Secretary for Inland Revenue v Cape Lime Co Ltd

• Jurisdiction: South Africa

Secretary for Inland Revenue v Cape Lime Co Ltd
1967 (4) SA 226 (A)

1967 (4) SA p226

Citation	1967 (4) SA 226 (A)
Court	Appellate Division
Judge	Steyn CJ, Botha JA, Wessels JA, Smit AJA and Jennett AJA
Heard	May 22, 1967
Judgment	August 22, 1967

Flynote : Sleutelwoorde G

Revenue — Income tax — Deductions — In respect of machinery used in process of manufacture of lime — Lorries purchased to transport limestone from quarry to reduction plant — Whether process H of manufacture commences at quarry or at reduction plant — Rock reduced to 'manageable size' at quarry — Process commencing there — Question one of law.

Headnote : Kopnota

Respondent was engaged in a process of manufacture in order to produce lime from raw material available on its land in the form of natural deposits of limestone. The reduction plant was on separate premises owned by it some two and a half miles away from the quarry. Respondent had purchased two new and unused Leyland motor lorries for use mainly in the cartage of the limestone from the quarry to the reduction plant. In order to determine

1967 (4) SA p227

whether the lorries had been brought into use by respondent 'for the purposes of his trade and used by him directly in a process of manufacture' within the meaning of section 12 (1) of the Income Tax Act, 58 of 1962, thereby entitling respondent to the deductions from income provided by sub-sections (1) and (2) of section 12 of the Act, as maintained by respondent, or not, as maintained by the appellant, it accordingly became necessary to determine whether the process of A manufacture commenced at the quarry or only with the later operations at the reduction plant. It appeared that some of the portions of rock obtained from the blasting had to be subjected to further blasting at the quarry to reduce them to 'manageable size'. At the reduction plant they were fed into crushers and further reduced to portions a size suitable for feeding into the kilns. The Special Court for the hearing of Income Tax appeals having decided in favour of the respondent that the process of manufacture commenced at the quarry, in an appeal,

Held, that the question where the process began was a question of law.

B Held, further, per WESSELS, J.A., SMIT, A.J.A. and JENNETT, A.J.A.; STEYN, C.J., and BOTHA, J.A., dissenting; that the finding of the Special Income Tax Court was correct, and that the appeal should accordingly be dismissed with costs.

Case Information

Appeal from a decision of the Special Income Tax Court. The facts appear from the judgment of STEYN, C.J.

H. J. O. van Heerden, for the appellant: Die algemene reël is dat kapitale uitgawes nie afgetrek kan word then einde belasbare inkomste te bepaal nie. In art. 12 van die Inkomstebelastingwet word 'n uitsondering ten gunste van vervaardigers gemaak. Derhalwe moet die bepalings waarin die uitsondering vervat is - en in casu - meer bepaald die begrip D 'deur hom regstreeks gebruik by 'n vervaardigingsproses' streng geïnterpreteer word. Sien Ernst v Commissioner for Inland Revenue, 1954 (1) SA 318 te bl. 323C - E. Afgesien van die feit dat die woord 'regstreeks' gebruik is, dui die gebruik van die woord 'by' ('in') in plaas van die woorde 'in verband met' ('in connection with') daarop dat E die Wetgewer die toepassingsmoontlikheid van die uitsondering wou beperk het tot bedrywighede wat integraal en onafskeibaar verbonde is aan die werklike vervaardiging van die artikel. Sien I.T.C. 885, 23 S.A.T.C. 336. Van 'n stap in 'n vervaardigingsproses kan daar slegs sprake wees indien 'n handeling primêr daarop gerig is om uit 'n F bepaalde stof 'n artikel te vervaardig wat wesentlik verskillend van bedoelde stof is. Sien I.T.C. 1006, 25 S.A.T.C. 248 te bl. 520; I.T.C. 1052, 26 S.A.T.C. 253 te bl. 255. C

Dit volg dus dat die gebruik van masjinerie aan die bepalings van art. 12 (1) en 12 (2) voldoen slegs indien bedoelde gebruik primêr en regstreeks op bogenoemde doel gerig is.

G Die bedrywighede by die kalkgroef was in eerste instansie daarop gerig om die roustof te wen en vervoer daarvan moontlik te maak. Die vervoer van die kalksteen na die fabrieksperseel was weer daarop gerig om die roustof by die vervaardigingsplek te besorg sodat vervaardiging 'n aanvang kon neem. Geen van bedoelde bedrywighede was derhalwe primêr H daarop gerig om 'n artikel te vervaardig wat wesentlik van die roustof (kalksteen) verskil nie. Sien Kantor v MacIntyre and Another, 1958 (1) SA 45 te bl. 47. In die huidige geval kan moontlik gesê word dat die respondent die vragmotors gebruik het in verband met sy vervaardigingsproses, maar nie dat hulle regstreeks by bedoelde proses gebruik is nie. Sewentig persent van die gebruik van die vragmotors is toegeskryf aan die vervoer van die kalksteen vanaf die kalkgroef na die fabrieksperseel. Dit volg dus dat selfs indien die vragmotors 30 persent

1967 (4) SA p228

van die tyd regstreeks by die respondent se vervaardigingsproses gebruik is, die respondent nie aanspraak het op die aftrekkings waarvoor art. 12 voorsiening maak nie. Sien I.T.C. 1061, 26 S.A.T.C. 317.

