Income Tax Case No 11661

• Jurisdiction: South Africa
• Judge: Levinsohn J
• Judgment Date: 24 May 2006
• Docket Number: 11661
• Hearing Date: 24 May 2006
• Citation: 2006 JDR 0849 (DSpCrt)

Levinsohn J:

For ease of reference I shall refer to the parties to this appeal as the taxpayer and the Commissioner respectively.

The taxpayer is a manufacturer and distributor of certain products. It carries on business at A, KwaZulu-Natal. The taxpayer sells its products to various wholesalers. These sales are subject to the taxpayer's standard conditions of sale. For purposes of this appeal the relevant terms are set forth in clause 1 and more particularly 1.1 which reads -

"Unless otherwise stated, all prices are net, and Value Added Tax is additional. Payment must be made by PURCHASER to SELLER without deduction, set off or demand at SELLER's address.

1.2

.............

1.3

Should payment be made by PURCHASER to SELLER not later than the 25th day (or earlier full business day) of the month following the month during which delivery takes place, the PURCHASER shall be entitled to deduct a settlement discount from his payment, in accordance with SELLER's discount scheme, which may be revised by SELLER from time to time."

Certain relevant documentation issued by the taxpayer has been included in the papers before us. Firstly, there is a statement of account (in fact, page 8 of the monthly statement) issued to a customer B (Pty) Ltd. This document is annexed to this judgment as "A". Secondly, invoice No 622710 dated 24th June 2003 for R276,78 is also annexed as "B".

In calculating its gross income as at 30th June 2003 the taxpayer listed its debtors in the following way. It recorded the gross selling price excluding VAT and deducted the applicable settlement discount therefrom; the latter amounts being termed "provisions". In other words the taxpayer for purposes of calculating its gross income as at the end of June 2003 would regard the net amount after deduction of the said discount as reflecting its gross income for that year. The assumption made is that the debtor would pay its account within the stipulated period and therefore be entitled to deduct the settlement discount. It is in that sense that the term "provisions" is used. The total amount of the so-called provisions as at 30th June 2003 was R4 371 015,38.

2006 JDR 0849 p2

Levinsohn J

In respect of the financial year ending 30th June 2003 the Commissioner raised an additional assessment adding back the said amount of R4 371 015,38 to the taxpayer's gross income.

The taxpayer's objection to the additional assessment was disallowed. Hence the appeal to this Court.

The...