Palabora Mining Co Ltd v Secretary for Inland Revenue

• Jurisdiction: South Africa
• Judge: Ogilvie Thompson CJ, Holmes JA, Jansen JA, Trollip JA and Muller JA
• Judgment Date: 18 May 1973
• Citation: 1973 (3) SA 819 (A)
• Hearing Date: 03 May 1973
• Court: Appellate Division

Ogilvie Thompson, C. J.:

In determining E appellant's liability for normal tax for the year of assessment ended 31st December, 1966 and assessing appellant to have sustained a very substantial loss in respect of that year, respondent disallowed as a deduction an amount of R1 816 F 149. Appellant's objection to this disallowance was overruled, and its subsequent appeal to the Transvaal Income Tax Special Court was dismissed. Against that decision, the appellant now appeals, with the necessary written consents in terms of sec. 86 (1) (b) of Act 58 of 1962, direct to this Court.

G Regrettably, it is necessary yet again to mention undue delay in bringing appeals against Special Court decisions before this Court. In the present instance, the judgment of the Special Court was delivered as far back as 28th November, 1969; but it was not until after 28th November, 1972, that the record on appeal was filed with the Registrar H of this Court. In response to enquiry from the Court at the hearing of the appeal, counsel were unable to advance any satisfactory explanation for this long delay; indeed, certain dates quoted to us by counsel indicated that correspondence alone - admittedly associated with the preparation of the stated case - took a leisurely course extending over a period of some 12 months. Similar delays in the prosecution of appeals against judgments of a Special Court have been the subject of specific reference in previous decisions of this Court, notably in C.I.R v. Allied Building Society, 1963 (4) SA 1 (AD) at pp. 9 - 10 and

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S.I.R v. Cadac Engineering Works (Pty.) Ltd., 1965 (2) SA 511 (AD) at p. 515. In the earlier of those cases the delay was some two years and four months, while in the Cadac case the delay was just under two years. Despite this Court's express statements, made in those cases, A that such delays should not be allowed to persist, we now in the present case have a delay of over three years. Some delay after the Special Court delivers its judgment must necessarily always attend the preparation of the stated case for the consideration of this Court (or of the relevant Provincial Division). In the present instance, the B stated case, together with its annexures other than the judgment of the Special Court, comprises some 200 pages. The compilation of the detailed material to be incorporated in the stated case and the drafting of the latter would thus inevitably take an appreciable time. Nor is this Court unaware of general staff shortages or unmindful of the manifold and arduous duties of the respondent's professional assistants. C Nevertheless, after according due weight to all such factors - particularly the one last mentioned above - the delay exceeding three years which has occurred in the present case is an inordinately long delay. In a further endeavour to eliminate undue delays in the preparation and completion of stated cases, the Registrar of this Court D will be directed to bring the aforegoing remarks to the personal notice of the Secretary for Inland Revenue (hereinafter referred to as 'the Secretary').

For a proper appreciation of the issues to be determined in this appeal, it is necessary first to summarise, as briefly as the circumstances E permit, the facts as reflected in the stated case and as found by the Special Court. Appellant's business is the mining and sale of copper. Its mine is situated at Phalaborwa in the Letaba District of the Transvaal. Appellant also produces magnetite, vermiculite and sulphuric acid; but its main product is anode copper, which contains approximately 99.26 per cent copper. In the production of anode copper, certain F intermediate products are made, namely, copper concentrates and blister copper, both of which are themselves saleable products. Appellant was incorporated in August, 1956. The objects clause of its memorandum of association embraces a wide range, including power to construct and erect waterworks.

G Up to the end of 1962 appellant was mainly engaged in exploratory work and metallurgical tests conducted with the aid of a pilot plant. Early in 1963 appellant exercised certain options which it held, and on 14th June of that year it was granted a mining lease. On 5th July, 1963, appellant issued a prospectus offering shares and debentures for public subscription. It was stated in the prospectus that it was estimated that H construction of the plant would be completed and initial operations would commence within 36 months.

