Commissioner for Inland Revenue v Pick 'n Pay Wholesalers (Pty) Ltd

• Jurisdiction: South Africa
• Judge: Corbett JA, Botha JA, Hefer JA, Nestadt JA and Nicholas AJA
• Judgment Date: 14 May 1987
• Citation: 1987 (3) SA 453 (A)
• Hearing Date: 16 March 1987
• Court: Appellate Division

Nicholas AJA:

The facts which gave rise to this case had their beginning in 1977. In April of that year Pick 'n Pay Wholesalers (Pty) Ltd ('Pick 'n Pay') pledged itself to donate to the Urban Foundation a total of R500 000 in five equal J annual instalments. In each of the years of assessment ended

Nicholas AJA

A 28 February 1978 and 28 February 1979 it claimed to deduct R100 000 from its income as 'advertising'. The Commissioner for Inland Revenue ('the Commissioner') disallowed the deductions and issued assessments accordingly. An objection by Pick 'n Pay dated 13 March 1981 was overruled.

B There followed an appeal to the Cape Income Tax Special Court. The hearing began on 13 November 1981 with Grosskopf J presiding. On 17 March 1982 a judgment allowing the appeal was handed down.

The Commissioner appealed to the Full Bench of the Cape Provincial Division. Shortly before the hearing of the appeal, notice was given of an application to amend the grounds of C appeal in order to raise certain points not canvassed at the hearing before the Special Court. By consent the Full Bench set aside the order of the Special Court and remitted the matter thereto for the hearing of further evidence and additional argument.

There was a second hearing before the Special Court on 27 March 1985. In a judgment which was handed down on 6 June 1985, the D Special Court rejected the new points raised in the amended grounds of appeal, and again allowed the appeal.

On 16 September 1985, Grosskopf J granted leave to appeal to this Court in terms of s 86A(5) of the Income Tax Act 58 of 1962 ('the Act').

In the Special Court evidence was given on behalf of Pick 'n E Pay by a number of witnesses including Mr Raymond Ackerman and Mr Christopher Hurst. This evidence was not contradicted, and Grosskopf j said in the judgment that the Special Court had no reason to doubt its correctness.

The main facts of the case were these.

Despite its name, Pick 'n Pay is not a wholesaler. It carries F on business as a retailer, operating supermarkets in the Western and Eastern Cape, Natal and the Orange Free State. It has associated companies in the Transvaal, and together they comprise the Pick 'n Pay group, of which Pick 'n Pay is the managing company.

Mr Ackerman is the chairman and managing director, and as such he has had, to use his own words, 'a strong direction of the G company'. He is the mainspring and driving force behind the group's activities. At the relevant time he held 30% of the issued shares in Pick 'n Pay. He is a public figure: he is a member of the main board of the Urban Foundation, a governor of Rhodes University, and head of SA Forum and of other bodies.

H Mr Hurst is the secretary and financial director, and takes a special interest in the marketing side.

Pick 'n Pay keeps its name constantly before the public by sustained and intensive advertising which it regards as essential to the successful conduct of its business. Broadly its advertising falls into three categories. There is the 'laundry list' type of advertisement, which appears from day to I day, and lists goods and their prices. Then there is advertising of so-called 'special events', which is more general in its nature: examples of 'special events' are an anniversary of the opening of a supermarket; the launching of the company's 'No Name' brands; an operation in which the price of chickens, which was raised by other supermarkets, was held J down in Pick 'n Pay's stores; and a petrol sales scheme. Thirdly, there is 'indirect

Nicholas AJA

advertising', which is considered to be the most important and A valuable. This consists, not in placing paid advertisements, but in obtaining notice in the news and editorial columns of the media. Such publicity is not readily achieved.

Pick 'n Pay has always been concerned to promote its public image as 'the consumer's champion' and as a company which has a B concern for people and is aware of its social responsibilities to the community. So it has campaigned against cartels, and for the need to fight inflation.

A notable example of Pick 'n Pay's promotion of its persona and its use of 'indirect advertising' was provided by the donation to the Urban Foundation. This is an organisation which grew out of a conference of concerned leading businessmen in 1976. It C was formed to tackle South Africa's pressing social needs and to improve the quality of life of the less privileged urban dwellers. It is specially concerned with the upgrading of housing and the provision of community facilities. Mr Justice Steyn steered it through its formative years.

