearing Date: 25 February 1988
• Court: Appellate Division

Corbett JA:

This appeal concerns the proper interpretation of s 88 of the Income Tax Act 58 of 1962 ('the Act').

The respondent, the NCR Corporation of South Africa (Pty) Ltd, is a D company incorporated with limited liability in accordance with the company laws of the Republic of South Africa and it has its principal place of business in Johannesburg. During the fiscal years 1973, 1974, 1975 and 1976 the respondent suffered certain losses in connection with loans granted to it by foreign corporations. These losses were caused by adverse changes in the exchange value of the rand in relation to the E currencies of the loans between the time when the moneys were advanced and when they were repaid. These changes in exchange value resulted in the respondent having to pay substantially more (in rand) when repaying the capital sums borrowed than it had received (in rand) when the loans were initially advanced to it. In toto the losses exceeded R4 million.

F In rendering its income tax return for the 1973 tax year respondent claimed the total amount of the foreign exchange losses incurred in that year as a deduction from income. When assessing respondent to tax in respect of this year appellant, the Commissioner for Inland Revenue, disallowed this deduction. Respondent, in a letter dated 18 November 1975, objected to the disallowance of this deduction generally on the G ground that since the losses had been incurred in the production of income and were not of a capital nature they were properly deductible. The appellant responded by disallowing the objection, whereupon respondent lodged a notice of appeal (dated 4 August 1976) to the Income Tax Special Court in terms of s 83 of the Act.

H The set-down of the appeal and the issuing of assessments in respect of respondent's returns of income for the 1974, 1975 and 1976 tax years (in which the foreign exchange losses suffered in each of those years were similarly claimed as deductions) were delayed pending the final outcome of another appeal in which, it was thought, the same issue arose. As regards the set-down of the appeal, the appellant delayed the I matter initially with the concurrence of the respondent and subsequently at its request. The other appeal in question was decided in favour of the Commissioner by the Transvaal Income Tax Special Court and an appeal to the Transvaal Provincial Division was dismissed on 28 March 1979 (see Plate Glass & Shatterprufe Industries Finance Co (Pty) Ltd v Secretary for Inland Revenue 1979 (3) SA 1124 (T)). Thereafter, on 1 December J 1979, the appellant

Corbett JA

A issued assessments for the 1974, 1975 and 1976 tax years in which respondent's claimed deductions in respect of foreign exchange losses were likewise disallowed. In the 1974 and 1976 assessments normal tax was payable; but a trading loss in 1975 resulted in a nil assessment for that tax year. Respondent objected to these assessments on the same grounds as had been advanced in its objection to the 1973 assessment. On B 18 March 1980 appellant wrote to the respondent asking whether, in view of the Court's decision in the Plate Glass case supra, it had decided to withdraw its appeal. Respondent replied (on 2 May 1980) that there was the likelihood of an appeal by the taxpayer in the Plate Glass case and that it wished its appeal to be kept open pending the final outcome of the case. In the end the predicted appeal in the Plate Glass case did C not materialise, but in a letter dated 4 June 1980, sent in reply to an enquiry from the appellant, respondent asked that appellant 'pend the matter until further notice'. Thereafter discussions took place between respondent and an official of the appellant's department; and eventually on 12 May 1981 respondent notified appellant that it had decided to D proceed with the appeal. At the same time the objections to the assessments relating to the 1974, 1975 and 1976 tax years were held in abeyance so that they could be dealt with on the same basis as the appeal concerning the 1973 assessment.

Prior to the set-down of the appeal and at the request of the respondent it was agreed between the parties that further proceedings in respondent's appeal would be deferred pending the outcome of another E appeal to the Full Bench of the Transvaal Provincial Division. Judgment in this matter was delivered on 2 October 1981 (see Commissioner for Inland Revenue v General Motors SA (Pty) Ltd 1982 (1) SA 196 (T)). The judgment was considered to favour respondent's case in its own appeal. F Further discussions took place between the parties; respondent furnished additional information in regard to the various loans in question, including those relating to the losses sustained in the 1974, 1975 and 1976 tax years; and ultimately, on 24 June 1983, the appellant notified respondent that it had been decided to concede respondent's objections to the assessments for the years 1973 - 76 inclusive. On 8 July 1983 G there followed revised (and reduced) assessments for these years, as a result of which the respondent became entitled to a refund of taxes overpaid in terms of the original assessments. Subsequently and during July 1983 the appropriate amounts were repaid to respondent; and respondent was also paid a sum representing interest on the amounts repaid, such interest being calculated, so appellant stated, in H accordance with the provisions of s 88 of the Act.

In the meanwhile respondent had been issued with assessments for the 1977 and 1978 tax years. No foreign exchange losses had been incurred in these years and no objections to the assessments had been raised by the I respondent. At the time of issue the assessments were correct, but as a result of appellant's concessions in regard to the 1973 - 76 tax years and the revised assessments issued for those years the assessments for the 1977 and 1978 tax years had also to be revised to allow for assessed losses carried forward and for certain other adjustments which need not be detailed. Such revised assessments for the 1977 and 1978 tax years were in due course issued and the excess tax paid in terms of the J original assessments

Corbett JA

A was refunded to respondent. No interest was, however, paid to respondent in respect of the amounts refunded. The non-payment of such interest gave rise to one of the disputes between the parties.

The other dispute concerned the date from which interest payable upon refunds of tax should be calculated. From time to time, and as it was required to do in terms of para 17 of the Fourth Schedule to the Act, B respondent made payments of provisional tax, which in the relevant tax years were set off against the normal tax payable by the respondent, as assessed by the appellant. In all the tax years under consideration, apart from 1978, the provisional tax standing to the credit of respondent was sufficient to discharge the normal tax liability in full. C In 1978 set-off left a balance of normal tax assessed which had to be paid by the respondent. Respondent contended that insofar as the refunds related to excess tax originally paid by way of provisional tax the interest on the amounts refunded should be calculated as from the dates upon which the appellant received the relevant provisional tax payments; D whereas the appellant took the view that such interest was...