Thereafter appellant was until early in 1966 engaged in preparatory work which mainly comprised the preparation of a pit for open-cast mining and the erection of the plant required to crush the ore and extract and refine the copper. Appellant itself did the work of preparing the pit, but the erection of the plant was undertaken by a combine of engineering firms known as Bechtel-W.K.E. and sub-contractors. By the end of December, 1964, 947 375 short tons of material had been moved from

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the pit of which 435 000 tons were ore. During November and December, 1964, arrangements were made for the sale of large quantities of magnetite and acid. During the year ended 31st December, 1965, preparation of the open pit continued and some 14 365 510 tons of A material, which included 5 333 000 tons of ore, were hauled from the pit. During that year 299 970 short tons of ore were crushed. Milling operations commenced in December, 1965; 39 549 short tons of ore were treated and 658 short tons of concentrates assaying 33.3 per cent copper were produced. During 1965 appellant also took over the vermiculite B operations previously carried on by a subsidiary. In the course of that year, contracts were concluded for the sale of approximately 50 000 short tons of anode copper. Smelting operations commenced in January, 1966. On 17th February, 1966, the first copper anodes were cast. The copper process plant was completed early in March, 1966, and by May of that year full copper production was achieved.

C At the time when its prospectus was issued in July, 1963, appellant was obtaining its water requirements from Foskor, an industry in the vicinity, which had a water supply system. It was at that time anticipated by appellant that its future water requirements would be supplied by a statutory board known as the Phalaborwa Water Board, and D that the cost of such water would constitute part of appellant's annual operating expenditure. The Phalaborwa Water Board (hereinafter referred to as 'P.W.B.') was established in terms of sec. 108 of the Water Act, 54 of 1965, on 10th May, 1963. Its main purpose was to store water in the Olifants River by constructing a barrage thereon with the object of E providing an assured and sufficient supply of water for urban, industrial and agricultural purposes within the Phalaborwa area. The P.W.B. was formed as the result of negotiations which had taken place during 1962 between the Government Departments concerned and the major potential consumers of water in the Phalaborwa area, namely, appellant, F Foskor and an industry named Bosveld Kunsmis Edms. Bpk. Appellant had hoped that the necessary storage capacity would be provided in the river by the P.W.B. without appellant having to do any of this work itself. By September, 1964, however, appellant had become seriously concerned at the delay in commencing construction work on the dam and at the prospect of missing the complete riverflow in the rainy season of 1965 - 1966. G For the original estimate that appellant's plant would be ready to produce anode copper by July, 1966 was, as the result of accelerated construction, advanced at the end of 1964 by six months to January, 1966. This advancement was achieved through appellant's offering inducements to, and putting pressure upon, the various contractors H concerned. The earlier date of estimated anode copper production accentuated the appellant's anxiety regarding the availability of water required for such production. Although it was at all material times clear that the P.W.B. would in due course construct the aforementioned dam on the Olifants River, appellant became increasingly concerned that the necessary works would not be completed in time to impound the summer rainfall of the 1965 - 1966 season, in which event the dam would not be filled until the next season's rains

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fell in about November or December 1966, and, consequentially, production of anode copper would be delayed for some eight months.

In or about September, 1964, the P.W.B. advertised the qualifications A for persons wishing to tender for the construction of the proposed works to impound water in the Olifants River. With a view to avoiding delay in its production of anode copper, appellant proposed to the Minister of Water Affairs that it should be allowed to undertake the whole of the work of constructing the envisaged water system. In making B this proposal appellant urged that it had an existing engineering organisation (Bechtel-W.K.E. and sub-contractors) locally available for carrying on various types of construction work. The Minister, however, declined appellant's proposal, but intimated that there would be no objection should appellant wish to tender for any part of the project. C Appellant accordingly in or about October, 1964, applied to the P.W.B. to be recognised as an approved tenderer for various sections of the proposed water supply project. This recognition was granted; and in due course appellant submitted tenders in its own name for various civil, mechanical, and electrical engineering contracts associated with the water project. Although these tenders were submitted in its own D name, it was always appellant's intention that the bulk of the work would be carried out on its behalf by Bechtel-W.K.E. and sub-contractors. In the event, appellant was awarded a...