Friedman and Others NNO v Commissioner for Inland Revenue: In re Phillip Frame Will Trust v Commissioner for Inland Revenue

• Jurisdiction: South Africa
• Judge: McCreath J
• Judgment Date: 31 October 1990
• Citation: 1991 (2) SA 340 (W)
• Hearing Date: 31 October 1990
• Court: Witwatersrand Local Division

McCreath J:

The applicants in this matter are the trustees of the Phillip Frame Will Trust ('the trust') which was created in terms of the will of the late Phillip Frame dated 24 July 1974. They seek, in their C capacities as trustees of the trust, an order against the respondent in the following terms:

'1.

An order declaring that -

(a)

The Phillip Frame Will Trust ("the trust") created by the late Phillip Frame in terms of his will dated 24 July 1974 is D not a "legal persona " and therefore is not a "person" within the meaning of that word in the Income Tax Act 58 of 1962 (as amended) ("the Act"); and

(b)

therefore the respondent was and is not entitled -

(i)

to levy taxation on the trust, in terms of the Act, or

(ii)

to appoint applicants, in terms of s 95(1) of the E Act, as the trust's representative taxpayers.'

It is common cause that the respondent has levied income tax on the undistributed income of the trust, which has been paid on the basis that it will be refunded if the relief sought by the applicants is granted.

The parties are agreed that this Court has jurisdiction to hear the matter and that it is not essential that the matter should have come F before the Income Tax Special Court established in terms of s 3 of the Income Tax Act 58 of 1962 ('the Act'). The dispute involves legal issues only, namely whether a trust is a 'person' and therefore a taxable entity for purposes of the Act. There is no provision in the Act to prohibit an approach to this Court to resolve an issue of this nature. G It is a procedure for which there is ample precedent: Estate Smith v Commissioner for Inland Revenue 1960 (3) SA 375 (A); Commissioner for Inland Revenue v Emary NO 1961 (2) SA 621 (A); Commissioner for Inland Revenue v MacNeillie's Estate 1961 (3) SA 833 (A); Commissioner for Inland Revenue v Jacobson's Estate 1961 (3) SA 841 (A); Thorne and H Another NNO v Receiver of Revenue 1976 (2) SA 50 (C); Shell Southern Africa Pension Fund v Commissioner for Inland Revenue 1982 (2) SA 541 (C). Although the question of jurisdiction was not pertinently raised in any of these cases it was clearly accepted by all concerned that the procedure was a competent one. In Emary NO and Another v Commissioner for Inland Revenue 1959 (2) PH T16 (D) the point was specifically I considered. I am in agreement with the finding of the Court in that case that where the dispute involved no question of fact and is simply one of law the Commissioner and the Special Court are not the only competent authorities to decide the issue - at any rate when a declaratory order such as that in the present case is being sought.

I turn then to the merits of the matter. The applicants contended that, in terms of the Act, income tax is leviable only in respect of J 'persons', that

McCreath J

A a trust is not a 'person' and that those provisions of the Act relating to 'representative taxpayers' do not apply to trustees unless they represent some 'person'. Accordingly, so it is argued, they cannot be liable for tax in respect of trust income which has not and is not deemed to have accrued to any 'person'.

Section 5 of the Act makes provision for the payment of income tax in B respect of the taxable income received by or accrued to or in favour of any person or company. It is clear that a trust is not a 'company' as defined in s 1 of the Act. A 'person' is defined in that section as including the estate of...