Case Law[2025] ZASCA 16South Africa
Sishen Iron Ore Company (Pty) Ltd v CSARS (550/2023) [2025] ZASCA 16; 2025 (4) SA 458 (SCA); [2025] 2 All SA 350 (SCA) (5 March 2025)
Supreme Court of Appeal of South Africa
5 March 2025
Headnotes
Summary: Taxation – taxpayer deriving income from mining operations – whether expenditure incurred in respect of the relocation of a neighbouring residential township, expenditure incurred in respect of the relocation of certain infrastructure within the mining area, legal costs incurred with regard to the relocation of the township, and the costs of relocating a 66kV line supplying electricity to mine equipment to a new location within the mining area, deductible – special deductions provisions in s 15(a) read with s 36(7C) of the Income Tax Act 58 of 1962 (the ITA) in respect of ‘capital expenditure’ – meaning of ‘in terms of a mining right’ and ‘other than in respect of infrastructure’ in s 36(11)(e) of the ITA – meaning of ‘mine equipment’ in s 36(11)(a) of the ITA – whether deduction for wear and tear under s 11(e) of the ITA established in respect of 66kV line – in the alternative, whether general deduction provision in s 11(a) of the ITA applies to expenditure in respect of relocation of the 66kV line – burden of proof in s 102 of Tax Administration Act 28 of 2011 (TAA) – whether legal expenditure deductible in terms of s 11(c) of the ITA – whether interest in terms of s 89quat(2) of the ITA on outstanding tax on disallowed deductions a result of circumstances beyond the control of the taxpayer – whether the Commissioner for the South African Revenue Services (CSARS) should have determined, in terms of s 89quat(3) of the ITA, that interest not be paid, whether in whole or in part.
Judgment
begin wrapper
begin container
begin header
begin slogan-floater
end slogan-floater
- About SAFLII
About SAFLII
- Databases
Databases
- Search
Search
- Terms of Use
Terms of Use
- RSS Feeds
RSS Feeds
end header
begin main
begin center
# South Africa: Supreme Court of Appeal
South Africa: Supreme Court of Appeal
You are here:
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2025
>>
[2025] ZASCA 16
|
Noteup
|
LawCite
sino index
## Sishen Iron Ore Company (Pty) Ltd v CSARS (550/2023) [2025] ZASCA 16; 2025 (4) SA 458 (SCA); [2025] 2 All SA 350 (SCA) (5 March 2025)
Sishen Iron Ore Company (Pty) Ltd v CSARS (550/2023) [2025] ZASCA 16; 2025 (4) SA 458 (SCA); [2025] 2 All SA 350 (SCA) (5 March 2025)
Download original files
PDF format
RTF format
Links to summary
PDF format
RTF format
make_database: source=/home/saflii//raw/ZASCA/Data/2025_16.html
sino date 5 March 2025
FLYNOTES:
TAX
– Mining –
Deductible
expenditure
–
Relocation of residential township – Legal costs incurred
regarding relocation of township – Relocation
of
infrastructure within mining area – Costs of relocating 66kV
electricity line for mine equipment – Interest
in terms of
section 89quat(2) of the ITA on outstanding tax on disallowed
deductions the result of circumstances beyond control
of taxpayer
–
Tax Administration Act 28 of 2011
– Income Tax Act
58 of 1962 – Minerals and Petroleum Resources Development
Act 28 of 2002.
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
### JUDGMENT
JUDGMENT
Reportable
Case
no: 550/2023
In
the matter between:
SISHEN
IRON ORE COMPANY (PTY) LTD
APPELLANT
and
THE
COMMISSIONER FOR THE SOUTH AFRICAN
REVENUE
SERVICE
RESPONDENT
Neutral citation:
Sishen Iron Ore Company (Pty) Ltd v CSARS
(550/2023)
[2025] ZASCA 16
(5 March 2025)
Coram:
MOLEMELA P and DAMBUZA JA and GORVEN, KOEN and COPPIN AJJA
Heard:
6 November 2024
Delivered:
5 March 2025
Summary:
Taxation – taxpayer deriving income from mining operations
– whether expenditure incurred in respect of the relocation
of
a neighbouring residential township, expenditure incurred in
respect of the relocation of certain infrastructure within
the mining
area, legal costs incurred with regard to the relocation of the
township, and the costs of relocating a 66kV line supplying
electricity to mine equipment to a new location within the mining
area, deductible – special deductions provisions in s 15
(a)
read with s 36(7C) of the Income Tax Act 58 of 1962 (the ITA) in
respect of ‘capital expenditure’ – meaning of
‘in
terms of a mining right’ and ‘other than in respect of
infrastructure’ in s 36(11)
(e)
of the ITA –
meaning of ‘mine equipment’ in s 36(11)
(a)
of the
ITA – whether deduction for wear and tear under s 11
(e)
of the ITA established in respect of 66kV line – in the
alternative, whether general deduction provision in s 11
(a)
of
the ITA applies to expenditure in respect of relocation of the 66kV
line – burden of proof in s 102 of Tax Administration
Act 28 of
2011 (TAA) – whether legal expenditure deductible in terms of s
11
(c)
of the ITA – whether interest in terms of s
89
quat
(2) of the ITA on outstanding tax on disallowed
deductions a result of circumstances beyond the control of the
taxpayer –
whether the Commissioner for the South African
Revenue Services (CSARS) should have determined, in terms of s
89
quat
(3) of the ITA, that interest not be paid, whether in
whole or in part.
ORDER
On
appeal from:
Tax Court of South Africa, Gauteng (Malindi J, with
two assessors):
1
The appeal succeeds to the extent set out in paragraph 5 below but is
otherwise dismissed.
2
The respondent is directed to pay two thirds of the appellant’s
costs of the appeal,
to include the costs of two counsel where so
employed.
3
The cross-appeal succeeds to the extent set out in paragraph 5 below
but is otherwise
dismissed.
4
The respondent is directed to pay one half of the appellant’s
costs of the cross-appeal,
to include the costs of two counsel where
so employed.
5
Paragraph 1 of the order of the tax court is set aside and
substituted with the following:
‘
1
(a) The relocation expenditure in respect of
Dingleton and the SWEP
infrastructure, is deductible;
(b)
The 66kV line expenditure is deductible;
(c)
The understatement penalties imposed by the CSARS in terms of
s
187(1)
of the
Tax Administration Act 28 of 2011
are set aside;
(d)
The interest raised in terms of
s 89
quat
(2) of the Income Tax
Act 58 of 1962 is set aside and referred back to the CSARS for
determination whether any interest should be
payable, and if so, the
amount thereof;
(e)
The legal expenditure is not deductible.’
JUDGMENT
Koen
AJA (Molemela P and Dambuza JA and Gorven, Koen and Coppin AJA
concurring):
Introduction
[1]
This appeal considers whether various items of expenditure incurred
by the appellant, Sishen Iron Ore Company (Pty) Ltd (Sishen), for the
2012 to 2014 tax years, are deductible from its taxable income.
To
the extent that the expenditure was not deductible, the question
arises whether interest on the unpaid tax in respect of the
disallowed expenditure became payable and if so, whether the
respondent, the Commissioner for the South African Revenue Services
(the CSARS), should have directed that such interest should not be
paid.
[2]
The expenditure included:
the costs of relocating a residential area known as the Dingleton
township (Dingleton) and relocating
certain infrastructure referred
to as the Sishen Western Expansion Project (SWEP) infrastructure
(collectively referred to as the
relocation expenditure); legal
expenditure incurred in connection with the relocation of Dingleton
(the legal expenditure); and
the costs of relocating a 66kV power
line (the 66kV line expenditure). The CSARS disallowed the deduction
of this expenditure.
He also raised understatement penalties,
[1]
and interest in terms of s 89
quat
(2)
of the Income Tax Act 58 of 1962 (the ITA)
[2]
in respect of the disallowed tax.
[3]
The Tax Court of South
Africa, Gauteng (the tax court), on appeal disallowed the deduction
of the relocation expenditure and the
legal expenditure, allowed the
deduction of the 66kV line expenditure, and set aside the
understatement penalties and the interest
raised, with no order as to
costs. Sishen appeals against the disallowance of the relocation and
legal expenditure. The CSARS cross-appeals
against the order of the
tax court allowing the deduction of the 66kV line expenditure and
disallowing the interest.
[3]
The
appeal and cross-appeal are with the leave of the tax court.
Background
[4]
The factual matrix and
the statutory framework material to deciding this appeal are common
cause. Sishen conducts open cast mining
for iron ore in the Northern
Cape province in terms of a converted mining right
[4]
issued in terms of the provisions of the Mineral and Petroleum
Resources Development Act (the MPRDA)
[5]
(the mining right). It was granted in respect of a specified area of
land (the mining area). The mining area includes the open
pit where
Sishen has been conducting mining for many years. It also includes an
area to the west of the pit, which prior to the
tax years in
question, had not yet been mined.
[5]
Open cast mining commences with waste stripping. It entails the
removal of overburden. The overburden is anything that would hamper
optimally and safely accessing the iron ore deposits below the
surface, such as vegetation, structures, other impediments, topsoil
and other waste materials. Waste stripping is a continuous
process,
regularly assessed by Sishen with reference to geological,
technological and economic information as to where next to
access
viable iron-ore deposits within its mining area.
[6]
As mining affects the
environment, a constitutionally protected right,
[6]
and mining operations involve dangerous activities, the provisions of
the MPRDA and other applicable legislation must be adhered
to
strictly. Specifically, s 25(2)
(d)
of the MPRDA requires
Sishen, as the holder of the mining right, to comply with the
provisions of the MPRDA,
[7]
which by definition includes the regulations under the MPRDA,
[8]
and any ‘other relevant law’. The Mine Health and Safety
Act and the regulations promulgated thereunder (the Safety
Act) is
such a relevant law.
[9]
Section
23(1)
(f)
of the MPRDA requires
that Sishen must have the ability to comply with the relevant
provisions of the Safety Act.
[7]
Section 5(2)
(b)
of the Safety Act
provides, in general terms, that an employer, such as Sishen, must as
far as reasonably practicable, ensure that
persons who are not
employees, but who may be directly affected by the activities at the
mine, are not exposed to any hazards to
their health and safety.
[10]
Thus,
regulation
4.16(2) under the Safety Act,
[11]
prohibits
blasting operations within a radius of 500
meters
(the
safety buffer) of any public infrastructure, such as a railway line,
power line, and any place where people congregate, unless,
in certain
exceptional circumstances, written approval has been obtained from
the Principal Inspector of Mines.
Paragraph
11 of Sishen’s mining right,
[12]
read together with s 54 of the MPRDA,
[13]
obliges
Sishen
to compensate third parties who suffered any damage or losses,
including, but not limited to, damage to the surface and to
any
improvements as a result of, or arising from, or in connection with
the exercise of Sishen’s mining right and mining
operations.
[8]
To the west of the open
mine pit, but still within the mining area covered by Sishen’s
mining right, were some roads, railways
and electricity and water
infrastructure belonging to third parties (the SWEP
infrastructure).
[14]
Further
to the west of the south-western boundary of the mining area, at a
distance of approximately 600 meters, was Dingleton.
It was situated
on land not owned by Sishen and in respect of which Sishen did not
hold any
mining
right. The SWEP infrastructure was within Sishen’s mining area.
Sishen could not mine that area because of the physical
obstacles
presented by the SWEP infrastructure, and the safety buffer required
to be maintained between any of its mining operations
and
Dingleton.
[15]
[9]
As waste stripping and mining occurred as part of ongoing mining
operations, the edge of the pit progressed increasingly westwards,
closer towards the SWEP infrastructure and Dingleton. A point
would
be reached where further exploitation of the ore reserves towards the
western and south-western parts of Sishen’s mining
area would
be impossible, although the boundary of the mining area would not
have been reached, due to the location of the SWEP
infrastructure,
and the safety buffer requirement.
[10]
Excavating another pit to the west of the railway line was not
feasible because Sishen
would have to create another pit, stripped on
all four sides, which would require higher volumes of waste stripping
to access the
ore body. If the railway line remained in place, it
would be impossible to mine a significant quantity of ore on both
sides of
the railway line as safe slopes would be required to be kept
to protect the integrity of the railway line. Blasting would also
have to be limited to times when the railway line was not used, with
time being allowed after each blasting to verify that the structural
integrity of the railway line remained unaffected.
[11]
The optimal exploitation of its mining area accordingly required
Sishen to relocate
the SWEP infrastructure as part
of waste stripping of that area, to allow access to the iron ore
subsurface. As such exploitation
progressed, a new safety buffer zone
situated further to the west, encroaching on land on which Dingleton
was situated, would be
required. Dingleton would have to be relocated
to maintain a 500-meter safety buffer between it and the most western
point to which
Sishen’s mining operations would advance.
[12]
Regulation 10(1)
(f)
of the regulations
promulgated under the MPRDA provides that an application for a mining
right must include a Mining Work Programme
(MWP).
[16]
The MWP forms part of the mining right when granted. Section 25(2)
(c)
of the MPRDA requires the
holder of a mining right to actively conduct its mining in accordance
with the MWP.
[17]
Regulation
11(1) of the MPRDA regulations provides that a MWP must contain,
inter alia: details of the mineral deposit concerned
with regard to
the type of mineral to be mined, its locality, extent, depth,
geological structure, mineral content and mineral
distribution;
details of the applicable timeframes and scheduling of the various
implementation phases of the proposed mining operation;
a financing
plan with details of costs; and an undertaking signed by the holder
of the mining right to adhere to the proposals
as set out in the
MWP.
