CG	CASE NUMBER: 523/90
IN THE SUPREME COURT OF SOUTH AFRICA (APPELLATE DIVISION)
In the matter between:
THE COMMISSIONER OF INLAND REVENUE	Appellant
and
RUSSELL KENNETH COLLINS	Respondent
CORAM: CORBETT CJ, BOTHA, VAN HEERDEN, VIVIER et VAN DEN HEEVER JJA
HEARD ON: 15 MAY 1992
DELIVERED ON: 1 JUNE 1992
 JUDGMENT VAN DEN HEEVER JA

2
 Chemhold Investments (Pty) Ltd ("Chemhold")  sold fixed property to the respondent. The contract consists of a printed form headed "Cash Deed of Sale" with spaces for the insertion of individual particulars, such as the identity of seller and purchaser (Chemhold and respondent respectively), a description of the property (lots 995 and 998 in Pinetown Township), the price (R725 000,00), and so on. The form emanated from the firm of estate agents which brought seller and buyer together, and clause 3 confers rights to commission on the agent. The blanks having been filled in, clauses regarded redundant deleted, and an "annexure A" incorporated by reference, the document was signed by respondent on 14 May 1987, on behalf of Chemhold the following day, and for the agent signifying acceptance of the benefits conferred by the stipulatio alteri on 20 May 1987.
Clause 15 of the contract provides:
 "Any Agreement between the PURCHASER and  SELLER to cancel, alter or add to this 'Deed

3
 of Sale' shall not be binding and shall be of no force nor effect unless reduced to writing  and signed by the parties before witnesses."
Clause 21 incorporates by reference Annexure
A, which lies at the root of the present dispute and
reads as follows:
 "This agreement shall become binding upon the  purchaser as a contract of purchase of sale (sic) only if the purchaser shall not have nominated a purchaser (hereinafter referred to as a nominee) who shall validly have accepted such nomination within ten days after the date hereof and
(i) the parties undertake that pending such nomination or the expiry of the said period neither shall resile from this agreement unless in terms of specific provisions herein contained, (ii) upon such nomination and acceptance hereof by the nominee the purchaser shall by the purchaser's signature hereto be bound as surety for and co-principal debtor 'in solidum' with such nominee for the due and faithful fulfilment by the nominee of all the nominee's obligations as purchaser in terms of this agreement including any that may flow from breach of contract hereby renouncing the benefits of all the legal exceptions available to sureties with the full effect of which the purchaser acknowledges to be fully

4
acquainted, (iii) The date of sale shall be the date of such nomination or the expiry of the aforesaid period as the case may be."
The property has been transferred from Chemhold to the respondent's "nominee", NINE HAGART ROAD (PROPRIETARY) LIMITED ("the company"), which has paid transfer duty in respect of this acquisition.
Appellant contends that respondent also is liable for transfer duty. Respondent approached the Durban and Coast Local Division of the Supreme Court for a declaratory order that he is not obliged to pay any transfer duty arising out of this Cash Deed of Sale. In his founding affidavit respondent says that he nominated the company as purchaser in terms of the agreement; that the effect of this was to bring the case within the provisions of sec 5(2)(a) of the Transfer Duty Act No 40 of 1949; and that he paid no consideration for the purchase of the properties to Chemhold nor received any from the company in respect of its nomination.

5 In the answering affidavit Mr Stoltz, on behalf of the Commissioner, disputes respondent's conclusion of law. He fleshes the bare bones presented by respondent with the further fact, which is not disputed, that the company was incorporated only on 10 June 1987. Respondent had made available to the Commissioner a document entitled "Nomination and Acceptance of Purchaser" dated 9 July 1987. Mr Stoltz attaches a copy of this to his affidavit, as annexure B. He submits that, having regard to the date of incorporation of the nominee and the date of signature of annexure B, the nomination did not comply with the provisions relating to nomination in annexure A to the Cash Deed of Sale, though purporting to have been made in terms of that.
 The preamble of annexure B refers to the  agreement between Chemhold and respondent, though incorrectly alleging the date of that as having been 20 May 1987, and to the fact that the contract provides for

6
the nomination of a purchaser by the respondent within
10 days of the date of the signature of the contract.
It goes on to state that on 25 May 1987 respondent
verbally nominated the company as the purchaser, which
nomination was duly accepted by the directors of the
company; but, because it is necessary for the
nomination and acceptance to be evidenced in writing,
respondent now nominates the company as purchaser; and
in his capacity as director of the company, duly
authorized, confirms
 "that nomination as purchaser in the aforementioned Cash Deed of Sale has been accepted. I further declare that (the company) will comply with all the terms and conditions contained in the Cash Deed of Sale
(3) Notwithstanding the date of signature hereof, the date of nomination being deemed to be 30th May 1987".
And annexure B is then signed by respondent twice: once
personally as nominator, and again, this time in his
representative capacity, as nominee.

7 In his replying affidavit respondent admits that the nomination was not effected within the ten day period provided for in the contract. Chemhold was however aware that respondent was taking steps to form a company which he intended nominating as purchaser. When annexure "B" was delivered to Chemhold, the latter accepted this as a nomination in terms of the Cash Deed of Sale, so that there was a tacit extension of the time limit within which he was empowered to nominate a purchaser in his stead. Respondent annexed to his own affidavit one by Mr MacCullum, the group secretary of the group of companies within which Chemhold falls. Mr MacCallum says he vetted the contract before it was signed. In approving it, he was fully aware that respondent intended to nominate a company which was in the process of being formed, as purchaser. He was also aware that the written nomination and acceptance on 9 July 1987 occurred after the expiry of the ten day period stipulated in Annexure A to the sale agreement.

8
Despite this delay,
 "(Chemhold) ... regarded the nomination  ultimately made as being in terms of the sale agreement and it accordingly transferred the properties under the agreement to the nominated purchaser".
 The court a quo granted the declaratory order sought, with costs. The judgment is reported sv. COLLINS V COMMISSIONER FOR INLAND REVENUE 1990 (4) SA 619 (D).
It has been pointed out more than once in the
past, that the title of the Transfer Duty Act No 40 of
1949 is a misnomer. In terms of section 2, duty is not
levied on the transfer of property, but on
 "the value of any property ... acquired by any  person ... by way of a transaction or in any other manner ...".
Definitions in s 1 relevant for present purposes are:
"'Property' means land and any fixtures
thereon, and includes -
(a) any real right in land but excluding any right under a mortgage bond or a lease of property other than a lease referred to in paras (b) or (c)"
and

9
 "'Transaction' means an agreement whereby one  party thereto agrees to sell, grant, donate, cede, exchange, lease or otherwise dispose of property to another, or any act whereby any person renounces any interest in or restriction in his favour upon the use or disposal of property."
 In COMMISSIONER FOR INLAND REVENUE v FREDDIES CONSOLIDATED MINES LTD 1957 (1) SA 306 (A) it was held (p 311 B-D) that "acquiring property" as envisaged by s 2 means acquiring the right to acquire the ownership of property.
 Mr Delport, for the appellant, argued that the  Cash Deed of Sale constituted a transaction by which respondent acquired property as envisaged by s 2 so that he was liable for duty unless he could bring himself within the provisions of s 5(2)(a), and that he had not done so.
Paragraph (a) provides:
 "If a transaction whereby property has been  acquired, is, before registration of the acquisition in a deeds registry, cancelled, or dissolved by the operation of a resolutive condition, duty shall be payable only on that

10
 part of the consideration which has been or is  paid to and retained by the seller and on any consideration payable by either party to the transaction for or in respect of the cancellation thereof."
Had respondent nominated the company within
the ten day period afforded in annexure A to the deed of
sale, respondent may well have escaped liability for
duty on the basis that he did not acquire a ius in
personam ad rem acquirendam against Chemhold. Despite
the contract itself referring to him as the purchaser,
annexure A in effect afforded him an election: whether
to be bound to Chemhold as purchaser, or as surety. In
that period, unless he intimated that he had exercised
his election to be a purchaser in his own right,
Chemhold could not have insisted on transferring to him
against payment by him. The design of annexure A is not
on the same lines as those of the more customary
contracts of sale to a "purchaser or nominee" where the
purchaser has been held bound immediately but with the
right to assign subsequently. Cf HUGHES v RADEMEYER

11
1947 (3) SA 133 (A), 139.
 It is however unnecessary to decide what is a  hypothetical question. The fact of the matter is that respondent did not nominate the company timeously so that at midnight on 25 May 1987 the contract itself made the election on his behalf and willy-nilly the right to acquire the property vested in him with the corresponding obligation to pay as the result of the transaction. He fell squarely within the terms of s 2 of the Act. The less said about the purported written nomination plus acceptance of 9 July 1987, the better. Even assuming that a company not yet in existence could have accepted the nomination and that fiction could be converted into fact by a deeming clause, the fiction was faulty and the deemed date of the written nomination fell outside the vital period.
 Mr Wallis, on behalf of respondent, did not  abandon, but did not press, so much of the judgment of the court a quo as may hold that the transaction between

 12  Chemhold and respondent was dissolved by the operation of a resolutive condition.
 That "the original purchaser was only intended  to be bound pro tern until replaced in toto by the accession of the third party" (the reported judgment at p 625 I-J) is, with respect, no basis for a finding that the original transaction has been "cancelled, or dissolved by the operation of a resolutive condition", which is what is required by sec 5(2)(a) before respondent is relieved of his liability. That respondent is no longer bound in terms of the original transaction is not enough to achieve that effect.
 Having willy-nilly acquired a right that  attracted duty, the facts that the respondent did not propose to pursue that right and that Chemhold did not subsequently hold him to the corresponding obligations, can make no difference vis-a-vis the fisc. The question is not what the intentions of the parties were, but (a) whether respondent acquired property within

 13  the meaning of s 2 of the Act; and (b) whether
 (i) a resolutive condition scil. contained in the transaction itself; or (ii) cancellation of the contract terminated the relationship between the parties so that Chemhold would be free to dispose of the property by a transaction with a stranger to this contract. (Cf SECRETARY FOR INLAND REVENUE V HARTZENBERG 1966 (1) SA 405 (A) 409H.)
 The answer to (a) we already know. As regards  b(i), there is no resolutive condition which could operate after midnight on 25 May 1987 to relieve respondent of the contract. Any alteration in the position of the parties thereafter could not come about as a result of the provisions of the Cash Deed of Sale but only as the result of concurrence of Chemhold.

