Commissioner for Inland Revenue v Delfos

• Jurisdiction: South Africa
• Judge: Wessels CJ, Curlewis JA, Stratford JA, Beyers JA and De Villiers JA
• Judgment Date: 24 April 1933
• Hearing Date: 29 March 1933
• Court: Appellate Division

Wessels, C.J.:

This is a case stated under the provisions of sec. 60 of Act 40 of 1925 (Income Tax Act) by the Special Court for hearing appeals. The stated case is somewhat obscure inasmuch as the facts which have been found by the Special Court are not clearly set out. The judgment of the Special Court is appended, and we have to gather from this judgment and from a number of letters what facts were found by the Special Court. This is not the procedure contemplated by the Act. The Special Court must state categorically what the material facts are as found by it. It must then state the contention of the taxpayer and the contention of the Commissioner if he advances any, and give its own finding. Having done this it must state what points of law relative to the facts found the Provincial Division must decide. However, from the stated case and the judgment of the Special Court, the salient facts may be stated to be as follows.

1. The respondent, Delfos, is a director of the South African Iron and Steel Industrial Corporation Limited.

2. He was either a director or a managing director in 1923, but whatever his capacity was, he had a definite salary of £3,000 per annum and was also entitled to £200 as fees.

3. During the years 1923 to 1929 he was not paid his full salary. There was a shortage in each year as follows:

Year ended 30th June, 1924	£1,700
Year ended 30th June, 1925	£2,000
Year ended 30th June, 1926	£2,000
Year ended 30th June, 1927	£2,000
Year ended 30th June, 1928	£2,000
Year ended 30th June, 1929	£200
	£9,900

4. During the year of assessment ended June, 1930, the company paid him £9,900, and this sum represented all the amounts which were due to him in the years 1923 to 1929 but which had not been paid to him during those years.

5. During the years 1924 and 1925 respondent brought up in his returns only the amounts he had actually received from the company. The same course was adopted in the returns for the years 1927 and 1928. In 1929 he returned the sum of £2,000. During the year 1926, however, he returned the sum of £3,000 as managing director and 1200 as fees.

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6. In the returns made by the South African Iron and Steel Corporation the full salary of Delfos was brought up as well as the amounts which were actually paid to him.

It is common cause that the Commissioner was aware of the true position from the books of the company.

7. Except for the year 1926 respondent was assessed to tax on the sums returned by him. Apparently in 1926 provisional assessment was made on his full salary. He was away in Europe, and on his return he wrote a letter to the Receiver of Revenue, Pretoria, requesting that he should be assessed only for the £1,200 paid to him as he was by no means sure that he would get the balance of £2,000 due to him. In this letter he stated: "I shall therefore be much obliged if you will assess me for the £1,200 only and allow me to pay any further amounts that may become due when I get my arrears paid later on." In consequence of this, on 25th February, 1927, he was assessed only in respect of a sum of £1,200.

8. There can be no doubt that the appellant was (certainly in 1925) aware of the fact that respondent was credited in the books of the company with the full amount of his salary and also that the company was not financially strong, and that it was possible that respondent might never receive the moneys due to him as managing director. There was also a communication from the company to the Commissioner that the company would notify the Income Tax Commissioner at Pretoria if any amounts were paid to respondent which had been left unpaid. This information was contained both in a letter of 10th March, 1925 and in one of 21st October, 1925, both written by the secretary of the company.