[18]
[13]
If Sishen conducted
mining operations in contravention of the MPRDA or MWP or breached
any material term of the mining right, then
the Minister of Minerals
and Energy could, in terms of s 47 of the MPRDA, suspend or cancel
Sishen’s mining right.
[19]
Similarly, if Sishen in the opinion of the Minerals and Mining
Development Board did not mine the iron ore optimally as required
by
s 51(1),
[20]
in
accordance with the terms of the MWP, then the Board could recommend
to the Minister to direct Sishen,
[21]
as holder of the mining right, to take corrective measures, and if
not corrected, to cancel its mining right.
[14]
Section 54(1) of the
MPRDA provides for the circumstances when compensation is payable to
third parties and provides, in relevant
part, that the holder of a
mining right must notify the relevant regional manager if the holder
is prevented from commencing or
conducting the mining operation
because the owner or the lawful occupier of the land refuses to allow
the holder to enter the land,
or places unreasonable demands in
return for access to the land.
[22]
In terms of s 54(3), if the Regional Manager concludes that the owner
or occupier has suffered, or is likely to suffer loss or
damages as a
result of the mining operations, he or she must request the parties
concerned to endeavour to reach an agreement for
payment of
compensation for such loss or damage.
[23]
In terms of s 54(6), if the Regional Manager determines that the
failure to reach an agreement or resolve the dispute is due to
the
fault of the holder of the mining right, the Regional Manager may
prohibit such holder from commencing or continuing with mining
operations on the land.
[24]
[15]
The approved MWP forming part of Sishen’s mining right
contained inter alia the following
provisions:
(a)
It specifically provided for the relocation of Dingleton and
the
SWEP;
(b)
It obliged Sishen to undertake mining activities on the strip of
land
over which a portion of the Transnet’s Dingleton-Hotazel
railway line was located and also over other areas where the
SWEP
third-party infrastructure was located;
(c)
Regarding the Dingleton-Hotazel railway line and power
line, it
stipulated ore extracts from the 500-meter blast perimeter
(protecting the Dingleton-Hotazel railway line and adjacent
power
line) along the north-western margin of the pit by 2012. The waste
within this perimeter would have to be stripped at an
earlier date,
which implied that the railway and power lines would probably have to
be relocated around 2008;
(d)
The infrastructure, which included the SWEP infrastructure, was to
be
relocated further to the west. It stipulated that contractors would
most likely do the bulk of the work relating to the relocation;
(e)
It also covered the mining of the safety buffer zone. The Dingleton
township would have to be relocated to provide sufficient ore of the
required quality, which was sterilised by the 500-meter safety
buffer
around the town of Dingleton, for the ore to be accessed by 2020. The
waste within this perimeter would have to be stripped
at an earlier
date, which necessarily implied that the people of Dingleton would
have to be resettled even earlier; it was suggested
probably around
2010. A number of contractors were expected to be involved in the
project, especially with the construction of
alternative housing for
the residents of Dingleton.
[16]
Consistent with what was required by the MWP, Sishen embarked on the
relocation of Dingleton
to maintain a safety buffer as its mining
operations advanced increasingly to the west. It also relocated the
SWEP infrastructure
to allow it to mine that portion of the mining
area optimally.
[17]
The SWEP infrastructure entailed: relocating 26 kilometres of the
Transnet Hotazel-Postmasburg
rail line (owned by Transnet); the
realignment of 6km of the Sishen Lylyveld rail siding (owned by
Transnet and situated on land
owned by Eskom); a diversion of the
TR405 provincial road (owned by the Northern Cape Province); the
relocation of the Sishen Traction
substation (owned by Transnet/Eskom
and situated on property owned by Transnet, but to be allocated to
Assmang Property); the relocation
of portion of the 132kV Traction
supply line (owned by Eskom); the construction of a new Emil Traction
substation (to be owned
by Transnet on land owned by Transnet); the
redevelopment of the ballast loading siding (owned by Transnet); the
rerouting of a
22kV rural power supply line (owned by Transnet); the
construction of a new 132kV distribution line for the new Emil
Traction substation
(owned by Eskom); the relocation of 23km of the
Vaal Gamagara pipe line (owned by Sedibeng Water); and the relocation
of 12km of
the Eskom 275kV Ferrum-Garona overhead (owned by Eskom).
Sishen accordingly entered into agreements with
the relevant authorities owning this infrastructure, which included
Transnet, Eskom,
Sedibeng Water, the Northern Cape Province, the
Gamagara Municipality and the former residents of Dingleton, to
achieve its aforesaid
purpose.
[18]
The former residents of Dingleton were relocated
to similar properties in Kathu or elsewhere, constructed for and on
behalf of Sishen,
in accordance with the choice of the owners of land
in Dingleton. Sishen would not own the relocated Dingleton
infrastructure.
No cash settlements, in lieu of relocation, were
allowed.
[19]
The SWEP involved the relocation of the infrastructure owned by the
third parties from
land included in Sishen’s mining right.
Sishen did not acquire ownership of the relocated infrastructure. The
expenditure
incurred was for the costs of demolition, removal and
subsequent reconstruction of the SWEP infrastructure. The amenities
of the
third parties remained essentially the same after the SWEP
relocation. Only the physical location of the infrastructure changed;
the third parties gave up their existing rights and these were
replaced by similar rights and infrastructure but in a different
location.
[20]
The legal expenditure comprised fees paid by Sishen to legal
practitioners. These practitioners
advised the Dingleton residents in
relation to their relocation.
[21]
The mining operations conducted by Sishen make extensive use of
electricity to drive various
items of equipment. Electricity is
required, amongst others, to operate blast hole drilling rigs and
huge electrical shovels which
load haul trucks that remove the iron
ore from the pit of the mine. The 66kV line is part of the plant
belonging to Sishen and
used by it to successfully conduct its mining
operations. It provides
the mine equipment with
electricity from the main Eskom electricity supply.
[22]
At each transfer point along the conduit of
electricity, where there is a different regulation of the voltage,
there is a transformer
and substation. Hence, there is a transformer
where the main power supply is transferred from Eskom to a 66 kV
line. Sishen has
several such lines. Masts and poles are necessary to
carry the lines at a safe height above ground level into the pit so
that haul
trucks can pass safely under the lines.
[23]
The pylons from which the lines are suspended are
permanent supporting structures erected in the mining area. They are
planted into
the soil, as is typical of electricity related
infrastructure. The lines then lead to further transformers and
substations, as
part of a more fixed electric infrastructure, where
the voltage is
stepped down from the 66kV line and distributed
to trailing cables which lie on the ground inside the mine and
connect to the various
items of equipment like, for example, the rigs
and shovels.
[24]
The 66kV line was moved as the need arose to operate mine equipment
in new locations, in
accordance with Sishen’s MWP and its
mining operations. The 66kV line expenditure claim entailed the costs
of dismantling
the old line and masts and relocating the parts
thereof, as could be used, to new positions, where it was
re-established with old
parts being replaced with new parts where
required.
The
contentions of the parties and the findings of the tax court
[25]
The relocation
expenditure was claimed by Sishen based on the provisions of s
15
(a)
,
[25]
and s 36(7C)
[26]
read with s
36(11)
(e)
[27]
(expenditure incurred in terms of a mining right other than in
respect of infrastructure). In the alternative, Sishen contended
that
the relocation expenditure was of a revenue nature, being part of its
operating costs incurred in open cast mining, or its
obligation to
pay compensation in terms of s 54 of the MPRDA and should have been
allowed under s 11
(a)
.
[28]
The CSARS disputed that this expenditure was in terms of Sishen’s
mining right and contended that it was capital in nature.
[26]
The tax court found that since the Dingleton community was not within
the mining area,
the demolition and relocation did not constitute
employing a process of mining. Hence it was not expenditure incurred
in terms
of exercising a mining right. Similarly, it found that the
SWEP project did not constitute a method or process of extracting a
mineral in the exercise of a mining right. Accordingly, it held that:
the Dingleton relocation and SWEP project were not matters
incidental
or sufficiently closely connected to the mining operations relating
to the act of mining; the expenditure was not in
respect of Sishen’s
own infrastructure; and the expenditure was therefore not as
envisaged in s 36(1)
(e)
.
[27]
As Sishen’s expenditure was not incurred in exercising a mining
right, the tax court
concluded that it is difficult to know how an
alternative claim under s 11
(a)
would have been a revenue
generating expense in respect of a mining activity in a mining area –
the expenditure was not money
used in the employ of a method or
process to extract the income earning ore from the soil and there was
no sufficient close link
to the act of producing income. Expenditure
incurred to comply with statutory requirements was viewed as capital
expenditure for
the benefit of third parties, and not income
generating.
[28]
The legal expenditure was
claimed by Sishen as being of a revenue nature in terms of s
11
(c)
.
[29]
The CSARS maintained that the legal expenditure was not incurred ‘in
the production of income’ as it was not sufficiently
closely
connected to the business operations of Sishen for it to be proper,
natural and reasonable to regard such expenditure as
part of Sishen’s
legal costs in performing its mining operations.
[29]
The tax court disallowed the legal costs as deductions against its
income. It found that
as the removal and relocation costs of the
Dingleton area were not deductible under s 36(11)
(e)
or s
11
(a)
, the legal costs incurred in the process were not
incurred in terms of an existing mining right, because Sishen had no
mining right
over Dingleton and they did not fall within the mining
area of Sishen. The legal costs were accordingly not incurred in the
course
of or by reason of the ordinary operations undertaken by the
taxpayer in the carrying on of the taxpayer’s trade, as
contemplated
in s 11
(c)
.
[30]
The 66kV line expenditure
was claimed by Sishen as capital expenditure in respect of ‘mine
equipment’ in terms of s
36(11)
(a)
,
[30]
alternatively in terms of the general deduction provision in s 11
(a)
,
as not being of a capital nature. In the further alternative, it was
contended that the 66kV line expenditure qualified as a depreciation
allowance under s 11
(e)
.
[31]
The CSARS contends that this expenditure was of a capital nature for
‘infrastructure’, which is excluded from s 36(11)
(e)
and, being of a capital
nature, not deductible under s 11
(a)
.
He contended further that a deduction under s 11
(e)
was excluded as the
expenditure did not constitute wear and tear but involved the costs
of a relocation in order for Sishen to continue
mining operations in
a portion of its mining area previously sterilised because of the
location of the 66kV line.
[31]
The tax court agreed with Sishen and allowed the expenditure. The
66kV line was found to
be equipment attached to an electric
substation that required to be moved to different parts of the mining
area depending on the
location of the mining pits. Costs would be
incurred each time the line was brought to the proximity of the point
where ore was
being extracted. This activity is closely linked to the
employ of a method or process to extract a mineral in the mining
area,
considered to be an activity integral to Sishen’s income
earning activities. The 66kV line expenditure was accordingly found
to be deductible under s 11
(a)
read with s 36(11)
(a)
.
[32]
Section 89
qua
t(2)
provides for interest to be raised on an amount by which the normal
tax payable exceeded any credit due to a taxpayer.
[32]
The CSARS has a discretion in terms of s 89
quat
(3)
to remit or reduce the interest charged, if satisfied, having regard
to the circumstances of the case, that the interest payable
‘is
a result of circumstances beyond the control of the taxpayer’.
[33]
The CSARS contended that the normal tax payable by Sishen in respect
of the taxable income
excluding the deductions allowed, exceeded the
credit amount available in the relevant tax years, and that interest
was therefore
chargeable in terms of s 89
qua
t(2) at the
prescribed rate on the amount by which the normal tax exceeded
the credit. Although he has a discretion in terms
of s 89
quat
(3)
to remit or reduce the interest charged, if satisfied, having regard
to the circumstances of the case, that the interest payable
‘is
a result of circumstances beyond the control of the taxpayer . . .’
the CSARS contended that there was no basis
for the interest to be
waived.
[34]
The tax court disallowed the interest. It categorised it as ‘interest
on understatement
penalties’. In that respect the tax court
erred. Following on that error, and as it had found that Sishen did
not understate
its tax liabilities as contemplated in the TAA, the
interest on understatement penalties in terms of s 187(a) of the TAA
and in
terms of s 89
quat
(2) of the ITA was set aside. The
CSARS contends that the tax court should not have disallowed the
interest.
[35]
The tax court accordingly dismissed Sishen’s appeal except for
allowing the 66kV
line expenditure as deductible and setting aside
the understatement penalties and the interest thereon, with no order
as to costs.
The
issues
[36]
The issues accordingly are:
(a) whether:
(i)
the relocation expenditure constituted deductible expenditure
incurred ‘in
terms of a mining right’ but other than in
respect of infrastructure, within the meaning of s 36(11)
(e)
;
(ii)
the 66kV line expenditure was in respect of ‘mine equipment’
as contemplated
in s 36(11)
(a)
, or whether it qualified for
the depreciation allowance under s 11
(e)
;
(b) In the alternative to
para (a), whether the relocation, and 66kV line expenditure,
constituted expenditure actually incurred
in the production of
income, and which was not of a capital nature, for the purposes of s
11
(a)
;
(c) Whether the
legal expenditure was of a revenue nature incurred in the production
of Sishen’s income derived from
mining operations and therefore
deductible under s 11
(a)
alternatively s 11
(c)
;
(d) In respect of the
interest raised, whether it properly accrued and if so, whether it
was ‘beyond the control of the taxpayer’
as contemplated
in s 89
quat
(3), and should have been waived.