 14  As regards b(ii), no cancellation was ever effected. Clause 15 of the Cash Deed of Sale required that to be in writing. Accepting in favour of appellant that the contract could also have been cancelled orally, or by conduct, nothing of the kind happened. There is no indication that either party contemplated releasing the other from the agreement. As from 26 May respondent was the buyer in terms of the contract. After that he wanted the company to step into his shoes. He could cede his rights to the company. Delegation of his obligations required the consent of Chemhold. Such a total substitution was achieved, the company's right to transfer of the fixed property being derived from respondent, not from a new contract with Chemhold (as would have been the case had there been a cancellation). The Cash Deed of Sale as such remained intact.
 Neither of the eventualities for which section  5(2)(a) provides having occurred, the appellant is not released from the liability for duty incurred in terms

 15  of section 2 of the Transfer Duty Act by his acquisition of the right to property under the transaction with Chemhold.
 The appeal succeeds, with costs. The order of  the court a quo is set aside and there is substituted for it one dismissing the application for a declaratory order, with costs.
L VAN DEN HEEVER JA
CORBETT CJ)
VAN HEERDEN JA) CONCUR
VIVIER JA)

 LL	Case No 523/1990
IN THE SUPREME COURT OF SOUTH AFRICA
(APPELLATE DIVISION)
In the matter between:
THE COMMISSIONER FOR INLAND REVENUE	Appellant
and
RUSSELL KENNETH COLLINS	Respondent
CORAM :	CORBETT CJ, BOTHA, VAN HEERDEN,
VIVIER et VAN DEN HEEVER JJA
HEARD :	15 MAY 1992
DELIVERED :	1 JUNE 1992
 JUDGMENT BOTHA JA:

2
I agree with VAN DEN HEEVER JA that the appeal be allowed, for the reasons following.
In the Court a quo it was common cause that the respondent would have been liable to pay transfer duty, in terms of section 2(1) of the Act, in respect of the sale of the property by Chemhold to him, were it not for his nomination of the company ("Nine Hagart") as the purchaser on 9 July 1987 and Chemhold's subsequent acceptance of such nomination as substituting Nine Hagart for the respondent as purchaser. On this footing the only issue was whether or not these events served to relieve the respondent of liability by virtue of the provisions of section 5(2)(a) of the Act.
In argument before this Court, however, counsel for the respondent sought to change tack. He argued that the transaction between Chemhold and the respondent had not attracted liability for transfer

3
duty on the part of the respondent, by reason of the
terms of Annexure "A" to the deed of sale. The
argument is without merit. The effect of Annexure
"A" was clearly to make the contract of sale between
Chemhold and the respondent subject to the fulfilment
of a suspensive condition, which was expressed in the
words: "only if the purchaser shall not have nomi
nated a purchaser 	 who shall validly have
accepted such nomination within ten days after the
date hereof 	" The provision in paragraph (i) of
Annexure "A" that "pending such nomination or the expiry of the said period" neither party "shall resile from this agreement" does not detract from the suspensive operation of the condition in relation to the contract of sale (cf Badenhorst v Van Rensburg 1986 (3) SA 769 (A) at 779D). The condition would fail if a nomination and acceptance occurred within the stipulated period of ten days, or it would be

4 fulfilled on the expiry of the period without such
 nomination and acceptance having occurred. With  reference to the position pending the failure or the fulfilment of the condition, there is certainly room for an argument that no liability for transfer duty could arise, on the ground that no personal right to acquire the ownership of the property had yet accrued to either of the alternative potential purchasers. Similarly, if the condition had failed, there would certainly have been room for an argument that the respondent had not incurred liability for transfer duty, on the ground that no right to acquire the property had ever accrued to him. It is not necessary, however, to express a definite opinion in regard to those situations, for, in the event, the condition was fulfilled. When once the condition was fulfilled, there was no longer any room for the argument that the respondent did not incur liability for

5 transfer duty. The legal effect of the fulfilment of
 the condition was that the contract of sale became  binding upon the respondent, and in consequence he became vested with the right to acquire the property. Hence, the conclusion is inescapable that he "acquired" the property within the meaning of section 2(1) of the Act.
That being so, it does not avail the respondent to contend that there was a tacit extension of the ten day period or a waiver of it, nor his counsel to argue (as he did) that by the subsequent nomination and acceptance of a new purchaser the parties were in substance merely giving effect to Annexure "A". As a matter of law, that is not what happened. The legal effect of the fulfilment of the condition could not be undone otherwise than by means of a tripartite agreement involving the three parties, by which the rights and obligations of the

6 respondent under the contract of sale were transferred to the new purchaser. That, in law, was what was accomplished by the respondent's nomination of Nine Hagart as purchaser, by the letter's acceptance of it, and by Chemhold's consent to it. Of itself, this re-arrangement could not serve to extinguish the respondent's already incurred liability to pay transfer duty. Whether or not it had that effect can be determined only with reference to the provisions of the Act.
 The crucial question, then, is whether the  events under consideration fall within the purview of section 5(2)(a) of the Act. Two situations are postulated in the section: where a transaction is cancelled, and where it is dissolved by the operation of a resolutive condition. The latter situation cannot possibly arise on the facts of this case. As to the former, I do not find it necessary to consider

7 the possible effect of clause 15 of the deed of sale, requiring writing and the signatures of the parties for a cancellation of it, on the issue to be decided; I shall simply assume in favour of the respondent that the terms of the clause do not militate against the arguments advanced on his behalf.
 The gist of the argument for the respondent  on this aspect of the matter was that the events under consideration constituted a delegation of the respondent's obligations under the contract of sale to Nine Hagart; that delegation is a species of novation, by which the respondent's obligations to Chemhold were discharged; and that (quoting from counsel's written heads of argument) "a termination of the contract by novation is a cancellation for the purposes of this section" (section 5(2)(a)). The argument requires, first of all, a consideration of the meaning of the concept of the "cancellation" of a

8
 contract, in general, and then a consideration of the sense in which the word "cancelled" is used in section 5(2)(a).
 In general, the word "cancellation" in the field of the law of contract is a well-known technical term of art. It covers both cancellation by agreement between the parties (consensual cancellation) and cancellation by one party on the ground of the other party's breach of contract (Van Streepen & Germs (Pty) Ltd v Transvaal Provincial Administration 1987 (4) SA 569 (A) at 588H). In both instances, speaking generally, it connotes the undoing of the contract in its entirety, and the extinction of all the rights and obligations of both parties as they existed in terms of the contract. In the case of a consensual cancellation the usual consequences of the cancellation may, of course, be modified by the terms of the agreement of

9 cancellation; and in the case of a unilateral cancellation on breach it is to be noted that secondary rights and obligations flowing from the contract and its breach, e g in regard to damages, may be said to remain (Atteridgeville Town Council and Another v Livanos t/a Livanos Brothers Electrical 1992 (1) SA 296 (A) at 304D). Those qualifications apart, the "cancellation" of a contract normally means the wiping out of the entire contract and all the parties' rights and obligations under it.
In section 5(2)(a) the expression used is: "If a transaction . ... is .... cancelled ...". On the face of it, there is no reason to think that the Legislature intended by that expression to convey anything other than the ordinary, well-understood meaning of the concept of the cancellation of a contract. That this is indeed what the Legislature had in mind, is to some extent pointed to by the

 10  further provisions of the section. The reference to
 consideration paid to and retained by the seller  contemplates a cancellation in the ordinary sense, because it is only in such a case that restitution and an obligation to restore consideration paid would arise, but for the provisions of a particular contract. And the position next referred to, where consideration is payable "for or in respect of the cancellation", is most frequently encountered in cases of a consensual cancellation in the ordinary sense. In any event, there is nothing in the section itself to suggest that the Legislature intended the word "cancelled" to be understood in a sense other than in accordance with its ordinary meaning. Nor is any indication to that effect to be found in any of the other provisions of the Act, or in the context of its scope and object as a whole. In my view, therefore, the cancellation which is dealt with in

