Commissioner of Taxes v William Dunn & Co Ltd

• Jurisdiction: South Africa
• Judge: Innes CJ, Solomon JA, CG Maasdorp JA, De Villiers AJA and Juta AJA
• Judgment Date: 05 December 1918
• Citation: 1918 AD 607
• Hearing Date: 02 December 1918
• Court: Appellate Division

Commissioner of Taxes Appellant v William Dunn & Co Ltd Respondent
1918 AD 607

1918 AD p607

Citation	1918 AD 607
Court	Appellate Division, Bloemfontein
Judge	Innes CJ, Solomon JA, CG Maasdorp JA, De Villiers AJA and Juta AJA
Heard	December 2, 1918
Judgment	December 5, 1918

Flynote : Sleutelwoorde

Revenue — Income Tax — Income received from source within the Union — Capital employed outside the Union — Act 28 of 1914, sec. 4.

Headnote : Kopnota

Respondent, a company registered and carrying on business in England under partnership agreements made with certain South African firms purchased in its own name goods requisitioned by the firms and then invoiced and shipped the goods, debiting the firms concerned with costs, freight, charges and commission, together with interest at 5 per cent. on the balances due from time to time.

Held, that the interest received by respondent being the result of the employment in England of respondent's own capital in its own business was not received from any source within the Union, and was therefore not taxable as income under sec. 4 of Act 28 of 1914.

The decision of the Cape Provincial Division in William Dunn & Co. Ltd. v Commissioner of Taxes, confirmed.

Case Information

Appeal from a decision of the Cape Provincial Division (SEARLE, J and GARDINER, J.) sitting as a Court of Appeal from a decision

1918 AD p608

of the Special Court constituted under the Income Tax Act, 28 of 1914.

The facts are stated in the following reasons of the Provincial Division.

SEARLE, J.: This in an appeal under sec. 25 of the Income Tax Act 28 of 1914 from a decision of the Special Court constituted by virtue of sec. 24 (1) of the Act to hear appeals from the decision of the Commissioner of Taxes.

The question turns on the meaning of "Taxable Income" in sec. 4 (2) and of "Income" in sec. 49 of the Act.

These definitions are as follows:-

4 (2). "Taxable Income shall mean an income exceeding £1,000 which has been received by or has accrued to or in favour of any person wheresoever residing, from any source whatever in the Union . . . "

"Income shall, in relation to any person, mean any gains or profits derived by, or accrued to or in favour of, such person in the year for which the assessment is made, from any source within the Union."

The appellants, who are an English firm carrying on business in London, but who are also partners in three businesses carried on within the Union, have entered into separate contracts with each of the businesses in the Union whereunder appellants buy on commission in England goods for these businesses and ship them to the Union. No copies of these agreements were produced to the Commissioner of Taxes, or to the Special Court or to this Court, and we have to decide the legal question raised, upon the facts stated in the special case. It is stated therein that the "buying agreement," as it in called, is contained in the partnership agreement between the English and the Union firms, and I cannot help thinking that it would have been much better to have had this document before the different Courts which have dealt with the point at issue, for possibly some further terms, considered immaterial when the case was placed before the Commissioner, might be found therein, and I shall advert to this point later on. However, from the stated case it would appear that each Union firm makes out from time to time lists of goods required for trade purposes, and transmits these to the London firm which purchases the goods in its own name, becomes responsible to the sellers, and invoices and ships the goods to the Union firm, debiting this firm in accounts current with the cost, freight, charges and commission; it also charges in its books in London the requisitioning firm with interest at the rate of 5 per cent. on the balances duo from time to time on the accounts current; this latter firm makes remittances from time to time, and these remittances are credited in the accounts current, and appear in this firm's books; each requisitioning firm has always a considerable outstanding balance due to the London firm; for the year in question the average of the debit balances of the three requisitioning firms taken together was about £300,000; and the interest on this sum amounting to £14,658 5s. 4d. is the sum in question upon which the Commissioner of Taxes and Special Court decided that income tax was payable by the London Arm as being income derived from a "source within the Union."

It was admitted on behalf of the Commissioner of Taxes that no income tax was payable upon the amount of commission earned by the London firm from

1918 AD p609

theme purchases which it made on behalf of the Union firms; but it is sought to draw a distinction between the commission and the interest.

The Special Court held that the business by which the interest was earned was carried on in the Union, that the profits "came home" in the Union, and that the "advances," as that Court called them, on which the interest is charged were investments made by the London Company in the Union for the purpose of enabling the business of the three firms to be carried on. The Court further held that the commission was distinguishable from the interest, because the former was wholly earned in England, and the interest was in South Africa; and the Court seemed to rely upon the fact that the remittances to pay the sums expended, on the purchase of goods in England appeared in the Union firms' books, and that in the accounts rendered by the London firm to the Union firm the commission was brought up as an addition to the purchase price of the good, whilst the interest was in these accounts brought up as a separate charge (mm Exhibit A, 1 R.S.C.) No more book-keeping entries or method of dealing with the figures of an account can, however, alter the real and exact nature of a transaction.

Now assuming for the moment that there was no partnership between the London firm and the Union firms I cannot see how the interest stands on a different footing from the commission, for income tax purposes. Each is earned directly by an...