The
deductibility of expenditure
[37]
The ITA:
(a)
specially permits Sishen,
because it derives its income from mining operations,
[33]
to deduct certain expenditure, of a capital nature, from its income –
in accordance with what is generally referred to as
the special
deductions provisions; and
(b)
generally permits Sishen,
like any other taxpayer, to deduct expenditure incurred in the
production of its income, if not of a capital
nature
[34]
– in accordance with what is generally referred to as the
general deductions formula.
[38]
In
Western
Platinum v Commissioner for the South African Revenue Service
,
[35]
Conradie JA drew
attention to what was referenced as the ‘golden rule’ in
interpreting s 15 and the related special
deduction provisions,
namely that:
‘
The
fiscus
favours miners and farmers. Miners are permitted to deduct certain
categories of capital expenditure from income derived from mining
operations. Farmers are permitted to deduct certain defined items of
capital expenditure from income derived from farming operations.
These are class privileges. In determining their extent, one adopts a
strict construction of the empowering legislation. That is
the golden
rule laid down in
Ernst
v Commissioner for Inland Revenue
1954 (1) SA 318
(A) at 323C-E and approved in
Commissioner
for Inland Revenue v D & N Promotions
(Pty) Ltd
[1994] ZASCA 176
;
1995 (2) SA 296
(A) at 305A-B.’
Section
23B(3) requires a taxpayer to first claim a deduction in terms of the
special deductions provisions, if applicable, and
only if no special
deductions provision applies, to consider whether the general
deductions formula finds application.
[36]
This judgment shall follow that sequence.
Special
deductions
[39]
As Sishen derives its
income from mining operations, the ITA allows the deduction of
specific expenditure,
[37]
even
if of a capital nature, in recognition of the nature of the mining
industry, the high financial risks involved, the significant
upfront
capital investment required, and the extended periods which might
follow after the expenditure is incurred but before income
is earned.
Sishen, in keeping with other mining companies, is accordingly
allowed the deduction of certain capital expenditure,
otherwise not
deductible from income, or the immediate deduction of certain
expenditure, as opposed to the deduction thereof over
a period of
time. The special deductions provisions of the ITA in respect of
capital expenditure relevant to this appeal are found
in s 15
(a)
,
read with s 36(7C) and s 36(11).
[40]
Section 15
(a)
permits Sishen to deduct
amounts ascertained under the provisions of s 36.
[38]
Section 36(7C) provides for amounts of ‘capital expenditure’
incurred to be deducted.
[39]
What constitutes ‘capital expenditure’ is defined in
s 36(11).
[40]
It
includes, in s 36(11)
(a)
,
‘expenditure (other than interest or finance charges) on shaft
sinking
[41]
and mine equipment
(other than expenditure referred to in paragraph
(d)
and (
d
A)’.
[42]
Section 36(11)
(e)
provides for the
deduction of ‘any expenditure incurred in terms of a mining
right pursuant to the provisions of [the MPRDA]
other than in respect
of infrastructure or environmental rehabilitation’.
[43]
Did
the relocation expenditure constitute deductible capital expenditure
incurred ‘in terms of a mining right’ but other
than in
respect of infrastructure? - s 36(11)(e)
[41]
The deductibility of the
relocation expenditure under this heading depends on a proper
textual, contextual and purposive interpretation
of what is meant by
the phrases, ‘in terms of’ and ‘infrastructure’.
[44]
It is correct, as the CSARS has submitted, that the expenditure must
be directly connected to the mining right, which is itself
‘subject
to . . . any relevant law’.
[42]
Removal of the overburden by waste stripping is an ongoing process
for the further optimal
mining of viable iron-ore deposits within the
mining area of Sishen. It was specifically required in the mining
right granted to
Sishen. Unless the SWEP was relocated and the
Dingleton residents translocated, the progression of the mine pit to
the west, as
contemplated by and in terms of the mining right, could
not continue.
[43]
The ‘overburden’ constituted by the SWEP infrastructure
would have precluded
Sishen from fully mining its mining area in
accordance with the terms of the MWP, and its mining right. The
failure to actively
conduct mining optimally and in accordance with
the MWP as contemplated by sections 51 and 25 of the MPRDA would risk
the possible
suspension or cancellation of Sishen’s mining
right by the Minister in terms of s 47 of the MPRDA.
[44]
As mining operations
progressed to the west, the Dingleton residents and the owners of the
SWEP infrastructure were likely to suffer
damage. This could initiate
a request by the Regional Manager in terms of s 54(3) of the MPRDA to
the affected parties, apart from
any obligation which would in any
event arise at common law, or in giving effect to s 5(2)
(b)
of the Safety Act read
with s 23(1)
(f)
[45]
of the MPRDA,
[46]
or the
obligation in regulation 4.14(2) under the Safety Act prohibiting
blasting operations from being carried out within the
safety buffer,
to reach agreement for the payment of compensation for such loss or
damage. The Regional Manager, in terms of s
54(6) of the MPRDA, could
furthermore prohibit the commencement or continuation of such mining
operations until any dispute relating
to such compensation was
resolved. Prudence demanded that these eventualities be anticipated,
addressed pro-actively and obviated.
[45]
The mining right required Sishen to take all necessary and reasonable
steps to adequately
safeguard and protect persons from any possible
damage. If it failed to do so, it would have to compensate such
persons for losses
they may suffer arising from the exercise of the
mining right. There would be nothing wrong in anticipating these
legal obligations
and dealing with them.
[46]
The MWP in giving recognition to the aforesaid realities detailed the
applicable time frames
and scheduling of various implementation
phases of the mining operation. The relocation of the Dingleton
township was specifically
addressed, with reference to schedules and
costs, in the annual revision of the life-of-mine plan. It was also
addressed as part
of the obligations to be discharged during the
30-year development phase of the mine and the extraction of the iron
ore, over development
phases, during the following 25 years. The MWP
provided that by 2022 Sishen would extract ore from the 500 meter
safety buffer.
[47]
The terms ‘mining operation’ and ‘mining’ are
defined in the MPRDA
in broad terms to include ‘every method or
process by which any mineral is won from the soil’. The
relocation expenditure
was incurred as a necessary part of the method
and process of opencast mining. Without the relocation, Sishen could
not have adhered
to the MWP in respect of the mining rights it held
and which it was obliged to optimise.
[48]
It is difficult to envisage expenditure more indispensable to mining
the mining area optimally
in terms of its mining right, and to
maintain productivity and sales volumes, than for Sishen to have
attended to the relocations.
Absent the relocations, Sishen would
have breached, or stood to breach, the provisions of its mining right
and applicable legislation.
The expenditure was necessary and
inextricably connected and indispensable to its obligations to comply
with the MWP and the mining
right. The relocation expenditure was
incurred in terms of a mining right, as contemplated in s 36(11)
(e)
.
[49]
The CSARS contended that Sishen, in any event, could not have mined
the safety buffer,
although it held a mining right in respect
thereof, as that part of the mining area was effectively sterilised;
similarly that
it could never have mined the area occupied by the
SWEP infrastructure; that it did not have to mine those areas and
specifically
also the Dingleton area over which it held no mining
right; that it incurred this expenditure simply because it had
elected to
do so; and that the expenditure was therefore not in terms
of its mining right, but in terms of the applicable legislation,
notably
the Safety Act and the regulations, and as a result of its
own volition to expand its mining. This line of reasoning is, with
respect
artificial, but more significantly ignores the express terms
of the mining right and the MWP which contemplated the mining of
these
areas at certain stages. The argument cannot be sustained.
[50]
Sishen was entitled and indeed required in optimally mining the
mining area in accordance
with its mining right, to mine the areas
occupied by the SWEP infrastructure, and the safety buffer zone
(which necessitated the
relocation of Dingleton). It could mine the
safety buffer zone with the required permission, but that would
invariably have held
the risk of damage or loss to the Dingleton
residents and the potential of damage to the SWEP infrastructure, for
example imperilling
the integrity of the railway line. Sishen simply
anticipated its expected and reasonable legal obligations in terms of
what its
mining right and MWP required it to do.
[51]
The tax court failed to recognise that the mining right, whether it
initially did so or
not, and the MWP required, or had come to
expressly require, Sishen in mining the mining area to attend to the
relocations. Even
accepting that Sishen possibly might have been
entitled to elect not to mine to the full extent of its mining right,
does not mean
that if it elected to carry out mining contemplated in
the mining right and as a result incurred expenditure, that this
expenditure
was not ‘in terms of a mining right’.
[52]
That leaves considering the effect and meaning of the phrase
‘excluding expenditure
relating to “infrastructure”’.
Insofar as the expenditure was on infrastructure, it was not
infrastructure owned
by Sishen. Sishen did not acquire the right to
use third party infrastructure as part of its income earning
structure. Its income
earning structure was not enhanced by the
relocation expenditure.
[53]
I agree with Sishen that the reference to ‘infrastructure’
is to infrastructure
owned by and forming part of the income-earning
structure belonging to, created or controlled by Sishen for the
purpose of conducting
mining operations. Although the provision does
not expressly confine the reference to ‘infrastructure’
to infrastructure
of the taxpayer and not that owned by third
parties, the distinction is required on a proper interpretation of
the provision in
its context.
[54]
If the provision did not
exclude Sishen’s own infrastructure then there would be a
conflict with deductions over longer periods
of time in respect of
what is clearly Sishen’s own infrastructure referenced in s
36(11)
(d)
.
[47]
The infrastructure in s 36(11)
(e)
contrasts with the costs
of infrastructure owned by a taxpayer in respect of which deductions
might be claimable under s 36(11)
(a)
and s 36(11)
(d)
,
which properly construed deal with the taxpayer’s own
infrastructure, not that of third parties, and expenditure relating
to environmental rehabilitations under s 37A. Capital expenditure on
infrastructure belonging to or which would become owned by
third
parties cannot conceivably be deductible by a taxpayer, unless
justified on some other basis.
[55]
The words ‘any
expenditure’ in s 36(11)
(e)
are broad enough to
sensibly include compensation paid to third parties, whether in kind
or otherwise, in respect of damages or
anticipated damages caused by
or inevitably to arise from Sishen’s mining operations, as
opposed to being in respect of the
acquisition of a fixed asset
infrastructure item required for mining. The relocation expenditure
incurred did not relate to working
the open cast mine, or to tangible
corporeal things forming part of the plant belonging to or controlled
by Sishen as a mining
company, which might be considered under s
36(11)
(a)
or s 36(11)
(d)
in respect of its own
equipment.
[48]
[56]
The CSARS has placed emphasis inter alia on an explanatory memorandum
which accompanied
the introduction of: s 36(11)
(e)
by the
Revenue Laws Amendment Act 60 of 2008 (dealing with allowances in
respect of expenditure on Government business licences)
where, in
respect of infrastructure, it was said that infrastructure was
excluded ‘because it often can have nearby enduring
benefits’;
the Taxation Laws Amendment Bill which introduced an amendment to s
36(11)
(e)
which dealt with expenditure to cover social and
labour plan expenditure; and the Taxation Laws Amendment Bill 17B of
2016, which
introduced s 36(11)
(e
A
)
for tax relief for
mining companies’ capital expenditure on infrastructure in
terms of the social and labour plan requirements
of the MPRDA. The
latter would be for the benefit of people living in mining
communities. It would range from roads and drainage
systems to
crèches, schools, clinics, housing and recreational buildings
to benefit communities surrounding a mine. The
fact that it was
specifically stated, to be clear, that expenditure on social and
labour plans requirements of the MPRDA for the
benefit of people
living in mining communities, which would probably be on land of the
mine owned by it was deductible, militates
against an interpretation
that the ‘infrastructure’ referenced included
infrastructure not belonging to the taxpayer.
[57]
The tax court erred in
not concluding that the relocation expenditure was deductible under s
36(11)
(e)
.
The appeal in respect of the disallowed relocation expenditure
accordingly succeeds. This conclusion makes it unnecessary to
consider the deductibility of the relocation expenditure as a general
deduction.
[49]
Was
the 66kV line expenditure in respect of ‘mine equipment’
as contemplated in s 36(11)(a)?
[58]
To qualify for deduction
under s 36(11)
(a)
,
the expenditure relating to the relocation of the 66kV line had to be
in respect of ‘mine equipment’. The term ‘mine
equipment’ is not defined in the ITA. It however has been
pointed out that the CSARS has ‘continued with a practice
of a
broad interpretation of this term to include all underground
equipment as well as surface railway lines, administrative buildings,
schools, storage facilities and processing plants, among others.’
[50]
[59]
In support of its cross-appeal, the CSARS argued that the 66kV line
expenditure was of
a capital nature, falling ‘in the same
category as the SWEP expenditure’, as it related to the
relocation of ‘infrastructure
which allowed Sishen to access
the ore that had been sterilised by the safety buffer zone’,
and hence not expended for the
purposes of Sishen’s trade. This
judgment has however found above that the SWEP expenditure was
deductible as being in terms
of Sishen’s mining right and hence
its trade.
[60]
It is difficult to envisage equipment more integral to the mining
process than the equipment
required to conduct the electricity to a
point where it is required to energise what is plainly mining
equipment, such as blast
hole drilling rigs, electric face shovels
and the like. Without the 66kV line, the electric rigs and shovels
cannot operate. Clearly,
the 66kV line is an integral part of the
mine equipment. The particular 66kV line, supported by the pylons
erected to carry it
into the mining pit and suspending it at a safe
height to allow the passage of traffic underneath, had to be
relocated as the mining
progressed to the west.