A Die vraag of feite wat gemene saak is binne die raamwerk van 'n statutêre bepaling betrek kan word, is 'n regsvraag. Sien Platt v Commissioner for Inland Revenue, 1922 AD 42 te bl. 49 - 50; Commissioner for Inland Revenue v Stott, 1928 AD 252 te bl. 259; Commissioner of Taxes v Hepker, 1933 AD 192 te bl. 196; Nicosia v Workmen's Compensation Commissioner, 1953 (4) SA 165 te bl. 168; B Commissioner of Taxes v G's Estate, 1965 (1) SA 780 te bl. 784. Die feite wat in hierdie verband ter sprake kom, is die primêre feite asook afleidings van sodanige feite, dit wil sê sekondêre feite. Sien Secretary for Inland Revenue v Cadac Engineering Works (Pty.) Ltd., 1965 (2) SA 511 te bl. 520. 'n Verskil moet egter getrek word tussen C feitlike afleidings en regskonklusies. Van eersgenoemde kan daar sprake wees slegs indien op grond van waarskynlikhede van bepaalde feite die bestaan van ander feite afgelei word. 'n Gevolgtrekking dat feite (insluitende sekondêre feite) aan 'n regsbegrip beantwoord, is egter 'n regskonklusie. Sien Willcox and Others v Commissioner for Inland D Revenue, 1960 (4) SA 599 te bl. 602; Botha v Cavanagh, 1953 (2) SA 418. Al die primêre feite is gemene saak en geen afleidings van sodanige feite op grond van waarskynlikhede kom ter sprake nie. Die enigste vraag is derhalwe of hierdie feite aantoon dat die vragmotors regstreeks by 'n vervaardigingsproses gebruik is ('n regsbegrip vervat in 'n statutêre bepaling), en dit is 'n regsvraag. Sien Secretary for Inland Revenue v Hersamar (Pty.) Ltd., 1967 (3) SA 177.

E Die bevinding van die Hof a quo dat die vervaardigingsproses by die gruisgroef 'n aanvang geneem het, is ingeklee as 'n feite bevinding, maar is in werklikheid 'n regsbevinding, of alternatiewelik 'n bevinding waarin feite en regsaspekte ineengestrengel is. Selfs indien laasgenoemde die geval is, is die bevinding op appèl aanvegbaar. Sien F Crossland v Hawkins (1961) 2 All E.R. 812 te bl. 819. In bedoelde bevinding is naamlik opgesluit 'n regskonklusie dat, op 'n behoorlike interpretasie van die betrokke statutêre bepaling, 'n vervaardigingsproses 'n aanvang kan neem selfs indien die bedrywighede nie primêr op vervaardiging as sulks gerig is nie. In die alternatief, en indien aanvaar sou word dat bedoelde bevinding 'n feite bevinding is, G word dit aan die hand gedoen dat daar geen grondslag daarvoor was nie, en dat dit derhalwe onderhewig aan appèl is. Sien Strathmore Holdings (Pty.) Ltd v C.I.R., 1959 (1) SA 460 te bl. 467; C.I.R v Strathmore Consolidated Investments Ltd., 1959 (1) SA 469 te bl. 475; Goodrick v C.I.R., 1959 (3) SA 523 te bl. 527 - 8.

H Miss L. van den Heever, for the respondent: If appellants' contention is (a) appealable and (b) correct, the trucks could not be said to be used directly in the process of manufacture and their 30 per cent use at the reduction plant would not entitle respondent to the relevant deductions. For meanings of 'process', 'manufacture', 'direct', 'directly' see Shorter Oxford Dictionary. A change in the physical properties of the raw material is not requisite before an article can be called 'manufactured'. What is required is that, at the end of the process

1967 (4) SA p229

conducted by that particular taxpayer, the raw material has become something essentially different, e.g., wire has become nails, paper has become confetti, water has become ice, scrap metal has become briquettes ready for use by the foundry. See I.T. case 1052, 26 S.A.T.C. 253; Kent v Astley, (1869) 5 Q.B. 19 at pp. 22 - 3; S.I.R v Hersamar (Pty.) A Ltd., 1967 (3) SA 177. Nor is it necessary, nor indeed usually possible, that the entire process occur in the same place. The kilns are separated in space from the hydrating plant. See, by analogy, Richards v Swansea Improvement & Tramways Co., 1878 (9) Ch. D425 at p. 436. In the Hersamar case, supra, this Court decided that it is unnecessary that B the taxpayer produce a finished end product. As an example, one may manufacture pistons or plugs intended ultimately for use by others as components of motor cars. The converse is equally true. The appellant's choice of starting-place for the 'process of manufacture' of lime, is completely arbitrary. If chemical change is to be the touchstone, in C logic crushing at the reduction plant should be excluded from the process; and if 'vormverandering' is to be the criterion, this occurs during breaking up at the quarry just as it does in the crushers, and is equally indispensable to treatment in the kilns. The object of sec. 12 is presumably to encourage persons engaged in industry to keep their machinery up to date. The rule stated in Ernst's case, 1954 (1) SA 318 at p. 323, does not mean that the general presumption against D inequality in the application of...