Income Tax Case No: 11423

• Jurisdiction: South Africa
• Judge: Boruchowitz J
• Judgment Date: 08 December 2005
• Docket Number: 11423
• Hearing Date: 03 June 2005
• Citation: 2006 JDR 0511 (JSpCrt)

Boruchowitz J:

[1]

The question which is raised by the special case agreed by the parties is whether section 12C of the Income Tax Act 58 of 1962 (the Act) allows the deductions with regard to the plant in question owned by the appellant.

[2]

The agreed facts can be summarised as follows: During the period 1996 to 1997 the appellant's holding company A (Pty) Ltd (A) commenced the construction on its property of certain plant. In September 1996 B was established with the object of acquiring and leasing out the plant. On 30 September 1996 A sold the plant (then in an advanced stage of construction) to B and with effect from 1 January 1997 B let the plant to A. The plant was brought into use in terms of the lease for the first time by A in January 1997 and was used by A as lessee under the lease for the purposes of A's trade directly in a process of manufacture carried on by A. B was entitled to and was granted the allowances provided for in section 12C(1)(b) for the tax years 1997 to 2001. Before the expiry of the lease by the effluxion of time, which would have taken place in December 2003, B cancelled the lease and sold the plant to the appellant. The appellant in turn leased the plant to A under a new lease. The expiry date of the new lease is 31 August 2006. A then used the plant for the manufacturing process for which it had previously been used; this use was in terms of the new lease. There was no interruption in the use by A between the termination of the old lease and the commencement of the new lease.

[3]

The appellant was originally assessed in respect of the 2001 year of assessment on the basis that the appellant was entitled to an allowance of R40 178 720,00 in terms of section 12C(1)(b), being twenty per cent of the original cost of the plant to B. The cost to the appellant was the amount paid to B namely R306 million which was the amount of the valuation which was the market value of the plant at the commencement of the lease to A. The revised assessment and the subsequent assessments for the years 2002 and 2003 proceed on the basis that the appellant is not entitled to the allowance. An objection to those assessments has been disallowed.

[4]

The provisions of section 12C(1) which are relevant read as follows:

"In respect of any -

(b)

plant which was or is let by any taxpayer and was or is brought into use for the first time by the lessee for the purpose of the lessee's trade and is used by the lessee directly in a process of manufacture carried on by him.

A deduction equal to 20 percent of the cost of such plant shall subject to the provisions of subsection (4) be allowed in the year of assessment during which the asset is so brought into use and in each of the four succeeding years of assessment."

[5]

The question involves an interpretation of section 12C and more particularly of the words "brought into use for the first time by the lessee for the purposes of the lessee's trade ..." which occur in section 12C(1)(b).

2006 JDR 0511 p2

Boruchowitz J

[6]

The...