Pyott Ltd v Commissioner for Inland Revenue

• Jurisdiction: South Africa
• Judge: Watermeyer CJ, Tindall JA, Feetham JA, Greenberg JA and Davis AJA
• Judgment Date: 24 October 1944
• Citation: 1945 AD 128
• Hearing Date: 10 October 1944
• Court: Appellate Division

Davis, A.J.A.:

This is an appeal from a judgment of the Eastern Districts Local Division, given on a case stated by the Special Court for hearing income tax appeals. The material facts, according to, the case stated, are as follows.

The appellant carries on business, inter alia; as a biscuit manufacturer; for years past it has had a factor for the making of the tin containers in which the biscuits are packed and sold. The cost of manufacturing the tins was always treated in the accounts as part of the ordinary manufacturing costs of the business. Prior to the present war, the 28-lb. tin (which was taken merely as an illustration) cost 1s. 8d. to manufacture; the customer was charged 2s. for it, the biscuits being sold to the customer with the tins, both being charged in the same invoice. Even at that time, the customer could always get back his 2s. by returning the tin; about 25 to 30 per cent. of the tins were returned. But the amounts for which the tins were sold were brought up in the trading accounts and the transaction was treated as a sale. After the outbreak of war the position in regard to tin-plate became more and more difficult, until finally, at a meeting of all trades concerned, it was agreed in October, 1941, to put up the price of these tins to 6s. each, this artificial price being fixed to force customers to return the tins. The increase in price received the approval of the Price Controller; circulars were sent to customers informing them of the reason for the increase in price and stating that "on these tins being returned, full credit will be allowed". The same was told to them also verbally by the travellers, and the appellant regarded itself as bound to pay 6s. for each tin returned - that is, I take it, provided it was returned in good condition. This high price, for an article which was intrinsically worth far less, acted in the manner expected: as a result, 90 per cent. of the tins were there after returned... In all other respects, the course of dealing between the appellant and its customers remained as before; but the Appellant no longer considered the moneys which it received for the tins as part of its distributable profits. "Provision for allowances

Davis, A.J.A

on Tin Containers Returnable", to an amount of £9,000, was shown in the Balance Sheet; this practice had not hitherto been followed. The actual value of the tins, for which, provision was thus made, in the open market in normal times is estimated by the appellant at £2,500. It should be added that there is nothing to show that between the date when the price was raised, namely October, 1941, and the date up to which the appellant's accounts were accepted by the Commissioner, in terms of sec. 55 (13) of Act 31 of 1941, namely 30th November, 1941, any tins were in fact returned and paid for. Subsequent events, however, have apparently shown that the estimate of £9,000 was an accurate one. The Commissioner...