9. After respondent's letter of 17th February, 1927, referred to, no further communication seems to have taken place between the Commissioner and Delfos or his agent. With regard to his returns the assessments were made only in respect of what he actually received. The respondent was therefore, as I have said, assessed for the years 1924 to 1929 on the basis suggested by him in the letter of 17th February, 1927, i.e., only on the amounts actually paid to him. As far as respondent knew, the appellant was satisfied that there was little or no hope of his recovering his arrear salary from the company. The Commissioner must have treated the unpaid amounts as bad debts and not as doubtful ones, for no value was placed upon these arrears as should have been done if they were regarded as doubtful debts. If they

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were considered such, it was the duty of the appellant to have done so according to sec. 11 (2) (g). It seems quite clear that the appellant has no choice in the matter. He must assess according to the provisions of the Act. The principle that an officer appointed to carry out the provisions of a revenue Act cannot by contract remit taxation or moneys due to the Grown is clear. (Collector of Customs v Cape Central Railways (6 S.C. 402)). In Anderton & Halstead v Birrell (1932, 1 K.B at p. 279), ROWLATT, J., said: "In order to clear the ground I may point out at once that there is no question of the Crown having been bound by the first action of the inspector by way of mere contract. No officer has power to do that."

10. In 1930 respondent received from the company the whole of the unpaid arrears amounting to £9,900, and thereupon the appellant assessed him as if that amount formed a portion of his gross income for that year (1930). On 6th February, 1931, the respondent's agents objected to the assessment, and wrote as follows: -

"Under an arrangement with your Department, Mr. Delfos has been assessed only on that part of his salary and fees which had been actually paid to him. This arrangement has been greatly appreciated by Mr. Delfos, and whilst he has recognised and agreed that the unpaid salary and fees must be brought into account for taxation purposes when received, he informs us that he did not expect that the Revenue Department would treat any Such amount when received as income of the year in which it might be received. Mr. Delfos states that his understanding was that he would have to pay the tax on the amount when received and that his interpretation of this was that he would have to pay an additional amount of tax in respect of each year to which the balance of salary and fees related. We respectfully contend that this is a reasonable view to take, and would suggest that the circumstances of this case come under sec. 45 of the Income Tax Act and that additional assessments should be levied in respect of the years to which the unpaid salary and fees apply, as set out above . . . ."

In answer to this, on 25th March, 1931, the appellant in effect took up the position that the arrears were regarded as bad debts and they represent and again become, when recovered, income of the year in which they are paid to the taxpayer. It is suggested

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that the Special Court has not found as a fact that the Commissioner treated the unpaid portion of each year's salary as a bad debt. This is incorrect. It is true that there is no definite and categorical finding to that effect, but then, as I have pointed out, there are no proper categorical findings of fact in this record. We have to gather from the judgment and the letters what the Special Court found. But that the case was dealt with by the Special Court on the basis that the unpaid portions were bad debts can leave no doubt. Dr. Nathan in his reasons states: "Prima facie, but for the facts admitted in the letter of the 25th March, 1931, it would appear that the appellant received the sum of £9,900 in the year ended 30th June, 1930, and would be taxable accordingly in that year. The letter, however, makes it clear that the Receiver of Revenue considered those amounts as being bad or doubtful debts in terms of sec. 11 (2) (g) of Act 40 of 1925. Under that subsection the debts were treated by the Revenue Department as irrecoverable, and were not brought into account for the purpose of taxation in each of the respective years in which they were incurred. One uses the word 'debts' here to signify the amounts which in terms of the credit in the books of the corporation were due to the appellant, but in fact were not paid to him."

The whole question at issue, therefore, is whether the £9,900 is to be regarded as part of respondent's income for the year 1930 or whether the various amounts left unpaid in the various years, which make up this total of £9,900, should be referred back to the past years and an assessment made of such amount for the year in which it ought to have been paid. In other words whether bad debts, when recovered in later years, should be regarded as income of the year when paid or of the year when it should have been paid. The Special Court dealt with these facts and contentions and decided in favour of the taxpayer.

The objections to the Commissioner's assessment for the year ending 1930 are stated in the following terms:

"His objection to the assessments for the year of assessment ended 30th June, 1930, having been disallowed by the Commissioner, the appellant appealed from the Commissioner's decision and on appeal to this Court it was contended on his behalf:

(a)

That the amount of £9,900 represented sums which accrued to the appellant in preceding years of assessment

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when they were credited in account and were assessable only in those years.

(b)

That debts allowed as a deduction for bad or doubtful debts in earlier years and recovered in a...