Commissioner for Inland Revenue v Insolvent Estate Botha t/a 'Trio Kulture'

• Jurisdiction: South Africa
• Citation: 1990 (2) SA 548 (A)

Commissioner for Inland Revenue v Insolvent Estate Botha t/a 'Trio Kulture'
1990 (2) SA 548 (A)

1990 (2) SA p548

Citation	1990 (2) SA 548 (A)
Court	Appellate Division
Judge	Hoexter JA, Nestadt JA, Milne JA, Nicholas AJA and Friedman AJA
Heard	November 16, 1989
Judgment	February 26, 1990

Flynote : Sleutelwoorde B

Revenue — Sales tax — Whether due in respect of void transactions — Definition of 'sale' in s 1 of Sales Tax Act 103 of 1978 comprehending C agreements of sale whether legal or illegal — No justification or indications in Act for limiting definition to agreements enforceable at law — Sales tax in casu payable in respect of 'kweekkontrakte' involving milk-culture scheme whether the latter legal or not — Court on appeal upholding Commissioner's imposition of sales tax on such transactions — Quaere: Whether such 'kweekkontrakte' constituting a D lottery in terms of the Gambling Act 51 of 1965.

Headnote : Kopnota

The insolvent had carried on a business whereby he operated a milk-culture scheme which involved the recruitment, from members of the public, of growers of milk-culture. Each grower entered into a written E agreement with the business (Trio Kulture), the 'kweekkontrak'. In respect of the Trio Kulture business enterprise, the insolvent was not registered as a vendor in terms of s 12 of the Sales Tax Act 103 of 1978. The appellant issued an assessment for sales tax to the trustee in the insolvent estate (respondent) for 'occasional sales' transacted by Trio Kulture during the period August to October 1984. An objection by the respondent against the assessment was disallowed by the appellant, whereupon the respondent appealed to the Income Tax Special Court F against such decision. It was an agreed fact between the parties to the appeal that the assessment issued by the appellant was correct and due if sales tax was payable in law. The Special Court held that the transactions were not 'sales' within the meaning of Act 103 of 1978 and therefore did not attract sales tax. In an appeal against the decision of the Special Court,

Held, assuming, without so deciding, that the scheme operated by the insolvent constituted a lottery and that the 'kweekkontrakte' were therefore void ab initio, that the 'kweekkontrakte' nevertheless came G squarely within the letter of the definition of 'sale' in s 1 of Act 103 of 1978 as an agreement whereby a party agrees to sell goods to another, and that to read into such definition the words 'an agreement enforceable at law whereby a party agrees to sell', involved an arbitrary retrenchment of the ordinary and natural meaning of the word: and there were no indications in the Act which betrayed such a design on the part of the Legislature.

Held, therefore, that the definition of 'sale' in s 1 of Act 103 of 1978 comprehended agreements of sale whether they were legal or illegal. H

Held, accordingly (Nestadt JA dissenting), that sales tax was payable in respect of the 'kweekkontrakte' and that the assessment was correctly raised by the appellant. Appeal upheld.

Quaere: Whether or not a business scheme such as that operated by the insolvent constituted a lottery. I

Case Information

Appeal against a decision of the Transvaal Income Tax Special Court (Kriegler J). The facts appear from the judgment of Hoexter JA.

J L van der Merwe SC (with him H S Havenga) for the appellant referred to the following authorities: As to the definition of a lottery, see R v Lew Hoi1937 AD 215 and R v Gondo1951 (3) SA 509 (A). As to the J voidability of the contracts, see Preller v Jordaan1956 (1) SA 483 (A)

1990 (2) SA p549

A at 496E; Frost v Leslie1923 AD 276; Kopelowitz v West and Others1954 (4) SA 296 (W) at 300 - 1; De Wet and Yeats Kontraktereg en Handelsreg 4th ed at 37 et seq. As to the effect of the later cancellation of agreements on payment of tax, see Caltex Oil (SA) Ltd v Secretary for Inland Revenue1975 (1) SA 665 (A) at 677H - 678A.

B W A van Deventer SC (with him P J Marais) for the respondent referred to the following authorities: As to the elements of a lottery, see S v Midas Novelties (Pty) Ltd and Another1966 (1) SA 492 (A) at 498H - 499A; Director of Public Prosecutions v Phillips and Another[1935] 1 KB 391 at 400 and 402. As to whether transactions contravening the statutory prohibition on lotteries are ab initio void or voidable, see Affhauser v C McCleod 1909 TS 827 at 836; Schierhout v Minister of Justice1926 AD 99 at 109; Yannakou v Apollo Club1974 (1) SA 614 (A) at 622A - C; Joubert (ed) Law of South Africa vol 10 sv 'Gaming, Wagering and Lotteries' para 430 at 308 and vol 5 sv 'Contract' para 149 at 74.

Cur adv vult.

D Postea (February 26).