11
section 5(2)(a) is of a kind which brings to an end
 the entire transaction in question, and hence the rights and obligations of both of the parties in terms of it. This view finds support in the interpretation which was placed on section 5(2)(a), read with section 5(2)(b), in the judgment in Secretary for Inland Revenue v Hartzenberg 1966 (1) SA 405 (A) at 409C-410D. It was held that for an agreement to qualify as a cancellation of a transaction as contemplated in the section, it was necessary that the jus in personam ad rem acquirendam acquired under the transaction be extinguished, and the seller's full rights of disposal over the property be restored. That is, of course, in accordance with the notion of cancellation as ordinarily understood.
 Applying the views expressed above to the  facts of this case, it is clear that the arrangement

12
 by which Nine Hagart was substituted as the purchaser  in place of the respondent did not constitute a cancellation of the contract as envisaged in section 5(2)(a). The legal effect achieved by the nomination and acceptance of the new purchaser was merely the transfer to it of the respondent's rights and obligations. Those rights and obligations were not extinguished and they did not come to an end. Nor was the contract wiped out; all of its terms (embodying the "transaction" as such) remained intact and operative as between the seller and the substituted purchaser. It is true, as was stressed in the argument for the respondent, that the delegation of the respondent's obligations brought about their discharge, but that does not mean that they ceased to exist; they were transferred to the new purchaser. Counsel's pivotal submission that there was a novation which resulted in "the

 13  termination of the contract" can at best reflect only on the position that the respondent ceased to be bound by it; but for the purposes of applying section 5(2)(a) it is futile to focus only on the position of the respondent. Since the contract itself and the rights and obligations under it did not come to an end, the further argument that, because of the novation, there was a cancellation of the contract for the purposes of the section, is wrong, and must be rejected.
 For the reasons given above I consider,  with respect, that the reasoning in the judgment of the Court a quo was flawed, and that the result arrived at was wrong. Accordingly I concur in the order made by VAN DEN HEEVER JA.
 A S BOTHA JA CORBETT CJ
VAN HEERDEN JA  CONCUR VIVIER JA

IN THE SUPREME COURT OP SOUTH AFRICA APPELLATE DIVISION
In the matter between
COMMISSIONER FOR INLAND REVENUE	APPELLANT
and
PEOPLE'S STORES (WALVIS BAY)
(PTY) LIMITED	RESPONDENT
CORAM : CORBETT CJ, JOUBERT, HEFER,NESTADT JJA et NICHOLAS AJA.
HEARD : 14 NOVEMBER 1989.
DELIVERED : 22 FEBRUARY 1990.
JUDGMENT BY J J F HEFER

1.
HEFER JA:
This is an appeal in terms of sec 86 A (2) (b) of the Income Tax Act 58 of 1962, as amended, ("the Act") against a decision of a special court. The question to be decided relates to the definition of "gross income" in sec 1 of the Act which provides that -
" 'gross income' in relation to any year or period of assessment, means, in the case of any person,
by or accrued to or in favour of such person during such year or period of assessment from a source within or deemed to be within the Republic, excluding re- ceipts or accruals of a capital nature ... " (I have emphasized the pertinent part of the definition.)
From the agreed statement of case presented to
the special court it appears that the respondent ("the
/2

2.
taxpayer") carries on business as a subsidiary in the
Edgars group of companies as a retailer of clothing, foot-
wear, household textiles and related goods,and that it
sells its wares to its customers for cash and on credit.
The bulk of its credit sales are made under its so-cailed
6-months-to-pay revolving credit scheme. This entails
that -
"(amounts)charged to a customer's account, are payable in six equal monthly instalments. At or soon after every month end, a statement of account is rendered to each customer. The in-stalment reflected on the statement as payable, has to be paid before the next statement date. In other words, a purchase made in Januarywould be reflected on the statement rendered at or soon after the end of that month. One-sixth of the purchase price would be reflected on the statement as payable. It would have to be
/3

3.
paid before the date of the next statement ren-
dered at or soon after the end of February."
(The quotation is from the agreed statement of case.)
During the 1983 tax year the taxpayer sold goods under the scheme for a total amount of some Rl,3m. At year-end an amount of R341 28 1 representing instalments not yet payable was still outstanding. The appellant ("the Commissioner") included the latter amount in the taxable i ncome on which the taxpayer was assessed for . normal tax for the year in question, subject to a deduc-tion of R7 702 in terms of sec ll(j) of the Act for debts considered to be doubtful. Having unsuccessfully objected to the assessment, the taxpayer appealed to the special court on the grounds that -
"13.1 The instalments not yet payable nor paid

4.
of R341 218,00 did not constítute an 'amount, in cash or otherwise, received by or accrued to or in favour of' the tax-payer within the meaning of 'gross income' defined in sl, and ought therefore not to have been treated as such.
13.2 Alternatively to 13.1
13.2.2. The instalments not yet payable nor paid ... ought not to have been included in the taxpayer's gross income at their face value. They should have been included at no more than the present value of the right to receive those instalments in fu-ture."
Three questions were submitted to the special
court for decision. The third one is no longer relevant;
the first two read as follows:
"19.1 Ought the value of the instalments not
/5

5.
yet payable nor paid to have been in-cluded in the taxpayer's gross income?
19.2 If so, at what value ought those instal-ments to have been included in the gross income? Ought it to have been done at the face value or at the value to the taxpayer or at the market value or at some other value? "
The special court answered the first question in
the affirmative and ruled that the outstanding debts had
to be valued at their market value. The matter was ac-
cordingly remitted to the Commissioner "for further in-
vestigation and assessment in accordance with the prin-
ciples set out above". Before us now is an appeal by
the Commissioner against the special court's ruling on
the second question and a cross-appeal by the taxpayer
/6

6.
against its decision on the first question.
The special court considered itself bound by the judgment of the full bench of the Cape Provincial Dí-
vision in Lategan v Commissioner for Inland Revenue 1926
C P D 203. Under consideration in that case was the definitíon of "gross income" in sec 6 of Act 4 1 of 1917 in the context of the sale during the year of assessment oí wine by a wine farmer in terms of an agreement provi-ding for payment of part of the purchase price ín the succeeding year. "Gross income" was defined in sec 6 as "the total amount received by or accrued to or in favour of any person other than receipts or accruals of a capital nature ... " and the question was whether the
/7

7.
part of the purchase price that was payable during the
succeeding year could rightiy be regarded as having ac-
crued to the taxpayer during the year of assessment. The
court held that it couid. WATERMEYER J, who prepared
the judgment, said in this regard at 207-210 :
" 	 it will be noticed that the definition
of 'gross income' does not seem to limit re-ceipts of money in the year of assessment to such receipts as are the reward of work done or capital employed in the year of assessment.
So far as receipts are concerned, the time of the receipt seems to be looked to rather than
the time when the work is done which earns the receipt, whereas, as far as earnings which are due but have not been received are concerned, the time when the work is done is looked to, and not the time of the receipt.
This seems to be an attempt to combine in the definition two fundamentally different conceptions of income, because the same sum of
/8

8.
money may accrue in one year and be received in another, and it could never have been intended that income tax should be paid twice over .... The definition seems also to contemplate
that 'gross income' shall 	 always be a sum
of money, because it uses the words 'total amount', and amount usually means an amount of money. But the word 'income' in its ordinary sense does not always consist of money, as was pointed out in
Booysen's Case (1918, A.D. 576). 'Income' un-less it is in some form such as a pension or an-nuity, is what a man earns by his work or his wits or by the employment of his capital. The rewards which he gets may come to him in the form of cash or of some other kind of corporeal property, or in the form of rights. Ordinarily speaking, the value of these re-'wards is the man's income. Unless the word 'amount' means something more than amount of money, the de-finition given in the Act would not seem to be wide enough to include the 'value' of property
or rights earned by the taxpayers 	
The Legislature could hardly, however,have intended such a result, because then it would be
open to any taxpayer 	 to receive payment in
some form other than money, and thus escape
/9

9.
taxation. In my opinion, the word 'amount' must be given a wider meaning, and must include not only money, but the value of every form of property earned by the taxpayer, whether corpo-
real or incorporeal, which has a money value	
If this view be correct, then the tax-payer is income for taxation purposes includes not only the cash which he has received or which has accrued to him, but the value of every other form of property which he has received or which has accrued to him, including debts and rights of action .
It was argued, on behalf of the appellant, that a debt payable in the future was not an a-mount of money 'accrued to' the taxpayer, and consequently it was not part of his 'gross in-come,' and a number of cases were cited on the meaning of the word 'accrue.'
In my opinion, the words in the Act, 'has accrued to or in favour of any person,' merely mean 'to which he has become entitled.'
So far as a debt is concerned which is payable in the future and not in the year of assessment, it might be difficult to hold that the cash amount of the debt has accrued to the taxpayer in the year of assessment. He has not
/10

