Namex (Pty) Ltd v Commissioner for Inland Revenue

• Jurisdiction: South Africa
• Judge: Selikowitz J
• Judgment Date: 06 January 1992
• Court: Cape Provincial Division

Selikowitz J:

In this matter plaintiff seeks an order declaring that any right which the defendant might have had to claim income tax from I plaintiff in respect of its 1982 financial year has been lost by virtue of the sanction and registration during 1985 of a scheme of arrangement pursuant to the terms of s 311 of the Companies Act 61 of 1973 (the 'Companies Act').

The parties are ad idem on almost all of the relevant facts in this matter and after they had handed the Court a statement of agreed facts J only one witness was called.

Selikowitz J

A The statement of agreed facts reads as follows:

'1.

At all material times plaintiff was a mining company engaged in diamond mining and its financial year ended on 31 December 1982.

2.1

Pursuant to contracts of sale concluded by plaintiff as purchaser and Ochta Bellsbank Mining (Pty) Ltd, Cape Province Resources (Pty) Ltd and New Elands Diamond-Prospectors (Pty) Ltd as the respective sellers, B a change occurred in the ownership of mining property, which included development assets as contemplated in s 37(1) of the Income Tax Act 58 of 1962 ('the Act') from the said sellers to plaintiff on 30 September 1982.

2.2

The purchase price paid by plaintiff in respect of the mining property pursuant to the contracts of sale were as follows:

2.2.1

Ochta Bellsbank Mining (Pty) Ltd - R2 844 953,50;

2.2.2

C Cape Province Resources (Pty) Ltd - R452 000;

2.2.3

New Elands Diamond-Prospectors (Pty) Ltd - R4 121 452.

2.3

Copies of the contracts of sale were sent by plaintiff to defendant on about 11 March 1983 for the purpose of a determination by the Government Mining Engineer in terms of s 37 of the Act of the effective values of the development assets which were included in the D mining property. Defendant forwarded the said contracts of sale to the Government Mining Engineer for the said purpose on 23 March 1983.'

I interpose here to note that, in terms of s 37 of the Income Tax Act, whenever there is a change of ownership of mining property, defendant is obliged to allow the effective value of the development assets to rank E as capital expenditure for redemption by the new owner. Section 37(4) provides that:

'The effective value at the time the change of ownership takes place, of all the assets passing and of the development assets included therein shall be determined by the Government Mining Engineer. . . .'

The statement of agreed facts continues: F

'3.1

On or about 17 May 1983 and pursuant to the Act, plaintiff submitted an income tax return (IT 14) to defendant in respect of its tax year ending 31 December 1982.

3.2

The said tax return brought into account the purchase price of the development assets included in the mining property as an allowable deduction in terms of s 15(a) read with ss 36 and 37 in the following G amounts:

3.2.1

in respect of the contract with Ochta Bellsbank Mining (Pty) Ltd - R2 369 942;

3.2.2

in respect of the contract with Cape Province Resources (Pty) Ltd - R392 000;

3.2.3

in respect of the contract with New Elands Diamond-Prospectors H (Pty) Ltd - R3 605 452.

4.1

On 1 June 1983 defendant issued a document entitled "Original tax assessment" in respect of plaintiff's 1982 tax year being annexure VI to defendant's plea.

4.2

The loss of R1 310 619 which appears on annexure VI was calculated by defendant on the basis that the deductions in para 3.2 above were I taken into account as allowable deductions.'

I interpose again to record that on annexure VI the following note appears under the heading 'Remarks':

'This assessment is subject to revision, if necessary, once the Government Mining Engineer's determination of the effective value of the J various assets acquired, is received.'

Selikowitz J

A The statement of agreed facts then continues:

'5.

No further assessment nor any relevant notice was received by plaintiff from defendant from the issue of the said annexure VI up until 1 May 1986.

6.

On 12 and 13 January 1984, the Government Mining Engineer visited the said mining property in order to value, inter alia, the aforesaid development assets.

7.

B On 11 September 1984 plaintiff was provisionally liquidated.

8.

On 29 January 1985 an offer, which purported to be in terms of s 311 of the Companies Act 61 of 1973, was made by the Trans Hex Group Ltd to plaintiff and its creditors.

9.

Notice of the offer and of the meetings of creditors to consider it was given, inter alia, to defendant.

10.1

C On 5 March 1985 meetings of all the various classes of plaintiff's creditors accepted the offer by the majority prescribed by s 311.