Judgment

Hoexter JA:

From an office in the Transvaal town of Brits as well as from agency offices within the Pretoria-Witwatersrand-Vereeniging area one J P Botha ('the insolvent') carried on business from the end of July E 1984 to the beginning of October 1984. During this short period the business generated a turnover in excess of 30 million rand. On 15 January 1985 the estate of the insolvent was finally sequestrated.

The insolvent carried on his business under the name of 'Trio Kulture'. He operated a milk-culture scheme which involved the F recruitment, from members of the public, of growers of milk-culture. Each grower ('kweker') entered into a written agreement with Trio Kulture. In what follows I shall refer to this written agreement as the 'kweekkontrak'. The 'kweekkontrak' was embodied in a printed form which was signed by both parties. Appended to this judgment as annexure 'A' is G a copy of a specimen 'kweekkontrak'.

In respect of the Trio Kulture business enterprise the insolvent was not registered as a vendor in terms of s 12 of the Sales Tax Act 103 of 1978 ('the Act'). On 10 January 1986, and in terms of the Act, the appellant in this appeal ('the Commissioner') issued an assessment notice addressed to the trustee in the insolvent's estate ('the H respondent'). The assessment was in respect of 'occasional sales' transacted by Trio Kulture during the period August/October 1984. The assessment reflected the said sales as having a taxable value of R30 587 534. This figure represented an estimation by the Commissioner of the turnover of Trio Kulture for the period August/October 1984.

I An objection by the respondent against the aforesaid assessment was disallowed by the Commissioner, whereupon the respondent in terms of s 22 of the Act appealed to the Income Tax Special Court for the Transvaal against the decision of the Commissioner. The parties put before the Special Court a written statement embodying the agreed facts of the J case. It was common cause that

1990 (2) SA p550

Hoexter JA

A '... die aanslae soos deur die Kommissaris uitgereik korrek en verskuldig is indien AVB regtens betaalbaar is, dit wil sê, indien die appèl van die hand gewys sou word'.

The Special Court concluded that the transactions reflected in the agreed facts were not 'sales' within the meaning of the Act and that, in consequence, they did not attract sales tax. The Special Court B accordingly upheld the appeal and referred the assessment back to the Commissioner for revision in terms of its judgment. Pursuant to an order made by the President of the Special Court in terms of s 86A(5) of the Income Tax Act 58 of 1962, the Commissioner appeals to this Court against the decision of the Special Court.

C The pith of the agreed facts submitted to the Special Court are thus conveniently summarised by the President of the Special Court (Kriegler J):

'Die geskil ontstaan naamlik uit 'n vrotmelkskema wat onder die naam Trio Kulture oor 'n tydperk van sowat twee-en-'n-half maande vanaf Julie tot Oktober 1984 hoofsaaklik in die Transvaal bedryf is. Die skema het D dermate gefloreer dat daar binne daardie kort tydsbestek tientalle miljoene rande geïn is van diverse lede van die publiek. Die skema het in sy wese daarin bestaan dat Trio Kulture aan lede van die publiek 'n poeier verkoop het die wese waarvan gedroogde vrot melk was. Vir 'n besending van die poeier, hoogdrawend 'n "aktiveerder" genoem, het die koper, 'n "kweker" genoem, R750 betaal. Hy sou dan 25 pakkies aktiveerder daarvoor kry. Trio Kulture het 'n ooreenkoms opgestel E waarluidens die kweker geregtig sou wees om gekweekte kultuur wat hy by sy huis dan sal groei met die gebruik van die oorspronklike poeier en glase melk aan Trio Kulture terug te verkoop teen R10 per kultuur. Die ooreenkoms het ook daarvoor voorsiening gemaak dat Trio Kulture oor 'n termyn van 'n jaar elke maand 'n honderd aldus gekweekte kulture terug sou ontvang waarvoor daar dan R10 elk betaal sou word. Dit beteken dan F dat 'n kweker aan die einde van die eerste maand sy honderd kulture terug lewer waarvoor hy dan R1000 kry. As die kontrak sy termyn vol loop, dan sal hy vir sy aanvanklike belegging van R750 in die daaropvolgende jaar R12000 kan in.

Dit is nie verbasend nie dat die seepbel binne enkele maande gebars het. Die skema was in sy wese net so verrot soos die melk wat hy gebruik het. Dit verg nie die wysheid van nasig om te kan sien dat die skema G nooit ooit lewensvatbaar was nie. Ten eerste was die produk waarom dit gegaan het, waardeloos. Dit was niks anders as gedroogde vrot melk nie. Daar is in die ooreengekome feitestel opgeteken dat daar by tye deur Trio Kulture teenoor die publiek hoog opgegee is as sou die produk verwerk word in 'n gesigroom.... Feit van die saak is dat die produk waardeloos was. Ten tweede, al kon daar geglo word deur die hoogs liggelowige dat vrot melk tog een of ander markwaarde het, is dit H nouliks denkbaar dat daar mense rondloop wat so liggelowig is dat hulle glo dat sulke winste met so min moeite en so min vaardigheid of kennis verwerf kan word. Ten derde, blyk dit uit die ooreengekome feite dat Trio...