Commissioner for Inland Revenue v Paul

• Jurisdiction: South Africa
• Judge: Centlivres CJ,Schreiner JA, Steyn JA, Reynolds JA and Beyers JA
• Judgment Date: 24 May 1956
• Citation: 1956 (3) SA 335 (A)
• Hearing Date: 08 May 1956
• Court: Appellate Division

Centlivers, C.J.:

This is an appeal on a case stated by the Special Court for hearing income tax appeals.

The respondent, who lives in Durban and practises as a land-surveyor in partnership with others, derives his income from that practice and from F directors' fees, royalties, dividends, interest and farming. He was on active service during the recent world war for four or five years and after his return to Durban the partnership practice was virtually non-existent. He found himself in an unsettled state of mind and was undecided whether or not he would continue to practise his profession as a land surveyor. He had acquired a liking for an open air occupation and he decided to acquire a small farm. In the course of his work as a G surveyor he came across some land in the neighbourhood of Hill Crest which greatly took his fancy. He approached the owner of the land with a view to purchasing 30 to 40 acres of this land and developing them as a small holding. But the owner was unwilling to sell 30 to 40 acres and H insisted on selling a block of 167 acres. As the respondent was unable to purchase such a large area he induced a brother-in-law, who wanted about 30 acres for himself, to join him on a half share basis in purchasing the 167 acres. In May 1945 the respondent and his brother-in-law (according to the stated case) entered into a deed of sale to purchase the 167 acres and at that time each of them decided on the piece of land which he would retain for himself. They contemplated selling off the balance of the land to the best advantage. The judgment of the Special

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Court leaves one under the impression that only a preliminary arrangement was made by the respondent and his brother-in-law with the owner of the 167 acres and that no agreement was signed. I shall deal with this apparent conflict between the judgment and the stated case at a later stage.

A Prior to October, 1946, the respondent unexpectedly came into money sufficient to enable him to finance the purchase of the property himself. His brother-in-law approached him and asked him whether he would not take over the property himself. He agreed to do so and, according to the stated case, the owner agreed to cancel the sale to the respondent and his brother-in-law and to resell the property to the respondent alone.

B The stated case incorporates what it describes as the specific evidence of the respondent before the Special Court in regard to the intention with which the property was purchased and it apparently includes all the evidence given by the respondent on this point i.e. his evidence in chief, cross-examination and re-examination. I reproduce here the following questions and answers: -

C 'What were you going to do with the rest of the land, the other 107 acres odd? - Just sell it off; get rid of it to best advantage.

As far as the proposition for sub-division and selling off in lots, was this what you call an economic proposition from that point of view, that is selling it off in lots? - At that time I never considered it an economic proposition and I would say that the land is not ideally suited to that purpose by a very long way. It is very remote from any other D development and the access was very difficult. It was virtually right in the country.

When you first contemplated selling off the surplus land, did you intend to sell it as one piece or cut it up? - I hoped to sell it in one piece.

When you originally bought the property, did you want to get the whole 167 odd acres? - No.

If you had been able to get just 30 acres you would have taken it? - Yes, I would have taken 30.

E So at the time you bought the original property you intended to sell off the balance of this property? - Yes.

Then you must have had an intention of selling off the balance now between 30 and 40 acres and 167 acres - is that correct? - Yes, I intended to sell off that portion which I did not require for my own use.

And you intended naturally to sell it off at a profit, being a land surveyor, didn't you? - Well, I obviously intended selling it without a loss, or at a profit if I could.'

F In 1947 a friend of the respondent asked him to sell her ten acres of the property. In order to give transfer to her the respondent had to make an application for an exemption under the Private Townships Ordinance of 1934 as amended. The transfer also necessitated a survey of the property. The survey was not limited to the ten acres under G consideration; the respondent also surveyed that part of the property which he considered at that time suitable for development in small holdings. At a later stage a further sub-division took place. During the tax year ending on the 30th June in each of the following years he sold at a profit: 1 lot, 1948; 2 lots, 1949; 1 lot, 1950; 1 lot, 1951; 4 lots, 1952 and 3 lots, 1953. During the last mentioned tax year he made H a profit of £758 on the sale of the three lots which he sold during that year and in respect of that year the Commissioner included that amount in the respondent's taxable income and income subject to super tax.

The respondent lodged an objection to the inclusion of the £758 in his taxable income and income subject to super tax and the objection having been disallowed he appealed to the Special Court. The ground

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of the objection was that the profit of £758 was an accrual of a capital nature.

The Special Court allowed the appeal...