[61]
The tax court was correct in concluding that the expenditure relating
to the relocation
and reconstruction of the 66kV line constituted
expenditure incurred on mine equipment, and hence deductible as
contemplated under
s 15
(a)
read with s 36(11)
(a)
.
Insofar as it might be contended that it was not expenditure in
respect of mining equipment, the costs of removing and
re-establishing
the pylons elsewhere would be a revenue expense, as I
shall demonstrate when discussing the deduction of the 66kV line
expenditure,
in the alternative, under the general deductions formula
below. It is also under that heading that I shall briefly deal with
the
further alternative basis advanced by Sishen, namely for a
deduction of the 66kV line expenditure as a general depreciation
allowance
deduction under s 11
(e)
.
General
deductions
[62]
The general deductions
formula, contained in s 11
(a)
of the ITA provides that
for the purpose of determining the taxable income derived by a
taxpayer from carrying on any trade, there
shall be allowed as
deductions from the income of such taxpayer such expenditure and
losses that are not of a capital nature.
[51]
Section 11
(c)
provides
specifically for the deduction of any legal expenditure actually
incurred by a taxpayer in respect of any claim, dispute
or action at
law, arising in the course of, or by reason of the ordinary
operations undertaken in the carrying on of its trade.
[52]
Section 11
(e)
provides for a
depreciation allowance to be claimed in respect of such machinery,
plant, implements and utensils as the CSARS may
think just and
reasonable.
[53]
The provisions
of s 11
(a)
and s 11
(e)
are both qualified by s
23
(g)
,
[54]
which provides that no deduction shall be made in respect of any
moneys claimed as a deduction from income derived from trade,
to the
extent to which such moneys were not laid out or expended for the
purposes of the taxpayer’s trade.
[63]
What remains to be considered are: whether the 66kV line expenditure,
in the alternative
to being deductible in terms of s 36(11)
(a)
,
is deductible in terms of s 11
(a)
, or as depreciation under s
11
(e)
; and whether the legal expenditure is deductible under s
11
(c)
alternatively s 11
(a)
. Section 11
(a)
requires a distinction to be made between capital and revenue
expenditure. A comprehensive discussion of that distinction would
justify a thesis on its own and is beyond the scope of this judgment.
It is an age-old debate. I shall however endeavour to briefly
highlight the salient principles material to identifying whether the
expenditure which features in this appeal, is capital in nature
or
not.
Capital
versus revenue
[64]
The general deductions
provision in s 11
(a)
permits the deduction
from income of expenditure and losses actually incurred in the
production of the income,
[55]
provided they are not of a capital nature.
[56]
Whether expenditure generally, and specifically expenditure in
respect of infrastructure, is capital, as opposed to being revenue
in
nature and incurred in the production of income, is often
unclear.
[57]
[65]
What constitutes capital expenditure for the purpose of the general
deduction formula,
is not defined in the ITA. The distinction between
revenue and capital is one which our courts, and those in foreign
jurisdictions,
have had to grapple with and develop. Guidance must
accordingly be sought from the relevant case law.
[66]
Our courts have over time, developed various tests, some of which are
listed below, to
introduce a measure of predictability in determining
whether expenditure is of a capital or revenue nature. The tests have
variously
emphasised: the purpose for which the expenditure was
incurred (the purpose test); whether the expenditure incurred was
sufficiently
close to producing income (the closeness test); whether
the expenditure was a necessary concomitant to the income produced
(the
necessary concomitant test); whether the expenditure was a once
and for all item of expenditure (the once and for all test); and
whether the expenditure ensured an enduring benefit (the enduring
benefit test).
[67]
The aforesaid tests are not exhaustive of the considerations a court
shall have regard
to in determining whether expenditure is of a
capital nature. They are simply guides in applying a broader
common-sense approach
to the facts of each case. The cases below seek
to elucidate some of the principles that are applied.
[68]
The CSARS argues that to
determine whether expenditure is of a capital nature, a distinction
must be drawn between expenditure incurred
in creating an income
earning structure, as opposed to expenditure incurred in conducting
income earning operations.
[58]
That distinction is not conclusive nor always easy to apply. Indeed,
in
New
State Areas Ltd v Commissioner for Inland Revenue
(
New
State
),
[59]
Watermeyer CJ held that
revenue expenditure cannot be differentiated from capital expenditure
by enquiring whether or not the expenditure
was incurred in the
production of income. Both can be incurred in the production of
income. The judgment concluded that the purpose
of the expenditure
needs to be determined to establish whether it is capital or revenue
in nature. The judgment records:
‘
The
conclusion to be drawn from all [the] cases, seems to be that the
true nature of each transaction must be enquired into in order
to
determine whether the expenditure attached to it is capital or
revenue expenditure. Its true nature is a matter of fact and
the
purpose of the expenditure is the important factor
;
if it is incurred for the purpose of acquiring a capital asset for
the business it is capital expenditure, even if it is paid
in annual
instalments; if, on the other hand, it is in
truth
no more than part of the cost incidental to the performance of the
income-producing operations,
as
distinguished from the equipment of the income producing machine,
then it
is revenue expenditure,
even
if it is paid in a lump sum.’
[60]
(Emphasis added.)
[69]
In
Ticktin
Timbers CC v Commissioner for Inland Revenue
(
Ticktin
Timbers
),
Hefer JA called the purpose for which expenditure was incurred, the
decisive consideration in the application of s 23
(g)
.
[61]
He quoted the following passage from the judgment of Corbett JA in
Commissioner
for Inland Revenue v Standard Bank of SA Ltd
:
‘
Generally,
in deciding whether monies outlaid by a taxpayer constitutes
expenditure incurred in the production of income (in terms
of the
general deduction formula) important and sometimes overriding factors
are the purpose of the expenditure and what the expenditure
actually
effects; and in this regard
the
closeness
of
the connection between the expenditure and the income-earning
operations must be assessed.’
[62]
(Emphasis added)
[70]
The approach, as was said
in
Port
Elizabeth Electric Tramway Co v Commissioner for Inland Revenue
(
PE
Tramway
),
should be to first look at the purpose of the act which caused the
expenditure.
[63]
Thereafter,
the next enquiry is to look at the closeness of the connection
between the expenditure and the income earning operations,
which link
must be ‘close’. The court explained that:
‘
[I]ncome
is produced by the performance of a series of acts and attendant upon
them are expenses. Such expenses are deductible expenses
provided
that they are so closely linked to such acts as to be regarded as
part of the cost of performing them. . .The purpose
of the act
entailing expenditure must be looked to.’
[64]
[71]
The application of these
principles can be demonstrated with reference to the following cases.
In
Warner
Lambert SA (Pty) Ltd v Commissioner for South African Revenue Service
(
Warner
),
social responsibility expenditure which the taxpayer was obliged to
incur in South Africa under American legislation, not adding
to any
asset of enduring benefit, was, on assessing on the one hand the
‘closeness of the connection between the expenditure
and the
income earning operations’ and on the other hand, whether there
is a ‘relation between expenditure and capital
close enough to
draw the expenditure in to the ambit of capital’, found to be
laid out for the purposes of trade and therefore
of a revenue
nature.
[65]
[72]
In
W
Nevill & Co Ltd v F COT
(
W
Nevill
),
[66]
it was held that, in
determining whether expenditure is sufficiently closely linked to the
production of income:
‘
[I]t
is necessary, for income tax purposes, to look at a business as a
whole set of operations, directed towards producing income.
No
expenditure, strictly and narrowly considered, in itself actually
gains or produces income. It is an outgoing, not an incoming.
Its
character can be determined only in relation to the object which the
person making the expenditure has in view.
If
the actual object is the conduct of the business on a profitable
basis
with
due regard to economy which is essential in any well-conducted
business, then the expenditure is an expenditure incurred in
gaining
or producing the assessable income’.
[67]
(Emphasis added)
[73]
In
PE
Tramway
,
the taxpayer, a South African subsidiary of an American company, in
complying with the United States Sullivan Code was required
to
implement a social responsibility program. Expenditure incurred in
implementing the program was held, as in
Warner
,
to have been incurred in the production of income and hence
deductible under s11
(a)
read
with s 23
(g)
.
It was held that, although the link between the taxpayer’s
trade and the social responsibility was not close and obvious,
it did
not mean that the connection was too remote.
[68]
The deduction was allowed.
[74]
Schreiner JA in
Commissioner
for Inland Revenue v Genn & Co (Pty) Ltd
(
Genn
),
[69]
stated that:
‘
In
deciding how the expenditure should properly be regarded the Court
clearly has to assess the
closeness
of the connection between
the expenditure and the income-earning operations, having regard both
to the purpose of the expenditure
and to what it actually
effects.’
[70]
There
must be an enquiry as to whether it would be proper, natural or
reasonable to regard the expenses as part of the costs of
performing
the business operated.
[75]
In
Joffe
& Co Ltd v Commissioner for Inland Revenue
(
Joffe
),
[71]
the taxpayer was required
to prove that the expenditure was a necessary concomitant of the
taxpayer’s business, that is that
the expense must be
inseparable from the taxpayer’s trading operations. If the
expenditure is
bona
fide
incurred
for the purposes of producing income, it is deductible.
[76]
Regarding ‘the once
and for all test’, in
Commissioner
for Inland Revenue v African Oxygen
,
[72]
Steyn CJ held that what is important is the link between expenditure
and income. If the expenditure is part of
the
cost of operating
the
taxpayer’s income-earning machine, it is revenue expenditure.
If the expenditure is incurred once-off, it is likely to
be capital,
and if it is recurrent, it is likely to be revenue. Similarly,
in the Scottish case of
Vallambrosa
Rubber Co Ltd v Farmer
,
[73]
Lord Dunedin found that
capital expenditure is a thing that is going to be spent once and for
all and income expenditure is a thing
that is going to recur every
year. But this is not a final or determinative test. It is to be used
in conjunction with other tests
to determine whether the expenditure
is capital or revenue.
[77]
The ‘enduring
benefit’ test was referenced in
British
Insulated & Helsby Cables v Atherton
[74]
as follows:
‘
.
. .when an expenditure is made, not only once and
for
all, but with a view to bringing into existence an asset or an
advantage for the enduring benefit of a trade, I think that there
is
very good reason (in the absence of special circumstances leading to
an
opposite
conclusion) for treating such an expenditure as properly attributable
not to revenue but to capital.’
[75]
(Emphasis added.) It has been held that ‘enduring’ means
that it must have a long-lasting benefit.
[76]
[78]
In
Johns-Manville
,
[77]
the Supreme Court of Canada held that the ongoing costs of acquiring
land surrounding an open pit mine to maintain a proper slope
for
economic and safety reasons, were revenue expenses. The court noted
that the expenditure produced a transitional benefit which
had no
enduring value because similar expenditure would be required in the
future if the mining operation was to be continued.
[78]
[79]
The court in
Johns-Manville
reaffirmed that the
answer to the question whether expenditure is an expense or capital,
must always depend on the facts of each
particular case, quoting from
Minister
of National Revenue v Algoma Central Railway
,
[79]
that not any single test is conclusive in making that determination,
and from
B.P.
Australia Ltd v Commissioner of Taxation of the Commonwealth of
Australia
,
[80]
that the solution to the problem is not to be found by any rigid test
or description, but a common-sense appreciation of all the
guiding
features which must provide the ultimate answer. The answer
ultimately:
‘
depends
on what the expenditure is calculated to effect from a practical and
business point of view rather than upon the juristic
classification
of the legal rights, if any, secured, employed or exhausted in the
process per Dixon J in
Hallstroms
Pty Ltd v Federal Commissioner of Taxation
(1946)
C.L.R. 634
, 648.’
[81]
It
was observed that the various tests were ‘almost an endless
rainbow of expression used to differentiate between expenditures
in
the nature of charges against revenue and expenditures which are
capital’, which all emphasise different aspects, but:
‘
.
. . the weight which must be given to a particular circumstance in a
particular case must depend rather on common sense than on
strict
application of any single legal principle
[82]
[because it] is of little help . . . to attempt to classify the
character of the expenditure according to the subject of
that
expenditure.’
[83]
The
answer ‘. . . depends in no way upon what may be the nature of
the asset in fact or in the law . . . The determining factor
must be
the nature of the trade in which the asset is employed’.
[84]
[80]
In
Palabora
Mining Company Limited v Secretary for Inland Revenue
,
[85]
expenditure, in the form of inducements paid to contractors to
expedite the construction of a dam which a municipality was
constructing,
to supply water to conduct mining operations, was held
not to have been incurred for the purpose of acquiring a capital
asset.
Although the expenditure was for the enduring benefit of the
company, it was held to be revenue in nature.
[81]
The ultimate answer in
instances such as the present depends, as also suggested
elsewhere,
[86]
on applying a
common-sense appreciation of all the guiding features relating to the
relevant provisions of the ITA to the peculiar
facts of the
expenditure claimed. The classification of the expenditure depends on
what each item of expenditure is calculated
to effect from a
practical and business point of view, rather than upon the juristic
classification of the legal right. I turn
then to a consideration of
the specific deductions claimed by Sishen in the light of the
aforesaid principles.
Was
the 66kV line expenditure deductible in terms of either s 11(a) or
(e)?
[82]
Sishen claimed the deduction of the 66kV line expenditure, in the
alternative to it being
a s 36(11)
(a)
deduction (which was
considered above), on the basis of s 11
(a)
, as expenditure
related to its trade and not of a capital nature. In the further
alternative, Sishen claimed the expenditure as
wear and tear or
depreciation in terms of s 11
(e)
.
