Income Tax Case No: 9745

• Jurisdiction: South Africa
• Judge: Southwood J
• Judgment Date: 22 September 1995
• Docket Number: 9745
• Court: Transvaal Income Tax Special Court
• Hearing Date: 22 September 1995
• Citation: 1998 JDR 0618 (TSpCrt)

Southwood J:

This appeal was argued on the basis of a written statement of case which sets out the facts agreed upon by the parties. During argument the facts were amplified by the addition the last sentence in paragraph 6. This judgement first sets out the contents of this statement of case.

1.

The appellant is A (PTY) LIMITED (formerly B whose activities are now conducted by the A division of C INDUSTRIES LIMITED, a manufacturer and wholesale distributor of automotive engine parts. The year or assessment under appeal is the year ended 30 September 1989. The issue is whether the total amount of sales invoiced to customers as at 30 September 1989 accrued to the appellant as gross income in respect of the 1989 tax year, or whether a lesser amount accrued, i.e. whether an estimate of the amount of rebates payable by the appellant to its customers in the

1998 JDR 0618 p2

Southwood J

event of prompt settlement of their September month-end invoices (which settlement only occurs in the following tax year) may be excluded from the appellant's gross income for the 1989 tax year.

2.

At all relevant times the appellant sold its products to three market segments:

2.1

the original equipment market, i.e. sales to the big motor vehicle manufacturers, eg. Mercedes, Nissan, etc;

2.2

the aftermarket, i.e. the supply of spares to wholesalers (who on-sell these spares to engine reconditioners, engineering shops, etc); and

2.3

the export market.

The rebates in question apply only to sales to the aftermarket.

3.

Two brands of products are sold by the appellant, namely the D brand of products (the housebrand) and the Quality Control Components ("QCC") brand (a lower priced brand). The rate of rebate offered on the D brand is substantially higher (an average of 15,8% in 1989) than the rate on the QCC brand (an average of 5% in 1989).

4.

The rebates in question were awarded with a dual purpose in mind:

4.2

As a marketing tool, namely either as a reward for the volume of sales to a customer (i.e. the higher the customer's off-take the higher the rate of rebate afforded to him), or as a reflection of the customer's importance to the appellant; and

1998 JDR 0618 p3

Southwood J

4.2

In order to ensure prompt payment, i.e. payment within the agreed time period after the date of the statement. (This time period was usually 30 days but could, on occasion and by special agreement, be 45 or even 60 days. This period will hereinafter be referred to as "the rebate period").

5.

The rebate rate to which a particular customer was entitled was agreed with the customer from time to time.

6.

Statements (reflecting all invoices in respect of sales, all payments made by the customer and rebates paid to the customer, as well as the total amount outstanding at the end of the relevant month) were dated the last day of each month and payment was usually due on the last day of the following month. If payment was received within the agreed rebate period, the customer became unconditionally entitled to his rebate and the appellant was contractually obliged to make such payment. Such rebate was always paid by cheque dated the 15th of the month following the month in which payment was due, eg. if the amount payable in terms of the statement dated the 30th of September 1989 was paid on or before the 31st of October 1989, the customer would receive a cheque dated the 15th of November 1989 in respect of' the rebate. This pre-condition to qualifying for the rebate was...