10.
become entitled to a right to claim payment of the debt in the year of assessment, but he has acquired a right to claim payment of the debt in future. This right has vested in him, has accrued to him in the year of assessment, and it is a valuable right which he could turn into money if he wished to do so.
According to what has been stated above, the value of this right must, in my opinion, be included in the taxpayer's gross income for tax-
ation purposes 	
In my opinion, therefore, the answer to the. first question in the special case is that the instalments must be regarded as gross in-come, but something must be deducted from their
face value to allow for the fact that they were not payable at the close of the year of assess-
ment. Assuming that the right to receive the instalments was not converted into money by sale or otherwise during the year of assessment, the value to be fixed (apart from any question whet-her the debt was good or bad) would be the pre-sent worth of the instalments at the end of the year, i.e., 30th June, 192 0. "
I have quoted extensively from the judgment because,
/11

11.
as will presently be seen, there is a controversy about
the correctness of the ruling that the words "accrued to
or in favour of" merely envisage that the person concer-
ned has become entitled to the amount in question, and
since the reasoning underlying the ruling must obviously
be considered as a whole. It is convenient to say at
this stage that,although Act 4 1 of 1917, which was in
force at the time when Lategan's case was decided, was
replaced by later legislation, the concept of the ac-
crual of income (in contradistinction to the receipt
thereof) was retained in all subsequent enactments.
The 1917 Act was replaced by Act 40 of 1925 which was in
turn replaced by Act 31 of 1941 and the latter by Act
/12

12. 58 of 1962. "Gross income" was defined in each Act and every definition concluded with a list of amounts that were specifically said to be included in the concept. These amounts were not always the same, but the basic con-ception that gross income represented the total amount, in cash or otherwise, receéved by or accrued to or in favour of a person, remained. (5ee sec 7(1) of Act 40 of 1925,
sec 7 of Act 31 of 1941, sec 1 of Act 58 of 1962.)
The precise ambit of the expression "accrued to or in favour of" has never been defined by this court; on the contrary, the conflicting pronouncements in Commissioner for Inland Revenue v Delfos 1933 A D 242 seem to be the ori-
gin of the present controversy about the meaning of the
/13

13.
words in question. Five members of the court heard that
appeal. WESSELS CJ with whose judgment CURLEWIS JA mainly
agreed, subscribed (at 251) to the view expressed in the
Lategan case, whereas DE VILLIER5 JA (at 260) and STRATFORD
JA (at 262) were of the opinion that an amount only accrues
in terms of the definition when it becomes due and payable.
The fifth member, BEYERS JA, did not commit himself on the
definition and the result was that the court was equally
divided on its construction.
The divergence in the Delfos case was mentioned in
later cases such as Hersov's Estate v Commissione for In-
land Revenue 1957(1) S A 471 (A) at 481; Rishworth v Secretary
for Inland Revenue 1964(4) S A 493 (A) at 499 E-F and Mooi v Sec-
retary for Inland Revenue 1972(1) 5 A 675 (A) at 682 H-683 A, but
/14

14. was never resolved. It is nevertheless stated in Silke on South African Income Tax, 11th at 2.7 that the so-called Lategan principle is accepted in practice as cor-rectly reflecting the law. It is our task now to con-sider the position afresh. For convenience I shall do so by stating and consideríng the validity of the two main propositions ín the judgment in Lagan's case.
The first and basic proposition is that income,
although expressed as an amount in the definition, need
not be an actual amount of money but may be "every form
of property earned by the taxpayer, whether corporeal or
incorporeal, which has a money value 	 including
debts and rights of action" (per WATERMEYER J at 209).
/15

15. This proposition is obviously correct so that very little need be added to what WATERMEYER J himself said in sup-port thereof. It is hardly conceivable that the legis-lature could not have been aware of, or would have turned a blind eye to, the handsome profits often reaped from commercial transactions in which money is not the medium of exchange. Consider eg the many instances of valuable property changing hands, not for money, but for shares in public or private companies; or share-cropping agree-ments, dividends in the form of bonus shares, or remune-ration for services in the form of free or subsidised housing and the use of motor vehicles. These are only a few of the many possible illustrations that readily
/16

16.
come to mind and which, as we know, have not been over-looked by the legislature. Nor can the reference in the definition of "gross income" in the 1962 Act to re-ceipts and accruals "in cash or otherwise", or other pro-visions of the Act (such as paragraphs (h) and (i) of the definition, sec 26(1) read with the First Schedule and sec ll(i) and (j))be ignored. There are clear indica-tions in all these provisions of the extended meaning of "amount".
This court has, in any event, adopted and acted upon the principle that income in a form other than money may be taxable. In Lace Proprietary Mines Ltd v Commis-sioner for Inland Revenue 1938 A D 267 eg an assessment
/17

17. based on the value of shares in a company which had been allotted to the taxpayer as consideration for the "sale" of mineral rights, was unanimously upheld. In Ochberg v Commissioner for Inland Revenue 1931 A D 215 the value of shares allotted to the taxpayer as remuneration for services rendered was held to be taxable. And Mooi v Secretary for Inland Revenue (supra) was decided on the
basis that a right (in casu an option to purchase shares)
may indeed constitute an "amount	 accrued to" the
taxpayer. At 684 OGILVIE THOMPSON CJ said:
"The object of para (c) of the definition is of course to bring into the category of 'gross in-come' all 'amounts', whether of a capital nature
/18

18.
or not, accrued in respect of services. Ling-uistically inappropriate though the word 'amount' may be in this context, when a taxpayer becomes entitled to a right 'in respect of services' a money value must be assigned to that right in order to determine the relevant 'amount' to be incorporated as 'gross income'. "
It must be emphasized that income in a form other
than money must, in order to qualify for inclusion in the
"gross income", be of such a nature that a value can be
attached to it in money. As WESSELS CJ said in the Del-
fos case (supra) at 251,
"The tax is to be assessed in money on all re-ceipts or accruals having a money value. If it is something which is not money's worth or can-not be turned into money, it is not to be regar-ded as income."
(See also Mooi v Secretary for Inland Revenue (supra)
/19

19.
at 683 A-F). On the other hand, the fact that the valu-ation may sometimes be a matter of considerable complex-ity (of the Lace Proprietary Mines case (supra) at 279-281) does not detract from the principle that all income having a money value must be included. How the valua-tion is to be done, depends, of course, entírely on the nature of the income and the circumstances of the case.
The second proposition - that no more is re-quired for an accrual in terms of the definition of "gross income" than that the person concerned has become entit-led to the "amount" in question - is apractical applica-tion of the first one. The pith of the supporting rea-soning is that any right (of a non-capital nature)
/20

20.
acquired by the taxpayer during the year of assessment
and to which a money vaiue can be attached, forms part
of the "gross income" irrespective of whether it is im-
mediately enforceable or not, but that its value is af-
fected if it is not immediately enforceable. According
to WATERMEYER J at 209-210,
"	he has acquired a right to claim payment
of the debt in future. This right has vested in him, has accrued to him in the year of assess-ment, and it is a valuable right which he could turn into money if he wishes to do so."
There is no logicai answer to, this reasoning. That Late-
gan acquired a right during the year of assessment is be-
yond dispute and, provided that a money value could be
attached to it, then, on the premise of the first propo-
/21

21 .
sition, the right formed part of his "gross income". ít is worth noting that neither DE VILLÍERS JA nor STRATFORD JA in the Delfos case (supra) could find any fault with the logic in WATERMEYER J's reasoning and that they rejec-ted hís conclusion in the light of what they regarded as indications in the provisions of Act 40 of 1925 that a debt only accrues to the taxpayer when it becomes payable. WATERMEYER J's judgment was criticized in Ingram's The Law of Income Tax of South Africa at 32 on 33 on the same grounds. The first point made by Ingram is that there was no justi-fication in Act 40 of 1925 for a reduction in the face value of a debt apart from an allowance in respect of bad or doubtful debts. This was said in view of WATERMEYER
/22

22.
J's ruling that a debt payable in the future must be in-
cluded in the "gross income" at its present value. There
is no merit in this point. It is correct that the only
permissible deductions in terms of Act 40 of 1925 were
those provided for in sec 11 but the Lategan principle
does not purport to allow the taxpayer an additional de-
duction; it merely defínes the extent of the "gross in-
come" from which the permissible deductions are to be made.
The right that Lategan had acquired had to be valued for
inclusion in his "gross income" and the fact that it was
not immediately enforceable obviously affected its value.
Ingrams's second point of criticism is that "sec-
tion & seems to emphasise that the test of accrual is
/23

23.
whether or not the amount though not paid over 'remains due and payable' ". There is no merit in this point. either. Section 8 of Act 40 of 1925 was in terms iden-tical to the present sec 7(1) (on which counsel for the taxpayer in the present case relied in support of the very point made by Ingram). It is not readily ascertain-able what the purpose of sec 8 was and what the purpose of the present sec 7(1) is. Both sections merely list a number of situations in which the accrual of income is deemed not to be affected. But it seems to be clear, by virtue of the definition of "gross income", that there would in these situations be an accrual in any event. Be that as it may, however, the legislature plainly dealt
/24

