Commissioner for Inland Revenue v People's Stores (Walvis Bay) (Pty) Ltd

• Jurisdiction: South Africa
• Judge: Corbett CJ, Joubert JA, Hefer JA, Nestadt JA, Nicholas AJA
• Judgment Date: 22 February 1990
• Citation: 1990 (2) SA 353 (A)
• Hearing Date: 14 November 1989
• Court: Appellate Division

Hefer JA:

This is an appeal in terms of s 86A(2)(b) of the Income Tax Act 58 of 1962, as amended ('the Act'), against a decision of a Special F Court. The question to be decided relates to the definition of 'gross income' in s 1 of the Act which provides that

'"gross income" in relation to any year or period of assessment, means, in the case of any person the total amount, in cash or otherwise, received by or accrued to or in favour of such person during such year or period of assessment from a source within or deemed to be within the G Republic, excluding receipts or accruals of a capital nature...'.

(I have emphasised the pertinent part of the definition.)

From the agreed statement of case presented to the Special Court it appears that the respondent ('the taxpayer') carries on business as a subsidiary in the Edgars group of companies as a retailer of clothing, H footwear, household textiles and related goods, and that it sells its wares to its customers for cash and on credit. The bulk of its credit sales are made under its so-called six-months-to-pay revolving credit scheme. This entails that

'(amounts) charged to a customer's account are payable in six equal I monthly instalments. At or soon after every month end, a statement of account is rendered to each customer. The instalment reflected on the statement as payable, has to be paid before the next statement date. In other words, a purchase made in January would be reflected on the statement rendered at or soon after the end of that month. One-sixth of the purchase price would be reflected on the statement as payable. It would have to be paid before the date of the next statement rendered at J or soon after the end of February.'

Hefer JA

A (The quotation is from the agreed statement of case.)

During the 1983 tax year the taxpayer sold goods under the scheme for a total amount of some R1,3m. At year-end an amount of R341 281 representing instalments not yet payable was still outstanding. The appellant ('the Commissioner') included the latter amount in the taxable income on which the taxpayer was assessed for normal tax for the year in B question, subject to a deduction of R7 702 in terms of s 11(j) of the Act for debts considered to be doubtful. Having unsuccessfully objected to the assessment, the taxpayer appealed to the Special Court on the grounds that:

'13.1

The instalments not yet payable nor paid of R341 218 did not constitute an "amount, in cash or otherwise, received by or C accrued to or in favour of" the taxpayer within the meaning of "gross income" as defined in s 1, and ought therefore not to have been treated as such.

13.2

Alternatively to 13.1:

13.2.2

The instalments not yet payable nor paid... ought not to have been included in the taxpayer's D gross income at their face value. They should have been included at no more than the present value of the right to receive those instalments in future.'

Three questions were submitted to the Special Court for decision. The third one is no longer relevant; the first two read as follows:

'19.1

E Ought the value of the instalments not yet payable nor paid to have been included in the taxpayer's gross income?

19.2

If so, at what value ought those instalments to have been included in the gross income? Ought it to have been done at the face value or at the value to the taxpayer or at the market value or at some other value?'

F The Special Court answered the first question in the affirmative and ruled that the outstanding debts had to be valued at their market value. The matter was accordingly remitted to the Commissioner 'for further investigation and assessment in accordance with the principles set out above'. Before us now is an appeal by the Commissioner against the G Special Court's ruling on the second question and a cross-appeal by the taxpayer against its decision on the first question.

The Special Court considered itself bound by the judgment of the Full Bench of the Cape Provincial Division in Lategan v Commissioner for Inland Revenue 1926 CPD 203 (2 SATC 16). Under consideration in that case was the definition of 'gross income' in s 6 of the Income Tax H (Consolidation) Act 41 of 1917 in the context of the sale during the year of assessment of wine by a wine farmer in terms of an agreement providing for payment of part of the purchase price in the succeeding year. 'Gross income' was defined in s 6 as

'the total amount received by or accrued to or in favour of any person I other than receipts or accruals of a capital nature...'

and the question was whether the part of the purchase price that was payable during the succeeding year could rightly be regarded as having accrued to the taxpayer during the year of assessment. The Court held that it could. Watermeyer J, who prepared the judgment, said in this J regard at 207 - 10 (SATC at 18 - 21):

Hefer JA

A '... (I)t will be noticed that the definition of "gross income" does not seem to limit receipts of money in the year of assessment to such receipts as are the reward of work done or capital employed in the year of assessment. So far as receipts are concerned, the time of the receipt seems to be looked to rather than the time when the work is done which earns the receipt, whereas, as far as earnings which are due but have not been received are concerned, the time when the work is done is B looked to, and not the time of the receipt.

This seems to be an attempt to combine in the definition two fundamentally different conceptions of income, because the same sum of money may accrue in one year and be received in another, and it could never have been intended that income tax should be paid twice over....

The definition seems also to contemplate that "gross income" shall.. C . always be a sum of money, because it uses the words "total amount", and amount usually means an amount of money. But the word "income" in its ordinary sense does not always consist of money, as was pointed out in Booysens' case (1918 AD 576). [*] "Income", unless it is in some form such as a pension or annuity, is what a man earns by his work or his wits or by the employment of his capital. The rewards which he gets may D come to him in the form of cash or of some other kind of corporeal property, or in the form of rights.

Ordinarily speaking, the value of these rewards is the man's income. Unless the word "amount" means something more...