South African Estates and Finance Corporation Ltd v Commissioner for Inland Revenue

• Jurisdiction: South Africa
• Judge: Innes CJ, De Villiers JA, Kotzé JA, Wessels JA and JER De Villiers AJA
• Judgment Date: 14 January 1927
• Citation: 1927 AD 230
• Hearing Date: 27 October 1926
• Court: Appellate Division

De Villiers, J.A.:

This is an appeal from a decision of the Transvaal Provincial Division in a case stated in terms of sec. 60 of the Income Tax Act, No. 40 of 1925 by the Special Court for hearing Income Tax appeals. From the case as stated it appears that at a sitting at Johannesburg on the 4th February 1926, the appellant appealed against an assessment for dividend tax made upon it by the Commissioner for Inland Revenue in respect of the accounting period of the company ended the 30th June, 1923. In the course of the hearing the following facts were admitted or proved: - (a) The appellant was registered in the Transvaal on the 10th June, 1905, with limited liability, the nominal capital being £70,020, divided into 70,020 shares of £1 each. The main object of the company was the acquisition of land, the laying out of such land in Townships and the selling or disposing of the same for such consideration as the company might think fit. (b) of the said shares, 56,011 were issued and there was subscribed in respect of these shares the sum of 251,261. (c) With a portion of the capital so subscribed the company acquired certain holdings of land at Naboomspruit, Transvaal, and in Marshall's Township, Johannesburg, but the bulk of the capital fund was expended in the acquisition of land at Isipingo, Natal, and in laying out a Township thereon. No further landed property was acquired and the business of the Company

De Villiers, J.A.

thereafter consisted in the development of those properties and the sale of the lots into which they had been sub-divided. (d) As the result of numerous sales effected over a series of years the company had accumulated the sum of £33,660 16s. 5d., as shown in the balance sheet for the year ending 30th June, 1922, which was held in cash or in readily realisable securities. During these years the annual accounts of the company did not on any occasion disclose any profit, nor was any dividend declared. (e) At the 30th June, 1922, the company had assets remaining, consisting of unsold land, which appeared in the balance sheet at that date as being of a value of £14,490 14s. 2d., a figure confirmed at that date by a valuator. . At that same date the profit and loss account of the company showed a debit balance of £1,748 1s. 4d. (f) As the company had decided not to purchase any additional landed property, it was resolved to utilise the accumulated fund referred to in paragraph (d) in returning to the shareholders a portion of the capital subscribed, and to this end an Order of Court was obtained on the 12th October, 1922, whereby the capital of the company was reduced to £28,005 10s. Thereafter the balance subscribed, amounting to £23,255 10s. was repaid to the holders of the shares.

The Commissioner having assessed the company for dividend tax for the accounting period ended 30th June, 4923, in respect of the amount of £23,255 10s., so distributed amongst the shareholders, the company appealed against the assessment so made. It Was contended on its behalf that the said amount constituted a return to the shareholders of capital originally subscribed and was therefore not liable to dividend tax under sec. 38 (a) of Act 41 of 1917. It was on the other hand contended on behalf of the Commissioner that the company was liable to pay dividend tax on the amount under the provisions of that paragraph of the Act, as being a sum of money, or the equivalent of money, paid, allocated or credited by the company to or amongst its shareholders or members as such, irrespective of whether the said amount was a return of capital or a payment out of profits. The Special Court held that the matter was settled by the decision of the Transvaal Provincial Division in the case of the Lydenburg Gold Farms Ltd. v The Commissioner for Inland Revenue (1926 T.P.D. 613) and confirmed the assessment. Thereupon the company...