24. both sections with postulated factual situations, one of which is where income is not paid over to the taxpayer but remains due and payable to him. This does not jus-tify the conclusion that the test of an accrual is that the income in question is due and payable.
In the Delfos case (supra) DE VILLIERS and 5TRAT-FORD JJA relied on section & and two other provisions of Act 40 of 1925. At 260 DE VILLIERS JA referred to sec 7(b) in terms of which "any amount so received or accrued in respect of services rendered, whether due and payable under a contract of service or not" was included in "gross income". This section, he said, "to all intents and pur-póses defines an amount accrued as an amount 'due and pay-
/25

25.
able' ". The present legislation contains no similar
provision but, although it is accordingly not strictly necessary to do so, I may say that I find it difficult to accord sec 7(b) the weight that DE VILLIERS JA accor-ded to it since íts real import seems to lie in the words that I emphasized. STRATFORD JA (at 262) added a refe-rence to sec 11(2)(g) where provision was made for a de-duction in respect of bad debts (cf sec 11(i) of the pre-sent Act), and said : "A bad debt cannot, generally speak-ing, be estimated as bad until it has become payable". This view is, with respect, quite unrealistic.
Counsel for the taxpayer, albeit in a different manner, also relied on the provisions of the Act relating
/26

26.
to bad or doubtful debts. Sec ll(i) and (j) respectively provide for a deduction in respect of bad and doubtful "debts due to the taxpayer". If the Lategan principle were to be appliéd, so the argument went, the anomalous resuít would be that debts due to the taxpayer would be subject to the deduction for bad or doubtful debts, whereas debts owing to him but not due would have to be included in his "gross income" without the benefit of such a deduction. The problem that I have with this submission is that it pre-supposes that the word "due" in sec 11(i) and (j) means "due and payable", which is by no means clear. Admit-tedly, "due" often means "due and payable" when it is said eg that a debt is due or when one speaks of the due
/27

27.
date of a debt. But I am not convinced that the word was used in that sense here. "Due and payable" is ac-tually used at least twice in thé Act (in secs 7(1) and 91(3) ) and in sec 7 A (2) mention is even made of a salary or pension which "has become payable". Taking account also of the Afrikaans version of sec 11(i) and ( j ) ("skulde aan die belastingpligtige verskuldig") it appears to me rather that "due" was intended to mean "owing" and no more.
Counsel for the taxpayer did not refer us to, nor could I find, any other provision of the Act that supports his contention that a debt can only be said to have accrued if it is payable during the year of assess-
/28

28.
ment. He submitted, however, that the result of the application of the Lategan principle could be that a taxpayer is taxed twice in successive years on the same income - in the first year on the accrual of the debt and in the second on the amount received when the debt is paid. 1 do not agree. The possibility of double taxation in the sense just mentioned, arises, not from the application of the Lategan principle, but from the
essential principle on which South African income tax is based viz that receipts and accruals both form part of the "gross income". (cf Secretary for Inland Re-
venue v Silverglen Investments (Pty) Ltd 1969(1) 5 A
365 (A) at 377 A-C). That this is so is demonstrated
/29

29.
by the fact that there is a possibility of the same in-come being taxed twice even in cases where a debt, pay-able during one year, is paid during the next or a later one. The real answer to the submission is, however,that the possibility of double taxation is more imaginary than real since there is, what has been referred to as, a "necessary implication" "that an amount which has been taxed as an accrual or receipt, cannot again be taxed
when it is received or accrued" (Meyerowitz & Spiro,
Income Tax in South Africa & 35 par 134. See also Silke on South African Income Tax 11th ed 2-3 par 2.3, 2-4, 25-6 par 25.3). This is borne out by the remarks of some of the judges in the Delfos case (supra) at
30 

30.
254-255, 259, 261 and by WATERMEYER CJ's judgment
in Isaacs v Commissioner for Inland Revenue 1949(4) S A
561 (A). At 567-568 the learned Chief Justice said:
"I think, bearing in mind that an income tax is fundamentally a tax upon a man's annual profits or gains, that the Income Tax Act should not be read as imposing normal tax or super tax upon a taxpayer twice in respect of the same profits or gains unless the language of the Statute makes it clear that such a result was intended."
In my view the decision in the Lategan case
reflects the law correctly. It being common cause that
the debts which accrued to the taxpayer in the present
case cóuld be turned into money, I am also of the view
that the special court's ruling on the first questíon
was correct. This conclusion disposes of the cross-
/31

31 . appeal.
Very little need be said about the commissioner's appeal. His contention is that the debts have to be re-flected as part of the "gross income", not at their pre-sent value as the special court found,but at their full or face value. This is plainly not so. The argument on the Commissioner's behalf followed the same lines as Ingram's first point of criticism described and rejected earlier. All that need be added, is that WATERMEYER J's ruling on the value of accrued rights is inseparably linked to the rest of the principle. It is the right to receive payment in the future that accrued to the tax-payer; it is that right that has to be valued and, as
/32

32.
stated before, its value is obviously affected by its
lack of irrmediate enforceability.
The result is that the appeal and the cross-appeal are both dismissed with costs which will include,
in the case of the appeal, the costs of two counsel.
J J F HEFER JA.
CORBETT CJ )
JOUBERT JA )
CONCUR.
NESTADT JA )
NICHOLAS AJA )

IN THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

REPORTABLE 
CASE NO 194/03

In the matter between

THE COMMISSIONER SOUTH AFRICAN REVENUE SERVICE	       Appellant

and

ESTATE LATE H E STREICHER					               Respondent

________________________________________________________________________

CORAM:	HOWIE P, FARLAM, BRAND, LEWIS et HEHER JJA  
________________________________________________________________________

Date Heard:	14 May 2004

Delivered:	31 May 2004 
Summary:  Estate duty – valuation of immovable estate property – s 5(1)(a) of Estate duty Act – meaning of ‘in the course of the liquidation of the estate’.

________________________________________________________________________

J U D G M E N T
________________________________________________________________________

HOWIE P

HOWIE P
[1]	This case raises the question whether immovable property in a deceased estate was sold ‘in the course of the liquidation of the estate’ within the meaning of s 5(1)(a) of the Estate Duty Act 45 of 1955.
[2]	The sole executor in the respondent’s estate, Mr DM Streicher, was the surviving spouse of the late Mrs HE Streicher who died in 1981 and to whom he was married out of community of property. For convenience I refer to him as ‘the respondent’. The estate assets included ten units of Karoo land on which bona fide farming operations were carried on.  The respondent was the owner of an undivided half share of five of the units. 
[3]	In her Will the deceased bequeathed the land she owned outright to their son, Johannes Jacobus Streicher and her undivided half share of the jointly-owned land she bequeathed to their son, Fransie Naude Streicher. In both instances she bequeathed a usufruct to the respondent. In return for their inheritances the sons referred to each had to pay a third son, Daniël Myburgh Streicher, a specified bequest price.
[4]	In 1983 the respondent and Johannes Jacobus Streicher entered into a redistribution agreement involving five of the units, in terms of which, subject to the bequest price provision, they were to become the property of the respondent.
[5]	The first and final liquidation and distribution account in the estate was submitted to the Master in Cape Town on 15 April 1985.   In the account, lodged by the respondent, the five units that were the subject of the redistribution agreement were awarded, and to be transferred, to the respondent and an undivided half share in each of the other five were awarded, and to be transferred, to Fransie Naude Streicher.
[6]	The value attributed to each unit in the account was determined in accordance with a valuation by the Land Bank.  The total value of all ten units was shown in the account as R289 177,50.
[7]	That part of the account constituting the respondent’s estate duty return showed the dutiable amount as nil.
[8]	In terms of Government Notice 125 of 27 January 1956 a Master has, in relation to matters concerning deceased estates, the powers of the appellant. The Master did not query or challenge the land valuations in the account or the nil return which, as the appellant’s representative, he was empowered by s 8(1) of the Act to do.
[9]	In 1997, however, the appellant received information that all the land in question had been sold in May 1984 for R1 750 000.   In due course, in the year 2000, he issued an assessment in terms of which estate duty of R436 502,68 was payable. The respondent appealed successfully to the Cape Income Tax Special Court which set aside the assessment.  The President of that court (Conradie J) thereafter granted the appellant leave to appeal directly to this court.
[10]	It is indeed true that all ten units were sold in May 1984. They were sold, as one, for R1 750 000. The sellers were stated in the relevant agreement to be the respondent in his personal capacity and as usufructuary, and Fransie Naude Streicher ‘as blote eienaar’. The buyer was a Mr Christoffel Petrus Jochemus Prinsloo. Occupation was to be given on 1 August 1984 and transfer was due to take place, as far as possible, on 1 August 1985.
[11]	At the hearing before us it was conceded at the outset on the appellant’s behalf that the sum of R436 502,68 was incorrectly based on the deceased’s having been the owner of all ten units. On the correct facts the sum of duty claimed was reduced to R293 307,18.
[12]	Various questions were debated by the parties’ counsel. The primary, and in my view, decisive one is whether the sale to Mr Prinsloo was ‘in the course of the liquidation’ or merely ‘during’ the liquidation. That question arises when regard is had to the provisions of s 5(1) of the Act. In so far as is now relevant it reads: 
‘(1)	The value of any property in the estate of any person shall be
	(a)	in the case of property … disposed of by a purchase and sale which in the opinion of the Commissioner is a bona fide purchase and sale in the course of the liquidation of the estate of the deceased, the price realized by such sale;
	…
	(g)	In the case of any other property, the fair market value of such property as at the date of death of the deceased person …’