10.2

On 20 or 21 March 1985:

10.2.1

the Witwatersrand Local Division of this honourable Court sanctioned the proposed scheme ("the scheme"); and

10.2.2

D discharged the provisional liquidation order in respect of plaintiff.

10.3

On 21 March 1985 the scheme was registered pursuant to the provisions of s 311(6)(a) of the Companies Act.

10.4

A true copy of the scheme, as sanctioned and registered . . . (is annexed to the pleadings).

11.

Pursuant to the terms of the scheme, defendant received notice of E the offer, the meetings of creditors and the sanctioning of the scheme.

12.

Defendant submitted no claim to the receivers appointed in terms of the scheme.

13.

On or about 18 March 1986, and in terms of s 37 of the Act, the Government Mining Engineer fixed the effective value as at 30 September 1982 of the development assets which were included in the mining F property, ownership whereof changed on 30 September 1982, as follows:

13.1

in respect of the contract with Ochta Bellsbank Mining (Pty) Ltd - R1 431 263;

13.2

in respect of the contract with Cape Province Resources (Pty) Ltd - R192 000;

13.3

in respect of the contract with New Elands Diamond-Prospectors G (Pty) Ltd - R1 858 520.

14.1

The Government Mining Engineer established the aforesaid values by having regard to all the available relevant information and by using his expertise and experience. In particular, he had regard to the condition of the assets involved, the value placed on them by the purchaser, their replacement and utility values and the potential of the mine.

14.2

H The Government Mining Engineer falls under a different State Department (ie the Department of Mineral and Energy Affairs) to that under which defendant falls.

14.3

The reasons for the delay in the making of the aforesaid valuations are not relevant to the issues in dispute in this action.

15.

I 15. On 1 May 1986 defendant issued a document entitled "Additional tax assessment" in respect of plaintiff's 1982 tax year; being annexure B to plaintiff's further particulars.'

Once again I must interrupt the statement to note that annexure B reflects that defendant had revised his earlier assessment (set out in J annexure VI) in the light of the effective values determined by the

Selikowitz J

A Government Mining Engineer. Plaintiff's 1982 income is now assessed for tax purposes at R1 574 993 and income tax in the sum of R756 587,26 is payable in respect thereof.

The narrative continues:

'16.

Had defendant proved a claim in terms of the sanctioned scheme, B the receivers appointed in terms thereof had sufficient funds on hand to pay the sum of R756 587,26 - being the tax reflected on annexure B - in terms of para 4.9 of the scheme.'

I note here that para 4 of the scheme regulates the 'order' in which the receivers are to distribute the moneys awarded to them. Paragraph 4.9 refers to the claims of 'preferent creditors'. C

'17.

Defendant and the officials who administer the provisions of the Income Tax Act under his guidance and control fall under a separate section in the Department of Finance as is illustrated in the document (an organogram) annexed hereto marked X.

18.1

During the inclusive period 1983 to date defendant has submitted various claims to "receivers" pursuant to compromises and/or D arrangements which were sanctioned in terms of s 311 of the Companies Act.

18.2

In each of the 10 examples of such instances mentioned hereinafter:

(a)

the relevant company was under provisional liquidation;

(b)

defendant submitted a claim for income tax as a preferent creditor;

(c)

the compromise and/or arrangement provided, inter alia, for the E creditors' claims to be ceded or deemed to have been ceded to the offeror and that in return therefor the creditor would receive payment of a portion of his claim from the "receiver";

(d)

the "receiver" allocated in his distribution account and paid to defendant an amount which exceeded that which defendant would probably have received in respect of his claim in liquidation but which was less than the face value of such claim: F

(i)

Carefree Carpet Centre (Pty) Ltd

(ii)

B & T Gas Service (Pty) Ltd

(iii)

Floriette Fashions (Pty) Ltd

(iv)

Connel Investment Co (Pty) Ltd

(v)

Spares City (Pty) Ltd

(vi)

G Javcor (Pty) Ltd

(vii)

Kentex Creations (Pty) Ltd

(viii)

Metro Products (Pty) Ltd

(ix)

Brakpan (Pty) Ltd

(x)

Headquarters Clothing (Pty) Ltd.

18.3

In many other similar instances defendant submitted the same type H of claim and was paid in full by the "receiver".

18.4

All the said claims were submitted and dealt with by officials in defendant's said section who acted in terms of standing instructions issued to them by defendant pursuant to s 40 of the Exchequer and Audit Act 66 of 1975. A copy of the standing instructions is annexed hereto marked Y1, Y2 and Y3.

18.5

During the aforesaid period, no other official in the Department I of Finance (ie no official of a section other than that of defendant) submitted or...