Naught for the taxpayer’s comfort : the decisions in Big G and Clicks concerning future expenditure claims under section 24c

• Author: Milton Seligson
• DOI: 10.10520/EJC-1ea62fb053
• Published date: 01 June 2020
• Date: 01 June 2020
• Pages: 9-18

9

© SIBER INK

Naught for the Taxpayer’s

Comfort:

THE DECISIONS IN BIG G AND CLICKS

CONCERNING FUTURE EXPENDITURE CLAIMS

UNDER SECTION 24C

MILTON SELIGSON SC*

ABSTRACT

This article considers section 24C of the Income Tax Act, which provides for

a deduction from a taxpayer’s taxable income in respect of future expendi-

ture on contracts in certain circumstances. It discusses the application of

section 24C in two recent cases decided by the Supreme Court of Appeal:

Commissioner, South African Revenue Service v Big G Restaurants (Pty) Ltd 2019

(3) SA 90 (SCA) and Commissioner, South African Revenue Service v Clicks

Retailers (Pty) Ltd 2020 (2) SA 72 (SCA). These decisions appear to have

settled once and for all that the future expenditure has to be incurred in terms

of the very same contract which gave rise to the income and not from related

contracts, even if they are inextricably inter-linked.

The decision in Big G is discussed f‌irst. In a unanimous judgment the SCA

reversed the decision of the Tax Court, which had held that the requirements

of the section were satisf‌ied and that the taxpayer was entitled to claim the

allowance under section 24C. The author discusses the facts and analyses the

reasoning of the SCA in interpreting the section, applying it to the facts and

reaching a different conclusion.

The basis of the SCA’s decision was the narrow interpretation given to the

requirement that the income had to be earned ‘in terms of’ a contract and

that the future expenditure would be incurred in performing the taxpayer’s

obligations ‘under such contract’. In opting for this interpretation, the Court

relied on the fact that section 24C is an exception to the general prohibition

in section 23(e) of the Act, which provides that no deduction shall in any case

be made in respect of income carried to any reserve fund. It further found

support for its interpretation in the SARS Explanatory Memorandum which

accompanied the introduction of section 24C in 1980.

The article considers case law that would have justif‌ied a broader approach

to interpreting the section, by the application of the well-established maxim

generalia specialibus non derogant, and may have led to a different result. It

also suggests that the use of the SARS Explanatory Memorandum as an aid to

interpretation is inconsistent with the decision of the Constitutional Court in

Marshall NO and Others v Commissioner, South African Revenue Service 2019

(6) 246 (CC) at para [10], to the effect that, in accordance with constitutional

precepts, the Court should not have regard to an interpretation by SARS of a

statute that it administers, in litigation to which it is a party.

* Honorary Member, Cape Bar.