[13]	It is common cause that if (g) applies, the respondent had, in terms of the definition of ‘fair market value’ in the Act, as read with s 1(2), a choice to reflect the value of the immovable property in the estate as its value according to a Land Bank valuation. As indicated, he exercised that choice.
[14]	In view of what has been outlined above, if the sale to Prinsloo was ‘in the course of the liquidation of the estate’ within the meaning of the Act then the appellant was correct in assessing duty on the basis of the sale price. If it was not a sale within the scope of that expression then the account was correctly drawn and the court below was right in setting aside the assessment.
[15]	As to whether it is a matter for the appellant’s opinion whether a sale is in the course of the liquidation of an estate, this question was left open in Holden’s Estate v Commissioner for Inland Revenue 1960 (3) SA 497 (A) at 502A-B. It will be noted that the court would appear to have thought that the answer was in the affirmative. However, that can only have been its view in relation to the Commissioner’s opinion as to the facts relevant to the issue of ‘course of liquidation’. I say that because the meaning of the expression ‘within the course of the liquidation of the estate’ is clearly not a matter of fact but of law. Therefore, although constraints limit or even bar judicial interference with the exercise of a discretionary opinion, plainly it is for this court, as it was for the court below, to interfere if the appellant took a wrong view of what the true meaning of the expression is in law. The nature and extent of such interference is another matter.  I shall deal with it below.
[16]	The appellant’s interpretation of that expression is evident from certain letters written on his behalf to representatives of the respondent during an exchange of correspondence preceding the hearing in the Special Court. In those letters the contention is advanced that s 5(1)(a) applies ‘(i)ndien bates van die oorlede verkoop word gedurende die likwidasieproses’ and that ‘(i)n the course of the liquidation’ means “during” the liquidation, (my emphasis).
[17]	I think that interpretation is incorrect. Generally, there is in law a difference between ‘during’ and ‘in the course of’. This is illustrated by the many cases which deal with the respective phrases ‘in the course of employment’ and ‘in the course of business’, as employed in the various legislative enactments over the years providing for third party compensation for fatal and bodily injury in motor accidents and in the formulation of the principles of vicarious delictual liability.
[18]	In Standard General Insurance Co v Hennop 1954 (4) SA 560 (A) the question was whether a registered insurer was liable to compensate an injured passenger who was being conveyed in a car which was involved in an accident due to the negligence of its driver. The question was whether, even if the driver was driving in the course of his business, the passenger was being conveyed in the course of that business. The court said (per Centlivres CJ)
‘The Act does not say that the insurance company is liable if you were a passenger in my car while I was driving in the course of my business; before the company can be held liable it must be shown that you were being conveyed in the course of my business. The words used by the Legislature connote that there must be some relationship between your presence in the car and my business.’
[19]	In Ngubetole v Administrator, Cape and another 1975 (3) SA 1(A) the primary question concerned the meaning of the phrase ‘ in the course of employment’ in the then applicable motor accident compensation legislation. In the judgment, Corbett JA explained that those words would usually, but might not always, mean the same in relation to that legislation as they did in the sphere of vicarious liability. Subject to the need for a flexible approach that could result in a satisfactory casuistic determination of when, under the legislation, an act was done ‘in the course of employment’, it nevertheless appeared that such an act was one done in the exercise of the functions to which the employee was appointed. 
[20]	On the strength of the statements in Hennop and Ngubetole to which I have referred, and the many earlier authorities which those judgments cite, I conclude that a sale ‘in the course of the liquidation of the estate’ in s 5(1)(a) of the Estate Duty Act means a sale between which and the liquidation process there is some relationship. Put another way, it means a sale effected in the exercise of the functions involved in the liquidation. In short, the sale must be one in implementation of the liquidation process. It must therefore be by the executor or on behalf of the executor, in the latter’s capacity as executor, not in the latter’s personal capacity as beneficiary. 
[21]	I would add that the legislature had good reason to use the wording it chose. The norm is that estate duty is based on the value of the estate assets as at the date of the deceased’s death. Section 5(1)(a) permits a departure from that norm. Heirs and legatees are naturally free to sell their rights to their inheritances for such prices as they see fit. However, the sale price of estates assets, if that price is to bear upon the assessment of estate duty and thereby play a role in determining what the beneficiaries eventually receive from the estate, should logically and appropriately be within the powers and functions of the executor to control. An executor has to act with careful regard in relation to those who have, or might have, an interest in, or rights to, the estate. In realising estate assets the executor is subject to the views of the heirs and, if necessary, the Master. This structure seeks to ensure that disposal of estate assets in the liquidation process not only pays heed to the subjective wishes of the beneficiaries but is also safeguarded by responsible, independent and dispassionate oversight. That being so, if a price is agreed to by the executor, that fact is, generally, a stamp of reliability signifying the realisation price as a sound enough indicator of current market value as at the date of sale to justify reliance upon it for purposes of determining the duty. By contrast, unchecked disposal of their rights by the heirs or other beneficiaries is subject to erratic considerations. Obviously it would normally be in their best interests to obtain the best possible price but it is not unrealistic to imagine the pressure of straitened financial circumstances inducing the acceptance of sale prices below current fair market value.
[22]	In the present case, of course, the properties sold included the estate’s erstwhile undivided half-share in five of the units. An undivided half-share 9is not an attractive purchasing proposition to someone totally unrelated to the holder of the other half-share. But that negative feature was removed by the respondent’s acquisition, via the distribution agreement, of sole ownership. In these circumstances, however, the realised price was no guide at all to the market value of the deceased’s half share, or, for that matter, once all the properties were bundled together, of her solely owned units. Had the disposal been by the respondent qua executor it would have been necessary for him to have regard to s 5(1) and to the need, in contemplating disposal, to consider carefully whether the estate assets were being sold for acceptable prices.
[23]	These considerations militate further against construing ‘in the course of’ as ‘during’ even if there can, in theory, be scope for interpreting the same wording in two different statutes to mean different things.
[24]	Section 24 of the Act as it applied to the present case contained a subsection (7) (since repealed) which empowered the court below to give such decision as in its view the Commissioner ought to have given. It follows that this court can do the same. It was common cause between counsel that if the appellant’s interpretation of the material words was in our view wrong we should substitute our decision for his.
[25]	Quite apart from the consideration that in selling to Prinsloo the respondent did not purport to act as executor but only in his personal capacity as usufructuary, and as his son, Fransie’s, representative, the following further facts demonstrate that the sale was not in the course of the liquidation: 
1.	All the units of land were sold together as one. The merx 	included the 	respondent’s undivided half share in five of the units. His property 	was not an estate asset. It was not part of the liquidation process to 	sell it.
2.	It was not necessary for any estate purpose to sell any of the 	immovable estate assets prior to finalisation of the account.
3.	The sale was consequent upon the decision by the respondent and 	Fransie to sell, pursuant to the redistribution agreement, in advance of 	their receiving transfer from the estate.
[27]	It follows that the appellant was not entitled to rely on s 5(1)(a) and that the valuations reflected in the account are not assailable.
[28]	The appeal is therefore dismissed, with costs.

________________
CT HOWIE 
PRESIDENT
SUPREME COURT OF APPEAL
CONCUR:
FARLAM  JA
BRAND  JA
LEWIS  JA
HEHER  JA

CASE NO 562/91
THE DE LEEF FAMILY TRUST	First Appellant
ERNEST ARMANDT DE LEEF.	Second Appellant
THE JACOBS FAMILY TRUST	Third Appellant
MARCUS SONNY JACOBS	Fourth Appellant
THE COMMISSIONER FOR INLAND REVENUE	Respondent
JOUBERT, A C J:

IN THE SUPREME COURT OF SOUTH AFRICA
APPELLATE DIVISION
In the matter between:
THE DE LEEF FAMILY TRUST 		First Appellant
ERNEST ARMANDT DE LEEF 		Second Appellant
THE JACOBS FAMILY TRUST 		Third Appellant
MARCUS SONNY JACOBS 		Fourth Appellant
and
THE COMMISSIONER FOR INLAND REVENUE ...	Respondent
Coram: JOUBERT A C J et SMALBERGER J A et
NICHOLAS HOWIE KRIEGLER A J J A. Heard: 5 March 1993 
Delivered: 31 March 1993
JUDGMENT JOUBERT, A C J:
/2	

2
In motion proceedings instituted by the Appellants in the Transvaal Provincial Division against the Respondent (the "Commissioner") for certain declaratory orders regarding the levy of transfer duty VAN DER WALT J dismissed them, holding that transfer duty was payable by the Second Appellant ("De Leef") and the Fourth Appellant ("Jacobs"). VAN DER WALT J refused the appellants leave to appeal against his judgment. The appellants were granted leave in terms of sec 20(4)(b) of Act 59 of 1959 to appeal to this Court.
The material background facts to the present appeal may conveniently be summarized as follows: 1. Longterm Investments (Pty) Ltd (the "Company") was the registered owner of a certain immovable property (the "fixed property") situated in the Municipality of Maimer, Division of Port Elizabeth. It was the only asset of the Company. De Leef and Jacobs each held 50% of its shares and were also its only directors.

