Secretary for Inland Revenue v Silverglen Investments (Pty), Ltd

• Jurisdiction: South Africa
• Judge: Steyn CJ, Ogilvie Thompson JA, Rumpff JA, Holmes JA and Jansen JA
• Judgment Date: 28 November 1968
• Hearing Date: 05 November 1968
• Court: Appellate Division

Steyn, C.J.:

This is an appeal on a stated case, by consent direct to this Court, against the finding by the Transvaal Income Tax Special Court that the respondent is, in respect of the year of assessment ended D on 30th June, 1963, entitled to a special deduction in terms of sec. 21 bis of the Income Tax Act, 58 of 1962. The income in relation to which the special deduction was claimed, is income derived by the respondent from a transaction involving a block of stands in the Silverglen Township. These stands were affected properties as defined in sec. 1 of E the Group Areas Development Act, 69 of 1955, as amended up to the relevant time. They had on 10th November, 1962 been put up for sale by auction, subject to the pre-emptive right conferred upon the Group Areas Development Board by sec. 16 (1) of the 1955 Act, and were sold to one Ebrahim for R200,000. On the same date, the notice as to the intended sale to Ebrahim, required by sec. 20 (1) of that Act, was duly given by F the respondent to the Board. By a letter dated 10th December, 1962 the respondent was informed that the Board had in terms of sec. 20 (2) (a) of the Act decided to exercise its preemptive right and to purchase the properties, subject to a number of conditions detailed in the letter, for the above-mentioned sum plus additional consideration under sec. 20 G (6) for which Ebrahim may have been liable in terms of the auction sale, and from which the Board is not exempt.

Sec. 20 (6) is to the effect that the consideration payable by the Board in pursuance of the exercise of its pre-emptive right, is the selling price of the property plus the monetary value of any of the conditions H of sale not onerous to the owner together with certain other charges which may be imposed on the purchaser by law or arise from the conditions of sale. According to sec. 20 (1) (c) the respondent had to state in the notice to the Board, in regard to conditions not onerous to the respondent, the monetary value, if any, of any such condition. In terms of sec. 20 (3), the Board is not bound by any condition of the sale in respect of which no monetary value has been so stated. It does not appear from the stated case whether or not any such value was so stated. In regard to one of the conditions of the

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auction sale, it may be inferred that no such value was stated. That was the condition in clause 19 of the agreement relieving the respondent as township owner of any obligation in respect of the supply of water, electricity, gas, sanitary services and any other amenities. Para. (k) of the Board's conditions of purchase is to the effect that, by virtue A of sec. 20 (3), the Board is not bound by this condition and that the township owner will not be relieved of any such obligation.

The preceding paragraph of the said conditions mentions, inter alia, that:

'(j)

should the basic value of the properties hereby purchased be re-determined at an amount in excess of the consideration for which they B are sold, the seller will in terms of sec. 20 (5) (b) be entitled to a depreciation contribution equal to 80 per cent of the difference between the consideration and the basic value, which will be paid in addition to the purchase price after transfer has been effected and all costs have been determined.'

Sec. 20 (5) (b) provides:

'Upon the transfer of any affected property by the person who was or is deemed to have been the owner thereof at the basic date, in pursuance of C a disposition, whether to the board or to a person other than the board, under this section, there shall -

(a)

.....

(b)

if the consideration for which the property was in fact disposed of is less than the basic value thereof, be payable by the board to the owner a depreciation contribution equal to 80 per cent of the difference between the basic value and such consideration.'

The basic value, as defined in the Act, of affected properties, is D determined by valuators under sec. 19 and may, in specified circumstances, be re-determined under sec. 18. In terms of sec. 18 (b) and sec. 19 (8), however, a value agreed upon between the Board and the owner, or between the Board and the owner and all mortgagees, respectively, is the basic value of the property, and a determination by valuators is then not necessary.

E The stated case does not disclose at what amounts the basic values of these properties had originally been determined or whether they have been re-determined as held in prospect in para. (j) mentioned above.

F According to para. 2 (6) of the stated case, the Board's conditions of purchase led to 'certain disputes' between the respondent and the Department of Community Development. One of them concerned the statement in para. (k) of these conditions that the Board is not bound by clause 19 of the auction sale agreement. The others are unspecified. The next sub-paragraph of the stated case is the following:

G '(7) The appellant eventually agreed to release the Group Areas Development Board from the obligations stipulated in clause 19 of the deed of sale, between the appellant and J. H. S. Ebrahim and on or about 30th May, 1963 the said Board agreed to pay the purchase price together with the depreciation contributions upon registration of transfer.'

The 'appellant' here means the respondent. Although para. 2 of the stated case commences with the statement

H 'at the hearing (no evidence having been given) the following facts were admitted',

it is not apparent what occasion there could have been for a release of the Board from the obligations mentioned or for any dispute in regard to these obligations. As indicated above, the Board's reliance upon sec. 20 (3) for its claim that it was not bound by clause 19, leads to the inference that it was not a condition of the auction sale in respect of which a monetary value had been stated. If that inference

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is correct, there would hardly be room for a dispute and there could be no question of a release of the Board from these obligations.

Eventually the transfers were effected on 7th August, 1963, and the next A day the purchase price and the depreciation contributions were paid to the respondent. The amount of the contributions is not revealed. Apart from the purchase price of R200,000, the only relevant figure given is R347,603, being the profit made by the respondent on the sale. The respondent returned this amount as income accrued to it during the tax year ended on 30th June, 1963, but the appellant excluded it from the B ...