[83]
To qualify as a general
deduction, the 66kV line expenditure had to comply with two
requirements. First, it had to be expended in
carrying on Sishen’s
trade. Second, it could not be of a capital nature. Sishen thus bore
the onus, in terms of s 102(1)
(b)
[87]
of the
Tax Administration Act (the
TAA),
[88]
of proving that the expenditure was: actually, incurred for the
purposes of producing income;
bona
fide
incurred
for that purpose; and is so closely connected to its business
operations that it would be proper and reasonable to regard
the
expense as part of the costs of performing its business operations,
and hence not capital in nature. Generally, all expenditure
attached
to the performance of a business operation
bona
fide
performed
for the purpose of earning income is deductible, provided it was so
closely connected with the earning of income that
it may be regarded
as part of the cost of conducting its income earning business.
[89]
[84]
The purpose of incurring the expenditure to relocate the 66kV line
was to enable Sishen
to operate its electrical mining equipment. This
was closely linked to and was incurred for the purpose of conducting
Sishen’s
income-earning operations and trade and in earning an
income. Even if the line was moved for the first time, it is
expenditure
which, by its very nature, is likely to be incurred again
in the future, and therefore recurring, as the mine operations extend
into further new areas.
[85]
The expenditure incurred, including any costs of part of the
infrastructure required to
be replaced, was inextricably and closely
connected to Sishen’s income producing activities. The
predominant purpose in incurring
the expenditure was not to enhance
Sishen’s corporeal income earning structure, but to enable it
to operate mining equipment
for the proper utilisation of its mining
right and to earn income from its trade.
[86]
The part of the expenditure, probably an insignificant portion,
relating to replacing part
of the pylons and related construction in
the process of relocation, does not make the 66kV line expenditure
‘capital in
nature’. It is similar to the funds expended
in
Johns-Mayville
to buy land to facilitate the slope access
to the mine, which was found to be not capital, but revenue. And it
is similar also to
the expenditure expended on a social upliftment
program, totally unrelated to the actual earning of mining income,
which was found
to be revenue and not capital in nature in
PE
Tramways
and
Warner
.
[87]
The income earning structure, which is the mining pit, buildings and
the like, would have
been acquired and would constitute expenditure
of a capital nature. But relocating the electricity supply lines when
circumstances
demand that mine equipment be used as part of the
income producing process in a new location, and probably new
locations in the
future, is expenditure inherently involved in
generating mining income.
[88]
It is difficult to envisage expenditure, the true nature of which is
more purposed towards
(as in
New State
), close to (as in
Ticktin Timbers
) and not too remote from (as in
PE
Tramway
), necessarily concomitant to (as in
Joffe
) and
incurred on a common sense approach (as in
Johns-Mayville
),
with the object to (as in
W Nevill
) conduct Sishen’s
income generating activities. The 66kV line expenditure was, by its
very essence, required to properly
energise the electrical mining
equipment so that iron ore could be extracted and an income earned.
Even if the line had never been
relocated before and the expenditure
was possibly incurred ‘once and for all’ and might not
recur, the expenditure
is nevertheless inextricably part of
conducting mining operations. Common sense dictates that the
expenditure should be recognised
as a revenue expense and not as of a
capital nature.
[89]
The tax court found, and
its factual findings are not disputed by the CSARS, that: the 66kV
line was attached to an electric substation;
it could be moved to
different parts of the mining area depending on the location of the
mining pits to which it would be required
to relay electricity; costs
would be incurred each time the line was brought to the proximity of
the point where ore was being
extracted; this activity was closely
linked to the employ of a method or process to extract the minerals
in the mining area; and
this activity was part of Sishen’s
income earning activities. Based on those facts, the tax court
concluded that the 66kV
line expenditure was ‘deductible under
s 11
(a)
,
read with
s 36(11)
(a)
’
.
[90]
It had not erred in doing so. The 66kV line expenditure was
deductible in terms of
s 36(11)
(e)
,
alternatively
s 11
(a)
.
The CSARS’ cross-appeal in respect of the 66kV line expenditure
accordingly falls to be dismissed.
Wear
and tear –
section 11(e)
[90]
As regards the
application of
s 11
(e)
to the 66kV line
expenditure, in the light of the above finding, the issue as to
whether the 66kV line expenditure was deductible
in terms of
s 11
(e)
,
as wear and tear of machinery, plant, implements, utensils and
articles used by the taxpayer for the purpose of his or her trade
as
the CSARS may think just and reasonable,
[91]
falls away.
The
legal expenditure –
s 11(c)
[91]
The legal expenditure
comprises fees paid by Sishen to legal practitioners to assist the
Dingleton residents with advice in respect
of their relocation. The
legal expenses were claimed as deductible under
s 11
(c)
read with
s 11
(a)
.
[92]
[92]
Section 11
(c)
provides
for the deduction of expenses incurred in respect of fees for the
services of legal practitioners, actually incurred during
the year of
assessment, in respect of any claim, dispute or action at law
‘arising in the course of or by reason of the ordinary
operations undertaken’ by a taxpayer in carrying on his
trade.
[93]
The ITA does not
define the words ‘claim, dispute or action at law’.
[93]
A ‘claim’ is
defined in the Oxford Dictionary as asking for something which one
has the right to have. The words, ‘claim,
dispute or action at
law’ were considered in
ITC
1419
,
which held that the word ‘dispute’ covers ‘any
disagreement as a result of which parties require legal
assistance’.
[94]
Rossouw
points out that the words ‘claim’ or ‘dispute’
are not qualified by the phrase ‘at law’.
[95]
He further contends that the words ‘claim’ or ‘dispute’
are widely interpreted to include litigation, or
any other action
which does not involve the courts at all. But the expenditure must
arise in the course of, or by reason of the
ordinary operations
undertaken by the taxpayer in carrying on his trade.
[94]
The deduction of legal
expenses is further subject to the proviso that the expenses must:
not be of a capital nature;
[96]
and, not be incurred in respect of any claim made against the
taxpayer for the payment of damages or compensation, if, by reason
of
the nature of the claim or the circumstances, the satisfaction or
settlement of the claim would not rank for deduction from
the
taxpayer’s income under
s 11
(a)
.
[97]
The legal expenses must therefore be incurred in respect of a claim,
either for the taxpayer to pay damages or compensation deductible
in
terms of s 11
(a)
of the Act, or to derive
an amount that will be included in its income as part of its
trade.
[98]
[95]
The ITA does not define
what is meant by ‘carrying on of a trade’. The term
‘trade’
[99]
is
defined in s 1 in wide terms to include ‘every profession,
trade, business, employment, calling, occupation or venture
. .
.’.
[100]
As with a
deduction in terms of s 11
(a)
,
the provisions of s 11
(e)
must be read with s 23
(g)
which prohibits the
deduction of ‘any moneys claimed as a deduction from income
derived from trade, to the extent to which
such moneys were not laid
out or expended for the purposes of trade’. The deductibility
of legal expenses therefore depends
on a causal connection between
the expenditure and the taxpayer’s trade.
[96]
The tax court concluded that the legal expenditure was not incurred
in the course of, or
by reason of, the ordinary operations undertaken
by Sishen in the carrying on of its trade. The CSARS supports that
finding. It
maintains that the legal expenditure was not incurred ‘in
the production of income’ of Sishen as it was not sufficiently
closely connected to the business operations of Sishen, for it to be
proper, natural and reasonable to regard such expenditure
as part of
Sishen’s legal costs in performing its mining operations.
[97]
The burden of proving
that it was entitled to the deduction was on Sishen.
Ticktin
Timbers
held
that the decisive consideration in the application of s 23
(g)
is the purpose for which
the expenditure was incurred.
[101]
In the United Kingdom, the courts, for example in
Strong
& Co Romsey Ltd v Woodifield
,
interpreted the words ‘expended for the purposes of trade’
to mean for the purposes of enabling the taxpayer to carry
on and
earn profits in his trade.
[102]
In
Warner,
[103]
Conradie JA said:
‘
Deductible
expenditure has certain characteristics: it must be incurred in the
production of income (s 11
(a)
)
and will not be allowed as a deduction against gross income if it is
not laid out or expended for the purposes of trade. Up to
and
including the 1992 year of assessment such moneys must have been
“wholly or exclusively laid out or expended for the
purposes of
trade” (s 23
(g)
).
From the 1993 year of assessment onwards expenditure was not
permitted as a deduction save “to the extent to which such
moneys were...laid out or expended for the purposes of trade.”’
[98]
Sishen carries on a trade
by conducting mining operations. What requires to be decided is
whether these were legal expenses incurred
in conducting that trade.
Ultimately, a court has to assess the closeness
[104]
of the connection between the expenditure and the income-earning
operations
[105]
to determine
the purpose of the expenditure. The ‘purpose’ and
‘effect’ of the legal expenditure are decisive
considerations in determining whether the expenditure was incurred in
the production of Sishen’s income.
[106]
[99]
In
Commissioner
of the South African Revenue Services v Thor Chemicals SA (Pty)
Ltd
,
[107]
the taxpayer and some of
its employees were charged with culpable homicide and contraventions
of the Machinery and Occupational
Safety Act. It pleaded guilty to
some of the charges, but it was acquitted on the charge of culpable
homicide and other charges.
It sought to deduct the legal expenses
incurred in its defence in terms of s 11
(c)
of the Act. The court
considered the requirement imposed by s 11
(c)
that the expenditure had
to be incurred in the course of or by reason of the ordinary
operations of the taxpayer in the carrying
on of its trade. It held
that the expenditure arose in the course of the taxpayer’s
business. It applied the test developed
in
Joffe
that the deductibility of
the expenditure must depend on whether the expenditure is a necessary
concomitant of the taxpayer’s
business operations. It concluded
that the dominant intention was to defend the taxpayer’s stance
that it was not negligent
and that it had not contravened the
Machinery and Occupational Safety Act. Hence the legal expenses were
deductible, not being
of a capital nature.
[100]
In
Secretary
for Inland Revenue v Cadac Engineering Works
(
Cadac
),
[108]
Cadac
was
manufacturing cookers under licence from the patent holder. It asked
the patent holder to institute legal proceedings against
another
firm, which had started to market cookers in competition with
Cadac.
Cadac
undertook
to indemnify the patent holder for its legal expenses. The court held
that the legal expenses were of a capital nature
as they were
directed at preserving and perhaps expanding the field in which the
taxpayer’s business operated, were incurred
to eliminate
competition, and were therefore not deductible. Based on this
reasoning the court in
ITC
1677
held
that where the taxpayer’s litigation was instituted to preserve
an asset and protect the taxpayer’s market, the
legal expenses
incurred were of a capital nature and not deductible.
[109]
[101]
The court in
Lockie
Bros v Commissioner for Inland Revenue
,
[110]
interpreted the words ‘in the production of income’ to
mean ‘actually incurred in the course of and by reason
of the
ordinary business operations undertaken for the purpose of conducting
the business’.
[111]
In
ITC
1710
,
the taxpayer was held vicariously liable for damages when his
employee negligently set a neighbour’s farm alight.
[112]
The legal expenses incurred to defend the claim were deductible in
terms of s 11
(c)
because they were
connected with work performed by the employee on the farm, part of
the taxpayer’s business, and there was
a sufficient causal
connection with the taxpayer’s farming operations.
[102]
The legal expenditure in this appeal was not incurred by Sishen for
its own direct benefit. It has not been shown
to fall within any of
the categories that would qualify for deduction. It was expenditure
incurred for the benefit of the Dingleton
residents. The purpose of
the legal expenditure was to provide the Dingleton residents with
legal advice in regard to the relocation
project.
[103]
The relocation expenditure in respect of the Dingleton residents has
been allowed under s 36(11)
(e)
. But that does not include the
legal expenditure relating to legal advice made available to the
Dingleton residents. The legal
expenditure was not incurred in terms
of any mining right. Nor was it sufficiently closely related to
Sishen’s trade.
[104]
Sishen’s trade was to mine for iron ore, not to provide legal
assistance to the Dingleton residents. The
legal costs were not
incurred directly, or naturally, to earn or to produce income, but
were simply another expense, with an insufficiently
close, if any,
nexus
to the production of income in its trade.
[105]
Sishen has not discharged the burden of proving that the legal
expenditure was incurred in the production of its
income. The legal
expenditure was correctly disallowed as a deduction. Sishen’s
appeal against that finding must fail.
The
understatement penalties and interest
[106]
The tax court set the understatement penalties imposed by the CSARS
aside as unjustified. The tax court was correct.
The CSARS cross
appealed against the disallowance of the understatement penalty, but
this cross appeal was rightly abandoned in
his heads of argument. The
order of the tax court setting aside the understatement penalties
therefore stands. The issue of the
understatement penalties need not
be considered further in this appeal. At most, the cross appeal
relating to the understatement
penalties is relevant to the question
of costs, but only up to the time when the cross appeal was abandoned
in the heads of argument
filed on 19 February 2024.
The
section 89
quat
(2) interest on unpaid tax
[107]
Section 89
quat
(2)
provides that interest shall, subject to the provisions of subsection
(3), be payable by a taxpayer at the prescribed rate on
the amount by
which the normal tax exceeds the credit amount in relation to a
particular tax year, calculated from the effective
date in relation
to the said year, until the date of assessment of such normal
tax.
[113]
Section 89
quat
(3)
provides that where the CSARS, having regard to the circumstances of
the case, is satisfied that the interest payable in terms
of
subsection (2) is as a result of circumstances beyond the control of
the taxpayer, he has the discretion to direct that the
interest shall
not be paid in whole or in part.
[114]
The discretion is subject to objection and appeal.