3
2.	At a general meeting of the shareholders on 3 April 1983
it was resolved by special resolution in terms of sec
349 of the Companies Act 61 of 1973 that the Company be
be wound up voluntarily. According to sec 350 this
was a members' voluntary winding-up of the Company.
One Lewis Snitcher was nominated as liquidator of the Company.
3.	On 4 May 1983 the special resolution was registered by the Registrar of Companies in accordance by the provisions of sec 200, and thereupon the Company was placed in voluntary winding-up by its members (sec 350(1) Of Act 61 of 1973).
4.	On 14 June 1983 the Master's Office at Cape Town, issued a certificate of appointment as liquidator to Lewis Snitcher (sec 375(1) of Act 61 of 1973).
5.	On 8 December 1983 the Master's Office at Cape Town
issued a certificate of registration to the Third
Appellant (the"Jacobs Family Trust") which was created

4	
by a Deed of Trust executed on 18 November 1983.
6.	On 16 April 1984 the Master's Office at Cape Town issued a certificate of registration to the First Appellant (the "De Leef Family Trust") which was created by a Deed of Trust executed on 27 March 1984.
7.	On or about 4 May 1984 according to para 9 of De Leef's founding affidavit oral agreements were entered into between De Leef and the Trustees of the De Leef Family Trust, and also between Jacobs and the Trustees of the Jacobs Family Trust "in terms whereof we each ceded to the First and Third Applicants respectively all our rights as shareholders, including the right to liquidation distributions and our right to take transfer of the said property. The terms thereof were duly communicated to the said Lewis Snitcher, who accepted the said agreements and gave effect to them." (My underlining). In para 5 of his replying affidavit De Leef added an additional averment that the De Leef
8.	
5
Family Trust and the Jacobs Family Trust purchased those ceded rights from him and Jacobs respectively by crediting them in their books of account each in the sum of R275 000-00 as loans payable on demand. What this averment amounts to in law is that the causa of each cession was a sale. 8. On 10 May 1984 Lewis Snitcher signed a power of attorney for the purpose of passing transfer of the fixed property to the Trustees of the De Leef Family Trust and of the Jacobs Family Trust. This power of attorney recorded the causa for the registration of transfer as follows:
"The above property is awarded to the abovementioned Transferees in terms of a liquidation dividend dated the 4th May, 1983 at a valuation of R550 000-00." (My underlining). It is self-evident from the aforegoing facts that no

6
liquidation dividend was declared prior to 10 May 1984. Moreover, the De Leef Family Trust and the Jacob Family Trust were not in existence on 4 May 1983 since they were created on 27 March 1984 and 18 November 1983 respectively.
9.	As appears from transfer duty receipt No 7069, issued on 24 May 1984 by the Receiver of Revenue at Cape Town, transfer duty in the amount of R15 900-00 was paid by the De Leef Family Trust and the Jacobs Family Trust.
10.	By Deed of Transfer No T 32616/84, dated 25 June 1984, Lewis Snitcher as transferor transferred the fixed property to the Trustees of the De Leef Family Trust and of the Jacobs Family Trust as transferees. The causa for the transfer was recorded as follows: "- - the above property was awarded to the abovementioned Transferees in terms of a liquidation dividend at a valuation of R550 000-00." In this way the fixed property was transferred directly to the De Leef Family Trust and the Jacobs Family Trust from the Company (in
11.	
7
liquidation). There was no liquidation dividend prior to 25 June 1984. In law a valid causa is not required for a valid transfer of fixed property. See Commissioner of Customs & Excise v Randies, Brothers and Hudson Ltd, 1941 AD 369 at pp 398-399, 411 and Van der Merwe Sakereg, 2nd ed. p 305-314 for a full discussion. What is required is evidence from which the transferor's intention to transfer ownership (animus transferendi dominii) and the transferee's intention to acquire ownership (animus accipiendi dominii) can be ascertained. This aspect was, however, not raised on the papers in the present matter. 11. On 12 July 1984 liquidator Lewis Snitcher signed his
affidavit in respect of his First and Final Liquidation and Distribution Account from which it appears that there was a cash shortfall of R3 959-12 which he collected from De Leef and Jacobs. By doing so the realization of the fixed property, the in order to pay

8
debts, was avoided. The Company (in liquidation) was solvent. Its fixed property, valued at R550 000-00, was to be distributed in specie to De Leef and Jacobs as shareholders in equal shares. The true factual position, however, was that liquidator Lewis Snitcher had already on 25 June 1984 transferred the fixed property to the Trustees of the De Leef Family Trust and of the Jacobs Family Trust. 12. On 25 October 1984 Jacobs acknowledged in writing that he had received the sum of R250 000-00 from the Company (in liquidation). He also admitted that the payment was made to him prior to the confirmation of the Liquidation and Distribution Account by the Master. On 29 October 1984 De Leef made an identical acknowledgment in writing. Both written acknowledgments alleged that the said sums of money were received by them "on account of the secured/preference award due to me/us."

9
13.	On 30 October 1984 the Master in terms of sec 408 of Act 61 of 1973 confirmed the First and Final Liquidation and Distribution Account.
14.	On 17 July 1985 the Company was in terms of. sec 419(1) of Act 61 of 1973 dissolved.
The Court a quo held that De Leef and Jacobs were liable for transfer duty. The ratio decidendi of the judgment was that on 4 May 1983 when the Company was placed in voluntary winding-up as a result of the registration of the special resolution by the Registrar of Companies (sec 200 of Act 61 of 1973), they acquired the right to obtain transfer of the fixed property upon confirmation of the liquidation and distribution account. They could then claim from liquidator Lewis Snitcher transfer of the fixed property into their names. "This right they had acquired and held since the 4th of May 1983".Let us now consider the applicable provisions of the Transfer Duty Act No 40 of 1949. Transfer duty has often been said to be

10
rather a misnomer because the liability for it, in respect
of land, does not arise on the date of transfer of land but
on the date of acquisition of the right to acquire ownership
thereof irrespective of whether or not the land is
transferred into the name of the acquirer (subject to
cancellation or dissolution of the transaction). See
Jones Conveyancing in South Africa by H S Nel, 4th ed.,
1991 p 144 and the authorities there cited. The same
flaw, however, does not seem to attach to its Afrikaans
counterpart viz. herereqte. The relevant portion of sec
2(1), the charging section, reads as follows:
"Subject to the provisions of section 9, there shall be levied for the benefit of the Consolidated Revenue Fund a transfer duty (hereinafter referred to as the duty) on the value of any property - - -
- - - - - - - - - - - - acquired by any person
by way of a transaction or in any other manner - - - -".

11
Sec 2(1) must be read in conjunction with the following pertinent definitions in sec 1, namely :
"Property" means land and any fixtures thereon - - - - -"
"Transaction" means any agreement whereby one party
thereto agrees to sell, grant, donate, cede,
exchange, lease or otherwise dispose of property
to another - - - - - -"
"Date of acquisition" means -
(a) in case of the acquisition of property - - -by way of a transaction, the date on which the transaction was entered into, irrespective of whether the transaction was conditional or not or was entered into on behalf of a company already registered or still to be registered and, in the case of the acquisition of property otherwise then by way of a transaction, the date upon which the person who so acquired the property became entitled thereto - - - -." (My underlining). In Commissioner for Inland Revenue v Freddies
Consolidated Mines Ltd, 1957(1) S A 306 (A) CENTLIVRES C J
in construing Act 40 of 1949 held at p 311 B-C: "It is

12
clear from the whole scheme of the Act that payment of the duty (apart from cancellation) must be made whether or not the property is transferred into the name of the purchaser. The word 'acquired' in the charging section (sec 2) must therefore be construed as meaning the acquisition of a right to acquire the ownership of property". In this connection the right to acquire the ownership of land includes a personal right to obtain dominium in immovable property (ius in personam ad rem acquirendam). See Secretary for Inland Revenue v Hartzenberq, 1966(1) S A 405 (A) at p 409 A-B and Secretary for Inland Revenue v Estate Roadknight and Another, 1974(1) S A 253 (A). OGILVIE THOMPSON C J held at p 258 B-C : "It is well established that the word 'acquired' in sec 2(1) of the Act ordinarily denotes, not ownership already obtained, but the acquisition of a right to obtain dominium. The concept is sometimes expressed by saying that 'acquired' includes the acquisition of a jus in personam ad rem acquirendam". What