D As a member of the main board of the Urban Foundation, Mr Ackerman was involved in conceiving the idea of raising money by means of a self-imposed levy in the whole private sector of a percentage of turnover or profits. His evidence was:

'So then they said to me, wearing my Urban Foundation hat: Mr Ackerman, will you wear your Pick 'n Pay hat and lead the way? So then I had a private meeting with Mr Justice Steyn and I said, yes, we will lead the way but we want to be the first in E and we would like to have a press publicity meeting...'

He considered that in this way Pick 'n Pay would get very valuable publicity. He continued:

'... When I brought this matter to the board (sc of Pick 'n Pay), I was wearing my Pick 'n Pay hat that this would be a major way of us being first to support a good cause... but that we could get major publicity out of it which would be good F for our company and would draw customers in to our stores.'

When Mr Hurst was asked in his evidence-in-chief about the motive for the donation, he said:

'Well, the mainspring behind the idea was Mr Ackerman and we discussed the matter at board level and its possibilities and we decided to go ahead and make this contribution as a business G exercise.'

He was sure that

'(W)e would, if we handled it correctly, get a great deal of publicity out of it.'

He continued:

'... We were going to be the first.... There is a H tremendous plus in being first, I think, and at the same time Mr Ackerman was going to ensure that we got the proper type of publicity; that once we've made our contribution, that the press would be aware of it. With the knowledge of this I thought that... (it) sounded like it was going to be a success.... The Urban Foundation was something that really seemed to appeal to the public. It was in the press all the time, people were talking about it. It was an opportunity waiting to be seized and I don't think that type of opportunity I comes along very often.'

The board of directors of Pick 'n Pay took the decision to make the donation of R500 000 to the Urban Foundation. It was announced at a press conference in Cape Town which was attended by Mr Justice Steyn and Mr Ackerman. The announcement received wide publicity throughout the Republic. This was shown by a J bundle of press cuttings which was

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A put in through Mr Hurst. They included one from The Argus newspaper. It was a front page story with banner headlines. The following are extracts:

'R25-M Aid Plan for Needy

Food Chain gives Urban Fund R-M

The Urban Foundation's initial target of R25-million to improve B the quality of life of South Africa's urban communities came nearer achievement today with a gift of R500 000 over five years.

The gift from Pick 'n Pay is linked to the supermarket chain's annual turnover - and other firms are to be asked to participate on a similar basis.

The newly-formed Urban Foundation is being steered through its formative years by Mr Justice Steyn, who is on three years' C leave from the Cape Supreme Court for the task.

...

In Cape Town today, Mr Justice Steyn announced Pick 'n Pay's "wonderful contribution" at a press conference attended also by the chairman, Mr Raymond Ackerman. The R500 000 would be paid in annual instalments of R100 000.

"This represents a self-imposed tithe based on a percentage of Pick 'n Pay's annual turnover," he said.

D Investment

"Mr Ackerman has emphasised to me he believes this is an investment in the future of a stable South Africa.

He has also emphasised how essential it is that the private sector must make its contribution to the solution of our vexed urban problems.

I trust that Mr Ackerman's magnificent example will act as a stimulus and an inspiration for other organisations and individuals.

E I anticipate that others will also give consideration to giving an annual tithe to the Foundation - based on a percentage of turnover or after-tax profits."

...'

For a period of several months after the announcement, the publicity had a marked positive effect on Pick 'n Pay's F turnover in all its stores throughout the group.

Mr Hurst was cross-examined by the Commissioner's representative, Mr Van Breda, in regard to the purpose of the donation.

'Mr Van Breda : Now, what motivation did you advance of this donation to be made? Was it based on purely business considerations or were there also other motivations? - The motivation behind this contribution was, as I've said before, G part of our public relations exercise. There was a golden opportunity to contribute to this (cause) and bring to the company an immense amount of publicity. The reason for the contribution was to get publicity.

Was that also how Mr Ackerman put it to the board? - Absolutely.'

Again:

'Mr Van Breda :... did the board go along with the aims of the Urban Foundation? - Absolutely. We thought that it was a H good cause. I want to emphasise again: we picked this cause because it was a good one in which the public were interested.... Here was a cause which was an excellent cause and the public were interested in it. If it had been a bad cause, then, if the public knew about it, it would have reflected badly against us and if the public didn't know about it, then it wouldn't...