[108]
The CSARS contended that the normal tax payable by Sishen in respect
of the taxable income, excluding the deductions
allowed, exceeded the
credit amount available in the relevant tax years, and that interest
was therefore chargeable in terms of
s 89
qua
t(2). As regards
the discretion in s 89
quat
(3), the CSARS contended that there
was no basis to waive interest.
[109]
The interest raised by the CSARS was set aside by the tax court. It
erroneously categorised the interest as ‘Interest
on
Understatement Penalties’. As it set aside the understatement
penalties, it also set aside the interest. In doing so,
it
misconceived the basis for the interest claimed by the CSARS in terms
of s 89
qua
t(2) and erred. The interest was claimed on
unpaid tax on the deductions which the CSARS disallowed.
[110]
The CSARS accordingly understandably appeals against the disallowance
of that interest. The CSARS contends: that
he was entitled to charge
interest in terms of s 89
quat
(2) as the normal tax payable by
Sishen in respect of the taxable income exceeded the credit amount
available in the relevant tax
years because of the taxation on the
disallowed deductions; and, that Sishen had not identified any
circumstances which would require
the CSARS to have waived the
interest.
[111]
This judgment allows the deduction of the relocation expenditure in
respect of Dingleton, the SWEPs infrastructure
and the 66kV line
expenditure. Only the deduction of the legal expenditure is
disallowed. It is not clear what, if any, tax credit
Sishen might
have had in respect of the particular tax years in question, and by
what amount, if any, the normal tax to be paid
might exceed any
credit amount in those tax years, calculated from the effective date
in relation to each year, until the date
of assessment of such normal
tax, having regard to the effect of this judgment. The parties were
agreed that the assessment of
the s 89
quat
(2) interest should
be set aside and referred back to the CSARS for reconsideration and
assessment.
[112]
In reconsidering the aspect of the interest, the CSARS should also
consider the application of s 89
quat
(3) and any factors
relevant to the exercise of his discretion. These may include,
without being prescriptive in any way:
(a)
The commentary of Davis that, where a taxpayer believed that there
were grounds which excused liability for
the payment of the tax on
which interest is sought to be raised, that:
‘
The
test as to whether the grounds are reasonable, is objective, in
relation to actions of the taxpayer. A mere subjective belief
by the
taxpayer that a deduction should be allowed, without taking advice on
the matter, is unlikely to be reasonable. On the other
hand, the
reliance by the taxpayer on expert advice, even if this is wrong,
will in most cases constitute reasonable grounds for
the action
taken.’
[115]
(b) Sishen
had acted on the advice of an independent registered tax
practitioner, KPMG, which confirmed that Sishen’s
position was
more likely than not to be upheld before a court.
(c)
Whether the fact that the CSARS disagreed with the advice Sishen had
received from KPMG, was a ‘circumstance
beyond the control of
the taxpayer’.
(d)
Whether interest should accrue from 1 July 2013, 1 July 2014 and 1
July 2015 respectively.
(e)
The uncertainty in accurately predetermining the correct tax
treatment of the kind of expenditure featuring
in this appeal: the
authors of the KPMG report having cautioned that:
‘
Determining
the capital/revenue nature of the expenses in question is complex
since there is no single infallible test. Hence .
. . we cannot
discount the possibility of a court of law arriving at a different
conclusion.’
(f)
The reality is that the correct legal conclusion in tax litigation is
often difficult to
determine in advance, as demonstrated by the facts
in this appeal. The KPMG report advised that the relocation
expenditure of Dingleton
and the SWEP infrastructure was competent in
terms of s 11
(a)
, but the tax court disallowed that
expenditure altogether, and this judgment has found that the
expenditure is deductible pursuant
to s 36(11)
(e)
. The KPMG
report advised that the 66kV line expenditure was deductible under s
36(11)
(a)
, the tax court allowed it under s 11
(a)
and s 36(11)
(a)
, and this judgment has confirmed that it is
deductible.
Conclusion
[113]
In summary, Sishen’s appeal has succeeded in respect of the
deduction of the relocation expenditure for
Dingleton and the SWEP
infrastructure but has failed in respect of the deduction of the
legal expenditure. The CSARS’s cross-appeal
has failed in
respect of the 66kV line expenditure and the understatement penalties
(which were conceded in his heads of argument).
The s 89
quat
(2)
interest, if any, and whether it should be waived, are referred back
to the CSARS for determination afresh.
[114]
It is appropriate, having regard to the measure of success enjoyed
and the time spent on arguing those issues,
that in the exercise of
this Court’s discretion on costs, the CSARS be ordered to pay
two thirds of Sishen’s costs
of the appeal, and one half of
Sishen’s costs of the cross-appeal, such costs in each instance
to include the costs of two
counsel where so employed. The order of
the tax court is varied where required to give effect to the above
findings.
Order
[115]
The following order is accordingly granted:
1
The appeal succeeds to the extent set out in paragraph 5 below but is
otherwise dismissed.
2
The respondent is directed to pay two thirds of the appellant’s
costs of the appeal,
to include the costs of two counsel where so
employed.
3
The cross-appeal succeeds to the extent set out in paragraph 5 below
but is otherwise
dismissed.
4
The respondent is directed to pay one half of the appellant’s
costs of the cross-appeal,
to include the costs of two counsel where
so employed.
5
Paragraph 1 of the order of the tax court is set aside and
substituted with the following:
‘
1
(a) The relocation expenditure in respect of
Dingleton and the SWEP
infrastructure, is deductible;
(b)
The 66kV line expenditure is deductible;
(c)
The understatement penalties imposed by the CSARS in terms of
s 187(1)
of the
Tax Administration Act 28 of 2011
are set aside;
(d)
The interest raised in terms of
s 89
quat
(2) of the Income Tax
Act 58 of 1962 is set aside and referred back to the CSARS for
determination whether any interest should be
payable, and if so, the
amount thereof;
(e)
The legal expenditure is not deductible.’
P
A KOEN
ACTING
JUDGE OF APPEAL
Appearances
For
the appellant:
J
Cane SC and A Kolloori
Instructed
by:
Webber
Wentzel, Cape Town
Honey
Attorneys, Bloemfontein
For
the respondent:
G
Budlender SC and H Cassim
Instructed
by:
Maponya
Attorneys, Pretoria
Phatshoane
Henney Attorneys, Bloemfontein.
[1]
These were raised in terms of sections 222 and 223 of the Tax
Administration Act 28 of 2011 (the TAA).
[2]
All references to sections hereafter are to the ITA, unless
indicated otherwise.
[3]
The CSARS also cross-appealed against the disallowance of the
understatement and underestimation penalties. He however recorded
in
his practice note in this Court that this part of the cross-appeal
was no longer persisted with.
[4]
A mining right is defined in s 1 of the Mineral and Petroleum
Resources Development Act 28 of 2002 (the MPRDA) as ‘a right
to mine granted in terms of s 23(1)’. It is granted in respect
of specific land.
[5]
Section 2
(h)
of the MPRDA provides
that one of its objects is to give effect to s 24 of the
Constitution.
[6]
Section 24 of the Constitution provides that:
‘
Everyone
has the right-
(a)
to an environment that is not harmful to their health or wellbeing;
and
(b)
to have the environment protected, for the benefit of present and
future generation, through reasonable legislative
and other measures
that –
(i) prevent pollution
and ecological degradation;
(ii) promote
conservation; and
(iii) secure
ecologically sustainable development and use of natural resources
while promoting justifiable economic and social
development.’
[7]
See below.
[8]
Section 1 of the MPRDA defines ‘this Act’ to include
‘the regulations and any term or condition to which any
permit, permission, licence right, consent, exemption, approval,
notice, closure certificate, environmental management plan,
environmental management programme or directive issued, given,
granted or approved in terms of this Act, us subject.’
[9]
Act 29 of 1996.
[10]
Section 5(2) provides:
‘
As
far as reasonably practicable, every employer must –
(a)
. . .
(b)
ensure that
persons who are not employees, but who may be directly affected by
the activities at the mine, are not exposed to
any hazards to their
health and safety.’
[11]
‘General precautions
4.16
The employer must take reasonable measures to ensure that–
4.16
(1) . . .
4.16
(2) no blasting operations are carried out within a horizontal
distance of 500 meters of any public building, public thoroughfare,
railway line, power line, any place where people congregate or any
other structure, which it may be necessary to protect in order
to
prevent any significant risk, unless–
(a) a risk assessment
has identified a lesser safe distance and any restrictions and
conditions to be complied with;
(b) a written
application is submitted to the Principal Inspector of Mines
accompanied by the following documents for approval
. . .
(c) a written approval
has been granted by the Principal Inspector of Mines; and
(d) any restrictions and
conditions determined by the Principal Inspector of Mines are
complied with.’
[12]
Paragraph 11 provides:
‘
Holder’s
Liability for payment of Compensation for Loss or Damage
11.1
Subject to section 43 of the Act, the Holder shall, during the
tenure of this right while carrying out the mining operations
under
this right, take all such necessary and reasonable steps to
adequately safeguard and protect the environment, the mining
area
and any person/s using or entitled to use the surface of the mining
area from any possible damage or injury associated with
any
activities on the mining area.
11.2
Should the Holder fail to take reasonable steps referred to above,
and to the extent that there is legal liability, the holder
shall
compensate such person or persons for any damage or losses,
including but not limited to the surface, to any crops or
improvements, which such person or persons may suffer as a result
of, arising from or in connection with the exercise of his/her
rights under this mining right or of any act or omission in
connection therewith.’
[13]
Section 54 inter alia provides:
‘
(1)
The holder of a . . . Mining right or mining permit must notify the
relevant Regional Manager if that holder is prevented
from . . .
conducting any . . . mining operations because the owner or
the local occupier of the land in question –
(a)
refuses
to allow such holder to enter the land;
(b)
places
unreasonable demands in return for access to the land; or
(c)
cannot be found in order to apply for access.
(2) The Regional
Manager must, within 14 days from the date of the notice referred to
in subsection (1) –
(a)
call
upon the owner or lawful occupier of the land to make
representations regarding the issues raised by the holder of
the . .
. mining right . . . ;
(b)
inform
that owner or occupier of the rights of the holder of a right,
permit or permission in terms of this Act;
(c)
set out the provisions of this Act which such owner or occupier is
contravening;
(d)
inform
that owner or occupier of the steps which may be taken, should he or
she persist in contravening the provisions.
(3)
If the Regional Manager, after having considered the issues raised
by the holder under subsection (1) and any written representations
by the owner or the lawful occupier of the land, concludes that the
owner or occupier has suffered or is likely to suffer loss
or damage
as a result of the . . . mining operations, he or she must request
the parties concerned to endeavour to reach an agreement
for the
payment of compensation for such loss or damage.
(4)
. . .’
[14]
The SWEP (Sishen Western Expansion Project) implemented by Sishen,
also included the 66kV line. In this judgment the 66kV line
expenditure is dealt with separately, consistent with the findings
of the tax court. The collective term ‘SWEP infrastructure’
is accordingly used in this judgment to refer to the infrastructure
owned by third parties which had to be relocated, excluding
the 66kV
line.
[15]
Some of the
area
occupied by the
roads,
railways, electricity and water infrastructure, approxim
ately
10km long (north to south) and 30 meters wide (west to east) formed
part of such buffer.
[16]
Regulation 10(1)
(f)
provides:
‘
Application
for mining right
(1)
An application for a mining right in terms of section 22(1) of
the Act must be completed in the form of Form D contained
in
Annexure I and must contain –
.
. .
(f)
a
mining work programme contemplated in regulation 11; . . .’
[17]
Section 25(2)
(c)
provides:
‘
(2)
The holder of a mining right must –
(a)
. . .
(b)
. . .
(c)
Actively conduct mining in accordance with the mining work
programme;
(d)
. . .’
[18]
Regulation 11(1)
(h)
.
[19]
Section 47 of the MPRDA provides:
‘
Minister's
power to suspend or cancel rights, permits or permissions
(1)
Subject to subsections (2), (3) and (4), the Minister may cancel or
suspend any reconnaissance permission, prospecting right,
mining
Right, mining permits, retention permit or holders of old order
rights or previous owner of works, if the holder or owner
thereof –
(a)
is conducting any reconnaissance, prospecting or mining operation in
contravention of this Act;
(b)
breaches any material term or condition of such a right, permit or
permission;
(c)
is contravening any condition in the environmental authorisation; or
(d)
has submitted inaccurate, false, fraudulent, incorrect or misleading
information for the purposes of the application
or in connection
with any matter required to be submitted under this Act.
(2)
. . .’
[20]
Section 51 of the MPRDA provides:
‘
Optimal
mining of mineral resources
(1)
Subject to subsection (2), the Board may recommend to the Minister
to direct a holder of a mining right to take corrective
measures if
the Board establishes that the minerals are not being mined
optimally in accordance with the mining work programme
or that a
continuation of such practice will detrimentally affect the objects
referred to in section 2
(f)
.
(2)
. . .
(3)
. . .
(4)
The Minister may, on the recommendations of the Board, suspend or
cancel a mining right if –
(
a
)
the holder of that mining right fails to comply with a notice
contemplated in subsection (3); or
(
b
)
having regard to any representations by the holder, the Minister is
convinced that any act or omission by the holder
justifies the
suspension or cancellation of the right.
(5)
. . .’
[21]
At the time of enactment of the MPRDA it was the Minister of
Minerals and Energy.
