Mooi v Secretary for Inland Revenue

• Jurisdiction: South Africa
• Judge: Ogilvie Thompson CJ, Rumpff JA, Potgieter JA, Rabie JA and Muller JA
• Judgment Date: 02 December 1971
• Citation: 1972 (1) SA 675 (A)
• Hearing Date: 18 November 1971
• Court: Appellate Division

A Ogilvie Thompson, C.J.:

In determining appellant's liability for normal tax under the provisions of the Income Tax Act, 58 of 1962, (hereinafter referred to as 'the Act') for the year of assessment ending 28th February, 1967, respondent included, in the circumstances detailed B below, an amount of R2 575 as part of appellant's gross income for that year. Objection and appeal to the Transvaal Special Court having proved unsuccessful, appellant now - the written consents required in terms of sec. 86 (1) (b) of the Act having been duly filed - appeals direct to this Court.

Appellant is, and has at all material times been, an employee of the C Palabora Mining Co. Ltd - to which I shall refer as 'the company' - whose main business is mining for copper at Phalaborwa, Transvaal. In July, 1963, the company was engaged in preparatory work establishing this mine. Pursuant to resolutions duly passed during June, 1963, the company addressed the following letter, dated 25th July, 1963, to appellant who then occupied the position of mine secretary, viz: D

'We hereby grant to you an option to subscribe at R1 - 25 per share for 500 Class A ordinary shares of R1 each in the capital of the company on the following conditions:

1.

The option will not be exercisable until six months after the completion of construction of the company's mine at Phalaborwa and will be capable of being exercised during the period of three years reckoned from that date.

2.

E The directors of the company will decide when the company's mine at Phalaborwa has been completed for the purpose of para. 1 and the decision of the directors will be final.

3.

The option can only be exercised if at the time of exercise you are in the employ of the company or are still contributing to the Palabora project in some other manner.

4.

If at the time you wish to exercise this option you are not in the employ of the company the directors will decide whether you are contributing to the Palabora project so as to enable you to F exercise the option and the decision of the directors will be final.

If you wish to accept the option hereby granted to you, kindly complete the endorsement on the duplicate hereof which is enclosed and return it to the company. If the endorsement is not completed and the duplicate returned to the company by not later than 5 p.m. on 30th July, 1963, you will be deemed to have refused the option which will be of no further force and effect.'

G The endorsement mentioned in this letter was completed and returned to the company by appellant on 27th July, 1963. It read:

'I hereby accept the option granted to me in terms of the above letter.'

Pursuant to the aforementioned June resolutions, further options, couched in identical terms (save for differentiation regarding the number of shares) with the above, were contemporaneously also granted to other key personnel of the company mentioned in the said resolutions.

H It is common cause that appellant is not a share dealer and that the option granted to him by the above-cited letter of 25th July, 1963, was in respect of services rendered, and as an inducement to render future services, to the company. The construction of the company's mine at Phalaborwa was completed on 1st March, 1966, and as at 1st September, 1966 (being six months after 1st March, 1966) the market value of Class A ordinary shares in the company, as quoted on the Johannesburg Stock Exchange, was R6 - 40 per share. On 1st October, 1966, appellant

Ogilvie Thompson CJ

exercised his option to take up the 500 shares. The difference between the aggregate price of the 500 shares calculated at R1 - 25 per share and their aggregate market value as at 1st September 1966, namely R2 575, constitutes the sum in issue in this appeal.

A It must at once be mentioned that the present case falls to be decided independently of the provisions of sec. 8A which were only subsequently inserted in the Act by sec. 11 of Act 89 of 1969. The relevant portion of the definition of 'gross income' in sec. 1 (xi) of the Act reads:

''gross income,' in relation to any year or period of assessment, means, in the case of any person, the total amount, in cash or otherwise, received by or accrued to or in favour of such person during such year B or period of assessment from a source within or deemed to be within the Republic, excluding receipts or accruals of a capital nature, but including, without in any way limiting the scope of this definition, such amounts (whether of a capital nature or not) so received or accrued as are described hereunder, namely:

(a)

..........

(b)

..........

(c)

any amount, including any voluntary award, received or accrued in respect of services rendered or to be rendered...'

C In order to determine the 'amount' comprehended by this definition it is necessary, in the case of a right, to establish the value of that right (Lategan v Commissioner for Inland Revenue, 1926 CPD 203 at pp. 208 - 209; Commissioner for Inland Revenue v Delfos, 1933 AD 242 at p. 251). The main contention advanced on behalf of appellant is that D in the premises the only taxable accrual in respect of services rendered or to be rendered by him to the company was the value - if any - of the legal right which appellant acquired upon accepting the above-mentioned option on 27th July, 1963. An alternative contention is that if, contrary to the above-mentioned contention, any accrual whatever E occurred during the tax year ended 28th February, 1967, such accrual cannot be said to have been in respect of services rendered or to be rendered to the company by...