New Kleinfontein Co Ltd v Commissioner for Inland Revenue

• Jurisdiction: South Africa
• Judge: Innes CJ, Solomon JA, CG Maasdorp JA, De Villiers AJA and Juta AJA
• Judgment Date: 08 March 1920
• Hearing Date: 25 February 1920
• Court: Appellate Division

C.G. Maasdorp, J.A.:

The New Kleinfontein Company is the owner of the three properties mentioned in the statement of facts in this case upon which it carries on mining operations. The properties are, for the purposes of the Income Tax Act No. 41 of 1917, assessed as one as being the mining property of the entity - the New Kleinfontein Company. The three properties mentioned are the original New Kleinfontein, the property formerly held by the Benoni Consolidated Mines, and the Apex Mines. In determining the liability of the Company under Act 41 of 1917 for the year of

Maasdorp, J.A.

assessment ending 30th June, 1917, the Commissioner has admitted, as a set-off against its income for that year, the losses made in respect of the Benoni section and the Apex section. These deductions it is said, were allowed in terms of section 41 of the Act. The Company claims that what is allowed by the Commissioner is not the true amount to be set off against the income of the Company because it does not include the amortisation allowances allowable under section 4 (1) of the Mining Taxation Act No. 6 of 1910, as calculated in terms of section (5) (1) of that Act. The items allowed by the Commissioner are set out in the statement of facts, and so are the items which the Company claims should also be taken into account. A dispute having arisen as to the true interpretation of section 17 (2) (b), the matter was taken on appeal to a special Court, and that Court, in terms of section 86, stated a case for determination of the question of law which has arisen by the Transvaal Provincial Division. From that Division the matter now comes on appeal to this Court. The question submitted by the special Court reads as follows: "Should the allowances for amortisation, as set out in paragraphs 2 (h) and 2 (k) above, be taken into account as a loss to be set off under section 17 (2) (b) and/or deducted under section 41 of Act 41 of 1917 in assessing the normal income tax and dividend tax respectively payable by the Company for the year ending 30th June, 1917."

In discussing this question it will be convenient to set out in full the sections referred to therein.

"Section 41. There shall be deducted from the amount of any dividend liable to the tax any loss ranking for set-off under sub-section (2) of section 17 against income received in any succeeding year: provided that the amount of such set-off shall be calculated by reference to the rate of tax under which such loss is determined."

"Section 17. For the purpose of determining the taxable income of any person there shall be deducted from, or set off against, the income of such person as defined by section 6, the amount set out in this section."

"Subsection 2 (b). There shall be set off any loss, made in any accounting year or period in carrying on mining operations, which has been ascertained and determined under an assessment made in terms of the Mining Taxation Act; such loss shall be set off at the rate chargeable under that Act provided that no loss shall rank for set-off under this sub-section, which has been adjusted by deduction in accordance with section 41 of this Act."

Maasdorp, J.A.

The contention of the Commissioner of Revenue is that the loss made in any accounting year in terms of the above section is the amount ascertained by deducting from the revenue derived from mining operations only the working expenditure for the year, the loss being the excess of the working expenditure over the revenue. The contention of the Company is that in order to ascertain the loss made in any accounting year, there shall be deducted from the revenue, not only the working expenditure but also an allowance for the year for amortisation of capital expenditure as defined in section 5 (1) of the Mining Taxation Act. The controversy turns on the true interpretation of the words "any loss...