[22]
Section 54(1) provides:
‘
Compensation
payable under certain circumstances
(1)
The holder of a reconnaissance permission, prospecting right, mining
right or mining permit must notify the relevant Regional
Manager if
that holder is prevented from commencing or conducting any
reconnaissance, prospecting or mining operations because
the owner
or the lawful occupier of the land in question-
(a)
refuses to allow such holder to enter the land;
(b)
places unreasonable demands in return for access to the land; or
(c)
cannot be found in order to apply for access.
(2)
The Regional Manager must, within 14 days from the date of the
notice referred to in subsection (1)-
(a)
call upon the owner or lawful occupier of the land to make
representations regarding the issues raised by the holder
of the
reconnaissance permission, prospecting right, mining right or mining
permit;
(b)
inform that owner or occupier of the rights of the holder of a
right, permit or permission in terms of this Act;
(c)
set out the provisions of this Act which such owner or occupier is
contravening; and
(d)
inform that owner or occupier of the steps which may be taken,
should he or she persist in contravening the provisions.
[23]
Section 54(3) of the MPRDA provides:
‘
If
the Regional Manager, after having considered the issues raised by
the holder under subsection (1) and any written representations
by
the owner or the lawful occupier of the land, concludes that the
owner or occupier has suffered or is likely to suffer loss
or damage
as a result of the reconnaissance, prospecting or mining operations,
he or she must request the parties concerned to
endeavour to reach
an agreement for the payment of compensation for such loss or
damage.’
[24]
Section 54(6) provides:
‘
(6)
If the Regional Manager determines that the failure of the parties
to reach an agreement or to resolve the dispute is due
to the fault
of the holder of the . . . mining right . . ., the Regional Manager
may in writing prohibit such holder from commencing
or continuing
with prospecting or mining operations on the land in question until
such time as the dispute has been resolved
by arbitration or by a
competent court.’
[25]
See fn 38 infra.
[26]
See fn 39 infra.
[27]
See fn 43 infra.
[28]
See fn 51 infra.
[29]
See fn 52 infra.
[30]
See fn 42 infra.
[31]
See fn 53 infra.
[32]
See fn 112 infra.
[33]
Section 15 of the ITA. It is not in dispute that Sishen derives it
income from mining operations. ‘Mining operations’
and
‘mining’ is defined in the ITA to ‘include every
process by which any mineral is won from the soil or from
any
substance or constituent thereof.’
[34]
Section 11
(a)
of the ITA.
[35]
Western
Platinum Ltd v Commissioner for SARS
[2004]
ZASCA 83
;
[2004] 4 All SA 611
(SCA) para 1.
[36]
Section 23B(3) of the ITA provides:
‘
No
deduction shall be allowed under section 11
(a)
in respect of any expenditure or loss of a type for which a
deduction or allowance may be granted under any other provision of
this Act, notwithstanding that –
(a)
such other
provision may impose any limitation on the amount of such deduction
or allowance; or
(b)
that
deduction or allowance in terms of that other provision may be
granted in a different year of assessment.’
## [37]ABC
Mining (Pty) Ltd v The Commissioner for the South African Revenue
Service(IT
24606) [2021] ZATC 12 (25 February 2021) para 69. Davis Tax
Committee. 2016.Second
and Final Report on Hard-Rock Mining,
p 49 para 2.3.2.1.1:
[37]
ABC
Mining (Pty) Ltd v The Commissioner for the South African Revenue
Service
(IT
24606) [2021] ZATC 12 (25 February 2021) para 69. Davis Tax
Committee. 2016.
Second
and Final Report on Hard-Rock Mining
,
p 49 para 2.3.2.1.1:
‘
The
rationale for the special tax saving deduction incentives given to
miners was explained in the Davis Tax Committee’s
report as
follows: “Mining involves very substantial upfront investment
costs at the development phase of the mine, typically
followed by a
prolonged time lag before mining production (and hence generation of
income) commences. This prolonged interval
between upfront
investment and generation of income is subject to heightened risks
posed by adverse changes in commodity prices,
and geological risks.
These incentives provide for upfront capital allowances for
exploratory and development expenditure, and
for deductions which
are designed to ensure adequate provision is made for the closure
and rehabilitation of mines”.’
[38]
Section
15
(a)
provides:
‘
There
shall be allowed to be deducted from the income derived by the
taxpayer from mining operations –
(a)
an amount to be ascertained under the provisions
of section 36,
in lieu
of
the allowances in sections 11 (
e
),
(f)
,
(
gA), (
g
C),
(o),
12D, 12DA, 12F and 13
quin:
(b
)
. . .’
[39]
Section 36(7C) provides:
‘
Subject
to the provisions of subsections (7E), (7F) and (7G), the amounts to
be deducted under section 15
(a)
from the income derived from the working of any producing mine shall
be the amount of capital expenditure incurred.’
[40]
The amount of any capital expenditure falls to be determined in
accordance with the definitions of ‘capital expenditure
incurred’ and ‘expenditure’ as defined in s 36(11)
(
f
).
The determination of the amounts involved is not an issue in this
appeal.
[41]
In terms of s 36(11) ‘“expenditure on shaft sinking”
includes the expenditure on sumps, pump-chambers, stations
and ore
bins accessory to a shaft’. The expenditure claimed to be
deducted in this appeal does not relate to shaft sinking.
[42]
The balance of the definition of ‘capital expenditure’
is not relevant to this judgment and is accordingly omitted.
Paragraph
(d)
and (
d
A)
also do not apply.
[43]
Section 36(11)
(e)
provides:
‘
where
that trade constitutes mining, any expenditure incurred in terms of
a mining right pursuant to the
Mineral and Petroleum Resources
Development Act other
than in respect of infrastructure or
environmental rehabilitation’.
[44]
Natal
Joint Municipal Pension Fund v Endumeni Municiaplity
[2012] ZASCA 13
;
[2012]
2 All SA 262
(SCA);
2012 (4) SA 593
(SCA) para 18;
Tshwane
City v Blair Athol Home Owners Association
[2018]
ZASCA 176
;
[2019] 1 All SA 291
(SCA);
2019 (3) SA 298
(SCA)
para 63;
Capitec
Bank Holdings Limited and Another v Coral Lagoon Investments 194
(Pty) Ltd and Others
[2021]
ZASCA 99
;
[2021] 3 All SA 647
(SCA);
2022 (1) SA 100
(SCA) para
50.
[45]
Section 23(1)
(f)
of the MPRDA provides:
‘
(1)
Subject to subsection (4), the Minister must grant a mining right if
–
(a)
. . .
(b)
. . .
(c)
. . .
(d)
. . .
(e)
. . .
(f)
The applicant has the ability to comply with the relevant provisions
of the Mine Health and Safety Act,
1996 (Act No 29 of 1996);
. . .’
[46]
These provisions provide that every employer like Sishen must ensure
that persons who are not employees but who may be directly
affected
by mining activities should not be exposed to hazards to their
health and safety.
[47]
Section 36(11)
(d)
provides:
‘
expenditure
(excluding the cost of land, surface rights and servitudes) the
payment of which has become due on or after 1 July
1989 in respect
of the acquisition, erection, construction, improvement or laying
out of –
(i) housing for
residential occupation by the taxpayer's employees (other than
housing intended for sale) and furniture for such
housing;
(ii) infrastructure in
respect of residential areas developed for sale to the taxpayer's
employees;
(iii) any hospital,
school, shop or similar amenity (including furniture and equipment)
owned and operated by the taxpayer mainly
for the use of his
employees or any garage or carport for any motor vehicle referred to
in subparagraph (vi);
(iv) recreational
buildings and facilities owned and operated by the taxpayer mainly
for the use of his employees;
(v) any railway line or
system having a similar function for the transport of minerals from
the mine to the nearest public transport
system or outlet;
(vi) motor vehicles
intended for the private or partly private use of the taxpayer's
employees:
Provided
that-
(aa)
such
expenditure shall for the purposes of this definition be deemed to
be payable in ten successive equal annual instalments
or, where
subparagraph (vi) is applicable, five successive equal annual
instalments, the first of which shall be deemed to be
payable on the
date on which payment of the relevant expenditure became due and the
succeeding instalments on the appropriate
anniversaries of that
date, but if any such anniversary falls on a date after the asset to
which such expenditure relates has
been sold, disposed of or
scrapped by the taxpayer, the instalment of such expenditure so
deemed to be payable on such anniversary
shall be disregarded;
(bb)
where it is
shown to the satisfaction of the Commissioner that the life of the
relevant mine will extend over a period which
is shorter than the
period during which the said instalments are so deemed to be
payable, the Commissioner may reduce the number
of instalments
relating to the expenditure not yet redeemed and the amount of each
such instalment shall be determined by dividing
the amount of the
expenditure remaining to be redeemed by the number of years in the
remainder of the life of the mine;
(cc)
where any
asset the expenditure in respect of which has qualified as capital
expenditure under this paragraph is sold, disposed
of or scrapped by
the taxpayer during any year of assessment, an allowance shall be
made in respect of that asset, equal to the
amount by which the full
amount of the expenditure incurred by the taxpayer in respect of
that asset, as contemplated in this
paragraph, exceeds the total
amount of all the instalments of such expenditure which are deemed
by paragraph
(aa)
of this proviso to be payable before the
asset was sold, disposed of or scrapped, and in such case the amount
of the said allowance
shall be deemed to be the final instalment of
the said expenditure made on the date on which the asset was sold,
disposed of
or scrapped; and
(dd)
where a
taxpayer completes an improvement as contemplated in section 12N in
respect of the items contemplated in subparagraph
(i), (ii), (iii),
(iv) or (v), the expenditure incurred by the taxpayer to complete
the improvement shall be deemed to be expenditure
for the purposes
of this section.’
[48]
ITC 1110 (1967) 29 SATC 169 (T) 170.
[49]
Although no finding to effect that is made here, a very compelling
case also exists for the deduction of the relocation expenditure
as
a general deduction. The expenditure, viewed from a practical and
business outlook: had as its purpose to remove an obstacle
to the
effective extraction of iron ore from the mine; did not relate to
the acquisition of a capital asset; did not lead to
the acquisition
of anything of intrinsic value; simply related, in the case of the
SWEP relocation to the removal of overburden
and its location to
access iron ore which, if not removed, would bring the mining
operation to a halt, or seriously impede the
mining operations;
produced a transitional benefit which had no enduring value but was
required if the mining operation was to
be continued at all into the
future; related to what was contemplated in the MWP from the outset
as required for the optimal
exploitation of Sishen’s mining
right; was required as there was no evidence to indicate that the
mining operations could
continue into the future without this
expenditure; did not produce an asset to Sishen which may be made
subject to either capital
costs or a depreciation allowance; and,
did not increase the productive capacity of the mine beyond what the
mining right contemplated,
nor affect any asset of Sishen. At the
end, Sishen would simply be left with a larger hole in the surface
of the earth within
its mining area.
[50]
Van Blerck, M. (1992).
Mining
Tax in South Africa
.
2nd ed. Rivonia, South Africa: Taxfax CC page 12-12.
[51]
Section 11 provides:
‘
For
the purposes of determining the taxable income derived by any person
from carrying on any trade, there shall be allowed as
deductions
from the income of such person so derived –
(a)
expenditure
and losses actually incurred in the production of the income,
provided such expenditure and losses are not of a capital
nature;
(b)
. . .’
[52]
Section
11
(c)
provides
for:
‘
any
legal expenses (
being
fees for the services of legal practitioners, or expenses incurred
in procuring evidence or expert advice, court fees, witness
fees and
expenses, taxing fees, the fees and expenses of sheriffs or
messengers of court and other expenses of litigation which
are of an
essentially similar nature to any of the said fees or expenses)
actually incurred by the taxpayer during the year of
assessment in
respect of any claim, dispute or action at law arising in the course
of or by reason of the ordinary operations
undertaken by him in the
carrying on of his trade: Provided that the amount to be allowed
under this paragraph in respect of
any such expenses shall be
limited to so much thereof as -
(i) is not of a
capital nature; and
(ii) is not incurred in
respect of any claim made against the taxpayer for the payment of
damages or compensation if by reason
of the nature of the claim or
the circumstances any payment which is or might be made in
satisfaction or settlement of the claim
does not or would not rank
for deduction from his income under paragraph
(a)
; and
(iii) is not incurred in
respect of any claim made by the taxpayer for the payment to him of
any amount which does not or would
not constitute income of the
taxpayer; and
(iv)
is not incurred in respect of any dispute or action at law relating
to any such claim as is referred to in paragraph (ii)
or (iii) of
this proviso;’
[53]
Section 11
(e)
provides for the
deduction of:
‘
save
as
provided
in paragraph 12(2) of the First Schedule, such sum as the
Commissioner may think just and reasonable as representing
the
amount by which the value of any machinery, plant, implements,
utensils and articles (other than machinery, plant, implements,
utensils and articles in respect of which adduction may be granted
under section 12B, 12C, 12DA, 12E(1) or 37B) owned by the
taxpayer
or acquired by the taxpayer as purchaser in terms of an agreement
contemplated in paragraph
(a)
of
the definition of “instalment credit agreement” in
section 1 of the Value–Added Tax Act and used by the taxpayer
for the purpose of his or her trade has been diminished by reason of
wear and tear or depreciation during the year of assessment:
Provided that- . . .’ (and then follows a list of exclusions
not relevant to repeat for the purpose of this judgment).
[54]
Section 23
(g)
provides:
‘
No
deductions shall in any case be made in respect of the following
matters, namely –
. . .
(g)
any moneys
claimed as a deduction from income derived from trade to the extent
to which such moneys were not laid out or expended
for the purposes
of trade. . .’
