Pyott Ltd v Commissioner for Inland Revenue

• Jurisdiction: South Africa
• Judge: Innes CJ, Solomon JA, De Villiers JA, Kotzé JA and Wessels JA
• Judgment Date: 12 January 1925
• Citation: 1925 AD 298
• Hearing Date: 27 October 1924
• Court: Appellate Division

Innes, C.J.:

The three questions with which this appeal is concerned were stated for the determination of the Cape Provincial Division under sec. 87 of Act No. 41 of 1917 as questions of law arising in regard to an assessment for excess profit duty made upon the company for the final accounting period in respect of which such duty was chargeable. The dispute to which the questions relate originated in the special arrangement regarding income tax returns, agreed upon in view of the fact that the company's financial year did not coincide with the normal statutory year of assessment. The former terminated on the 30th November;

Innes, C.J

the latter on the 30th June. The company's returns for the first year of tax under Act 28, 1914, were originally framed upon a pro rata basis which was superseded by an arrangement come to in 1915, in terms of which the taxable income for the year ending 30th June, 1915, was calculated by taking half the profits for the two years ending, 30th November, 1915. That method was retrospectively applied to the year ending 30th June, 1914 - the necessary adjustments being made - and it was also adopted for the year ending 30th June, 1916. As at present advised I am unable to see how such an arrangement could be brought within the statute. But that point was not argued; and in any event the arrangement was in its turn superseded. The Income Tax Act of 1914 was repealed by the Act of 1917, which took effect as from the 29th June of that year; and in October following the company obtained the leave of the Commissioner to render returns on the basis of accounts covering its own financial year, and ending therefore on the 30th November. Returns on that basis were annually rendered up to the 30th November, 1920. And in July, 1918, an adjustment was made for the three years of tax ending on 30th June, 1916, the Commissioner refunding to the company the difference between the tax actually paid, and the amount which would have been payable had the assessment been based on accounts ending on 30th November in each instance. The returns thus supplied for normal tax purposes were also accepted in order to determine the excess profits duty imposed by the Act of 1911. That duty ceased to be leviable on the 30th June, 1920; and in the final return rendered by the company for the period terminating on 30th November of that year, the value of the stock then in hand was written down £29,058 below cost price. The company claims to do so by virtue of sec. 8, Act 45, 1920; the Commissioner refuses to allow the deduction. And the operation and effect of the clause in question is the subject matter of the main controversy in this case. It is raised by the second of the three questions stated; but as a preliminary to dealing with it, the first question calls for consideration, - namely, whether paragraph 9 of sec. 65 of Act 41, 1917, is applicable to the company. It is not very happily framed; but the point is whether the assessment for the year ending 30th June, 1916, was made under Act 35 of that

Innes, C.J.

year upon a period ending on a date other than the 30th June. If that were so, all future returns would have had to be rendered for periods ending also on such other date; if not it lay with the Commissioner under paragraph 10 of sec. 65 to accept returns made up to a non-statutory date if satisfied that that was a convenient course. The answer to the question is not decisive of the main controversy, though it has some bearing upon the legal position created by the arrangement of 1917; but important or not, the reply presents little difficulty. There could only have been such due assessment under the Act of 1916 as has been referred to, if the Commissioner exercised the power conferred by sec. 17 (8) of the Act of 1914, which provided that where the taxpayer could not conveniently return his income as on the 30th June, the Commissioner might accept returns made up to a date agreed by him. There was no such exercise of discretion, and no assessment on a 12 months period terminating on such other date. The correspondence annexed to the special case clearly shows that the assessment was on the period ending 30th June, but upon the basis of the company's average annual profit for the two years ending 30th November. It was a compromise arrived at outside the statute, not an exercise of the authority conferred on the Commissioner by sec. 17 (8) of the Act of 1914. I agree with the Provincial Division therefore that the first question must be answered in the negative.

Turning now to the second question, the enquiry at once suggests itself whether the Commissioner was acting within his statutory powers in accepting for the purpose of determining excess profits under sec. 52, the returns for normal tax prepared on the basis of accounts covering the company's financial year and terminating therefore on the 30th November. I have no doubt that he was. The language of sec. 65 (10) plainly confers on him a discretion to accept normal tax returns made up to an agreed date other than the 30th June, and the excess profits of the taxpayer can only be determined by reference to such returns. Moreover the discretion conferred by sec. 65 (10) is identical with the discretion granted by sec. 17 (8) of the Act of 1914, which he might have exercised in making his assessment under Act 35, 1916. Had it been thus previously exercised it would have been not only recognised but stereotyped by sec. 65 (9); and it is impossible therefore to regard its subsequent exercise as invalid.

Innes, C.J.

Clearly however, the authority to accept returns up to a nonstatutory date only affects the manner in which the income for the year of tax is ascertained. No exercise of that authority by the Commissioner can change the year of tax itself. All that he is entitled to do is to accept returns up to the agreed date as representing the income for the year of tax. In intendment of law the income ascertained from returns specially authorised under sec. 65 (10) is the income for the relative year of tax. The legal position is strikingly exemplified by what took place in 1918. Up to 30th June of that year the duty was 5s. in the £; from and after that date it was raised to 10s. in the £ after that date it was raised to 10s. in the £. The company was assessed for excess profits duty on the basis of accounts for 12 months ending on 30th November, 1918; but it was only charged 5s. in the £, and rightly so, because in law the income shown by those accounts was the income for the year of tax ending 30th June, 1918. I find myself therefore unable to take the view that the action of the Commissioner was unlawful, which led GARDINER, J., to refuse to entertain or reply to the second question. What the Commissioner did was not to forego excess profits duty for any part of the first year or for any other period, but to accept returns for one period as representing those for another; and that he was entitled to do under the statute. The second question must therefore be dealt with. And the reply to it will be found to depend entirely upon the construction of sec. 8 of Act 45, 1920. The statute took effect on 1st July, 1920, and the 9th section provided that the "present war" within the meaning of the...