[55]
The reference is to expenditure ‘actually incurred’ as
opposed to ‘necessarily incurred’. It has been
remarked
that this probably widens the scope of the deductibility of
expenditure –
Port
Elizabeth Electric Tramway Co Ltd v Commissioner for Inland Revenue
1936 CPD 241
,
8 SATC 13
(
PE
Tramway
).
[56]
Section 11 reads:
‘
For
the purposes of determining the taxable income derived by any person
from carrying on any trade, there shall be allowed as
deductions
from the income of such person so derived –
(a)
expenditure
and losses actually incurred in the production of the income,
provided such expenditure and losses are not of a capital
nature;
(
b
) . . ..’
[57]
Johns-Manville,
Canada Inc v The Queen
85
DTC 1985
(
Johns-Manville
).
[58]
That is with reference to
CIR
v George Timber Co Ltd
1924
AD 516
(1 SATC 20)
525. The CSARS also relied on
New
State Areas Ltd v Commissioner for Inland Revenue
1946 AD 610
at 627 and
Rand
Mines (Mining and Services) Ltd v Commissioner for Inland Revenue
[1996] ZASCA 118
;
1997 (1) SA 427
(SCA)
where, it is argued, this was applied.
[59]
New
State Areas Ltd v Commissioner for Inland Revenue
1946 AD 610
(New
State)
at
164 and 170.
[60]
New
State
fn
59 above at 627.
[61]
Ticktin
Timbers CC v Commissioner for Inland Revenue
[1999]
4 All SA 192
(A);
1999 (4) SA 939
(SCA) (
Ticktin
Timbers
)
para 2.
[62]
Commissioner
for Inland Revenue v Standard Bank of SA Ltd
[1985] ZASCA 64
;
[1985] 2 All SA 512
(A);
1985 (4) SA 485
(A) at 500H-J.
[63]
Port
Elizabeth Electric Tramway Co v Commissioner for Inland Revenue
1936
CPD 241
;
8 SATC 13
(
PE
Tramway
).
[64]
PE
Tramway
at
245.
[65]
Warner
Lambert SA (Pty) Ltd v Commissioner for South African Revenue
Service
2003
(5) SA 344
(SCA);
65 SATC 346
(
Warner
)
para 17.
[66]
W
Nevill & Co Ltd v Federal Commissioner of Taxation
[1937]
HCA 9
;
56 CLR 290
(8 March 1937) para 2.
[67]
The case concerned the deductibility of a payment made to a manager
in instalments over two financial years to terminate his
employment,
which was sought to be deducted in full in the first financial year,
as having been incurred in the course of its
business. The
Commissioner refused to allow the deduction because it was not
expended for the purposes of producing income. The
court followed a
subjective approach and held that the nature of the expenditure
should be established from the taxpayer’s
perspective. If the
purpose was producing profits, then it should be regarded as having
been incurred in the production of income.
It held that the
expenditure was
bona
fide
incurred
for the purposes of producing income. The taxpayer expended the
money
on
the grounds of commercial expediency
;
to improve its efficiency, and therefore to increase its production
capacity. The deduction of the expenditure from the company’s
income was allowed as it had been incurred bona fide for the
purposes of producing income.
[68]
In
PE
Tramway
,
the court stated as follows at 245:
‘
.
. . [I]ncome is produced by the performance of a series of acts and
attendant upon them are expenses. Such expenses are deductible
expenses provided they are so closely linked to such acts as to be
regarded as part of the cost of performing them. A little
reflection
will show that two questions arise (a) whether the act to which the
expenditure is attached is performed in the production
of income and
(b) whether the expenditure is linked to it closely enough.’
[69]
Commissioner
for Inland Revenue v Genn & Company (Pty) Ltd
1955 (3) SA 293
(A);
[1955] 3 All SA 382
(A);
20 SATC 113
(
Genn
)
.
[70]
Genn
at 299.
[71]
Joffe
& Company Ltd v Commissioner for Inland Revenue
1946
AD 157
.
[72]
Commissioner
for Inland Revenue v African Oxygen Ltd
25
SATC 67
;
1963 (1) SA 681
(A) (
African
Oxygen
)
at 690B-D.
[73]
Vallambrosa
Rubber Company Ltd v Farmer
[1910]
ScotLR 488;
[1910] SLR 488
(16 March 1910) at 492.
[74]
British
Insulated & Helsby Cables v Atherton
[1926]
A.C. 205
,
(1925) 10 TC 155
at 192.
[75]
The test was adopted and applied by Steyn CJ in considering the
peculiar facts in
African
Oxygen
and
confirmed in
ITC
1528
54
SATC 243
(T) at 248-249.
[76]
De Koker, A P. and Williams, R C. (2012)
Silke
on South African Income Tax
.
LexisNexis. Para 7.9.
[77]
Johns-Manville
fn 57 supra.
[78]
This might have been an alternative basis to find that the
relocation expenditure was deductible, had it not been concluded
above that the relocation expenditure was deductible also as capital
expenditure in terms of the provisions of s 36(11)
(e)
.
[79]
Minister
of National Revenue v Algoma Central Railway
[1968] S.C.R. 447
at
449.
[80]
B.P.
Australia Ltd v Commissioner of Taxation of the Commonwealth of
Australia
[1966]
A.C. 224
at 264-265.
[81]
Johns-Manville
para 13.
[82]
Regent
Oil Co Ltd v Strick
[1966]
A.C. 295
at 313.
[83]
Johns-Manville
para 22.
[84]
Golden
Horse Shoe (New) Ltd v Thurgood
[1934]
1 KB 548
(C.A.) at 563.
[85]
Palabora
Mining Company Ltd v Secretary for Inland Revenue
1973
(3) SA 819 (A); 35 SATC 159.
[86]
Per Lord Pearce in
B.P.
Australia Ltd supra
at
264.
[87]
Section 102 of the TAA provides:
‘
(1)
A taxpayer bears the burden of proving-
(a)
that an
amount, transaction, event or item is exempt or otherwise not
taxable;
(b)
that an
amount or item is deductible or may be set-off. . .’.
[88]
Act 28 of 2011.
[89]
PE
Tramway
at
246.
[90]
The reference to s 36(11)
(a)
appears
to be an error.
[91]
Section 11
(e)
provides for the
deduction of:
‘
[S]ave
as provided in paragraph 12(2) of the First Schedule, such sum as
the Commissioner may think just and reasonable as representing
the
amount by which the value of any machinery, plant, implements,
utensils and articles (other than machinery, plant, implements,
utensils and articles in respect of which adduction may be granted
under section 12B, 12C, 12DA, 12E(1) or 37B) owned by the
taxpayer
or acquired by the taxpayer as purchaser in terms of an agreement
contemplated in paragraph
(a)
of the definition of “instalment credit agreement” in
section 1 of the Value–Added Tax Act and used by the
taxpayer
for the purpose of his or her trade has been diminished by reason of
wear and tear or depreciation during the year of
assessment:
Provided that – . . ..’ (and then follows a list of
exclusions not relevant and therefore not required
to be repeated
for the purpose of this judgment).
[92]
It is claimed that this should be read with s 11
(a)
.
Sections 11
(c)
and
(a)
are however independent,
distinct, stand-alone provisions each with its own jurisdictional
requirements.
[93]
Section 11
(c)
provides,
in part for:
‘
any
legal expenses (being fees for the services of legal practitioners,
or expenses incurred in procuring evidence or expert advice,
court
fees, witness fees and expenses, taxing fees, the fees and expenses
of sheriffs or messengers of court and other expenses
of litigation
which are of an essentially similar nature to any of the said fees
or expenses) actually incurred by the taxpayer
during the year of
assessment in respect of any claim, dispute or action at law arising
in the course of or by reason of the
ordinary operations undertaken
by him in the carrying on of his trade: Provided that the amount to
be allowed under this paragraph
in respect of any such expenses
shall be limited to so much thereof as –
(i) is not of a
capital nature; and
(ii) is not incurred in
respect of any claim made against the taxpayer for the payment of
damages or compensation if by reason
of the nature of the claim or
the circumstances any payment which is or might be made in
satisfaction or settlement of the claim
does not or would not rank
for deduction from his income under paragraph (
a
); and
(iii) is not
incurred in respect of any claim made by the taxpayer for the
payment to him of any amount which does not or
would not constitute
income of the taxpayer; and
(iv) is not
incurred in respect of any dispute or action at law relating to any
such claim as is referred to in paragraph
(ii) or (iii) of this
proviso. . ..’
[94]
ITC
1419
(1986)
49 SATC 45.
[95]
Rossouw, H. (1989)
Legal
expenses: when are they tax deductible
.
De Rebus, 245, at 127.
[96]
Section 11
(c)
(i).
[97]
Section 11
(c)
(ii).
[98]
Nyanin, G. (2017)
Deductibility
of Legal Expenses
,
Tax and Exchange Control Alert, 1 December, at 9-10.
[99]
‘Trade’ is defined in s 1 of the ITA to mean:
‘
every
profession, trade, business, employment, calling, occupation or
venture, including the letting of any property and the use
of or the
grant of permission to use any patent as defined in the Patents Act,
1952 or any design as defined in the Designs Act,
1967 or any trade
mark as defined in the Trade Marks Act, 1963 or any copyright as
defined in the Copyright Act, 1965 or any
other property which in
the opinion of the Commissioner is of a similar nature.’
[100]
Trade includes a venture, but there does not have to be a risk, as
normally with a venture, for a venture to be considered a
trade. All
that is required is the real hope to make profit - not a hope based
on fanciful expectations but on reasonable possibility
–
ITC
1292
41
SATC 163. The attainment of profit is not necessarily the hallmark
of a trading transaction –
De
Beers Holdings (Pty) Ltd v Commissioner for Inland Revenue
1986 (1) SA 8
(A)1986
(1) SA 8 (A), 47 SATC 229.
[101]
Ticktin
Timbers
para
2.
[102]
Strong
& Company Romsey Ltd v Woodifield
[1906]
UKHL 624; 44 SLR 624.
[103]
Para 7.
[104]
Ibid.
[105]
Commissioner
for Inland Revenue v Allied Building Society
1963
4 SA 1
(A) per Ogilvie-Thompson.
[106]
Commissioner
for Inland Revenue v Standard Bank of SA Ltd
[1985] ZASCA 64
;
[1985] 2 All SA
512
(A);
1985 (4) SA 485
(A) at 498F-G.
[107]
Commissioner
for South African Revenue Services v Thor Chemicals SA (Pty) Ltd
62
SATC 308
(N).
[108]
Secretary
for Inland Revenue v Cadac Engineering Works (Pty) Ltd
[1965] 2 All SA 547
(A);
1965 (2) SA 511
(A) (
Cadac
)
at 556-557.
[109]
ITC
1677
(1999)
62 SATC 288.
[110]
Lockie
Bros v Commissioner for Inland Revenue
1922
TPD 42
;
32 SATC 150
at 152.
[111]
Losses resulting from money embezzled by a manager was not an
operation undertaken for the purposes of the business and could
not
be deducted from its income.
[112]
ITC
1710
(1999)
63 SATC 403.
[113]
Section
89
qua
t
provides:
‘
(1)
. . .
(2)
If the taxable income of any provisional taxpayer as finally
determined for any year of assessment exceeds –
(a)
R20 000 in
the case of a company; or
(b)
R50 000
in the case of any person other than a company,
and the normal tax
payable by him in respect of such taxable income exceeds the credit
amount in relation to such year, interest
shall, subject to the
provisions of subsection (3), the payable by the taxpayer at the
prescribed rate on the amount by which
such normal tax exceeds the
credit amount, such interest being calculated from the effective
date in relation to the said year
until the date of assessment of
such normal tax.’
[114]
‘(3) Where the Commissioner having regard to the circumstances
of the case, is satisfied that the interest payable in terms
of
subsection (2) is as a result of circumstances beyond the control of
the taxpayer, the Commissioner may direct that interest
shall not be
paid in whole or in part by the taxpayer.’
[115]
Davis, D M, Benetello, M, Engels-Van Zyl, R, Mollagee, O, Roeleveld,
J and Urquhart, G. (2000)
Juta’s
Income Tax
.
Volume 2. Juta, at 55-3.
sino noindex
make_database footer start
Similar Cases
Assmang (Pty) Ltd v Commissioner for the South African Revenue Service and Others (311/2024) [2025] ZASCA 121 (29 August 2025)
[2025] ZASCA 121Supreme Court of Appeal of South Africa97% similar
Unica Iron and Steel (Pty) Ltd and Another v The Minister of Trade and Industry and Another (1332/21) [2023] ZASCA 42 (31 March 2023)
[2023] ZASCA 42Supreme Court of Appeal of South Africa97% similar
Lueven Metals (Pty) Ltd v Commissioner for the South African Revenue Service (728/2022) [2023] ZASCA 144; 86 SATC 474 (8 November 2023)
[2023] ZASCA 144Supreme Court of Appeal of South Africa97% similar
Transasia 444 (Pty) Ltd v Minister of Mineral Resources and Energy and Others; Transasia Minerals (SA) (Pty) Ltd v Minister of Mineral Resources and Energy and Others (702/2023; 707/2023) [2024] ZASCA 145 (23 October 2024)
[2024] ZASCA 145Supreme Court of Appeal of South Africa97% similar
Samancor Chrome Limited v Bila Civil Contractors (Pty) Ltd (810/21) [2022] ZASCA 163 (28 November 2022)
[2022] ZASCA 163Supreme Court of Appeal of South Africa97% similar