13
is required by sec 2(1) is that the acquirer acquired a right to obtain the dominium of land.
Furthermore, it is important to bear in mind when an unconditional right vests in the holder thereof. It is trite law to draw a distinction between dies cedit, i.e. the time has come when the right is due or owing, and dies venit, i.e. the time for enjoyment of the right has arrived so that possession, delivery or transfer of its subject-matter may be claimed. Voet 36.2.1., Jewish Colonial Trust Ltd v Estate Nathan, 1940 A D 163 at p 176. In the case of a conditional right or interest no vested right is acquired prior to fulfilment of the condition.
As stated, De Leef and Jacobs each held 50% of the Company's shares. With reference to shares it was held in Randfontein Estates Ltd v The Master, 1909 T S 978 per INNES C J at p 981-982:
"They are simply rights of action - jura in

14
personam - entitling their owner to a certain interest in the company, its assets and its dividends. As between those in whose names they are registered in the books of the company, and any other person with whom the registered holders deal, they may be freely assigned, even though the original registration remains unaltered, And that is the ordinary way in which such shares are dealt with; they pass from hand to hand, and form the subject of many transactions without the original registration in the books of the company being disturbed."
This Court has consistently held a share in a joint stock company to be a jus in personam, the ownership of which passes by cession in due form. See Liquidators, Union Share Agency v Hatton, 1927 A D 240 at pp 250, 251, 252, and Jeffery v Pollak and Freemantle, 1938 A D 1 at pp 14, 22, 28.
The nature of a share may be elaborated on by stating that it represents a complex of rights and duties of a shareholder, including the latter's right to participate

15
in a distribution of the company's surplus assets on its liquidation. (LAWSA, vol 4 s v Companies, para 37.) According to Palmer's Company Law, 25th ed 1992, vol 1 para 6.002 the principal rights which a share may carry are:
"1. the right to dividend if, while the
company is a going concern, a dividend is declared;
2.	the right to vote at the meeting of members, and
3.	the right, in the winding up of the company, after the payment of debts to receive a proportionate part of the capital or otherwise to participate
in the distribution of assets of the company."
See also Cilliers, Benade, Henning, Du Plessis and
Delport, Corporate Law, 2nd ed., 1992 para 14.10 :
"The share certificate on the other hand is a tangible document evidencing the legal relationship between the company and the shareholder. In his capacity as a party to this legal relationship there accrue to the shareholder -(a) rights, mainly the right to dividends when

16
they have been declared and the right to participate in a distribution on liquidation; and (b) duties, mainly to honour the provisions of the articles."
It follows from the aforegoing that when De Leef and Jacobs on 3 April 1983 at a general meeting of members adopted the special resolution to wind up the Company voluntarily they were the owners of their respective shares and that they already had a vested right (dies cedit) to participate equally in the distribution of the surplus assets of the company on its liquidation. This vested right formed an asset in their private estates and was transmissible. Dies venit, however, would occur only after confirmation of the liquidator's liquidation and distribution account by the Master ( sec 408) when the liquidator was in terms of sec 409 obliged to proceed immediately with the distribution of the Company's surplus assets in accordance therewith. After confirmation of the liquidation and distribution account they

17
would have enforceable jura in personam ad rem acquirendam to obtain transfer of the fixed property in their own names provided that it had not been realized to liquidate debts and was available for distribution..
The placing of the Company in winding-up by the registration of the special resolution by the Registrar of Companies on 4 May 1983 set in motion the voluntary winding-up procedure which is simpler and faster than other types of winding-up. Such procedure is utilised where the Company is solvent and is not being dissolved because it is insolvent. It is subject to fewer statutory limitations while the rights of creditors are protected. No meetings of creditors are held since the creditors have no say in the winding-up procedure. The liquidator can be instructed by the members in general meeting. See Cilliers, Benade, Henning, Du Plessis and Delport, op.cit., para 28.06. The effect of the adoption of the voluntary winding-up procedure was that the Company remained a corporate body and

18
owner of its assets, but the powers of its directors (De Leef and Jacobs) ceased except in so far as their continuance was sanctioned by the liquidator or by the Company in general meeting of its members (sec 353(1), (2)(b)). Moreover, any transfer of shares without the sanction of the liquidator would be void (sec 341(1)).
The Court a quo held that on 4 May 1983 (i.e. upon registration by the Registrar of Companies of the special resolution to wind up the Company) De Leef and Jacobs acquired "the right to obtain transfer of the property from the company in liquidation upon confirmation of the liquidation and distribution account". (Record p 73). The Court a quo would seem to have found that on the said date De Leef and Jacobs acquired jura in personam ad rem acquirendam which brought them within the ambit of the charging sec 2(1) of Act 40 of 1949 and accordingly rendered them liable for transfer duty.
This conclusion of the Court a quo is, with

19
respect, untenable for the following reasons : 1. I have already indicated supra that one of the rights appertaining to a share is the shareholder's right in the winding-up of the company to participate at some future date in the distribution of the company's surplus assets. Such a right vests (dies cedit) in the shareholder on obtaining ownership of the share and is transmissible, but dies venit will occur only after confirmation of the liquidator's liquidation and distribution account by the Master (sec 408) whereupon the liquidator should immediately proceed in terms of sec 409 to distribute the surplus of the company's assets in accordance therewith. It is only after confirmation of the liquidator's liquidation and distribution account that dies venit occurs. That is when the shareholder acquires the enforceable right to obtain transfer of immovable property (ius in personam ad rem acquirendam). The shareholder will then in

20
terms of sec 2(1) of Act 40 of 1949 be liable for transfer duty irrespective of when transfer actually occurs.
2.	There is in the present matter no juristic fact (regsfeit) or juridical ground by virtue of which dies venit on 30 October 1984 in regard to ius in personam ad rem acquirendam could be antedated to 4 May 1983. Nor is there any provision in Act 61 of 1973 which authorises such antedating to determine when dies venit occurred.
3.	Besides, according to our modern system of administration of deceased estates the heir or legatee of an unconditional bequest obtains a vested right (dies cedit) to be entitled to the bequest on the death of the testator (a morte testatoris). Such a right is transmissible but his claim is enforceable only at some future time when the executor's liquidation and distribution account has been confirmed (dies venit).
4.	
21
He then has a enforceable right to claim payment, delivery or transfer of his bequest (ius in personam ad rem acquirendam). Estate Smith v Estate Follett, 1942 A D 364 at p 383, Greenberg v Estate Greenberg, 1955(3) S A 361(A) at p 364, Secretary for Inland Revenue v Estate Roadkniqht and Another, supra. It is pointed out in The Law of Succession in South Africa, 1980, by Corbett, Hahlo, Hofmeyer and Kahn, p 164 note 176, that although these judgments speak of 'confirmation' of estate accounts by the Master no provision is made for confirmation, as such, in the Administration of Estates Act 66 of 1965 ( (nor was there any such provision in the previous Act 24 of 1913). It is suggested that 'confirmation' in the context should be taken as a reference to the fact that the accounts had lain for inspection, without objection, for the statutory period. See also Meyorowitz in his Law and Practice of Administration of Estates, 5th ed. p 261.

22
The legal principles of vesting are not afffected. I may add that the same principles are mutatis mutandis applicable to the administration of an insolvent estate by a trustee. See secs 110 to 113 of the Insolvency Act 24 of 1936.
In the present matter De Leef and Jacobs had not on 4 May 1983 obtained personal rights to acquire the ownership of the fixed property (iura in personam ad rem acquirendam). Dies venit had not occurred. A year later (4 May 1984) by entering into the cessions with the Trustees of the De Leef Family Trust and of the Jacobs Family Trust they divested themselves of their rights to take transfer of the fixed property. Thereupon dies venit could not avail to vest in them the right to claim transfer of the fixed property after confirmation of the executor's account since their rights had been ceded to the two Trusts. They had no iura in personam ad rem acquirendam. De Leef and Jacobs did

23
not acquire iura in personam ad rem acquirendam since they had ceded their rights and furthermore the Company (in liquidation) had already on 25 June 1984 divested itself of the fixed property in favour of the two Trusts. The result is inescapable that De Leef and Jacobs cannot be liable in terms of sec 2(1) of Act 40 of 1949 for transfer duty inasmuch as they never obtained enforceable rights to acquire the ownership of the fixed property (jura in personam ad rem acquirendam).
In the result the appeal must succeed. The following orders are granted: 1. The appeal succeeds with costs.
2. The following order is substituted for the order of the Court a quo viz.
(a) declaring that no further transfer duty is payable by any of the applicants in relation to the transfer of two undivided equal half shares in the property to the First and Third Applicants

24
(b) costs of the application to be borne by the Respondent.
C. P. JOUBERT A C J.
SMALBERGER J A NICHOLAS A J A Concur. HOWIE A J A KRIEGLER A J A

Case No 416/86
IN THE SUPREME COURT OF SOUTH AFRICA
(APPELLATE DIVISION)		
In the appeal of:	
EDGARS STORES LIMITED	 appellant
and
COMMISSIONER FOR INLAND REVENUE respondent
CORAM: CORBETT, HOEXTER, VIVIER JJA, VILJOEN et NICHOLAS AJJA
DATE OF HEARING: 19 May 1988
DATE OF JUDGMENT: 
JUDGMENT
CORBETT JA:
I have read the judgment prepared by my Brother Nicholas in this matter. Unfortunately I am not able to agree with the conclusion reached by him. In my view, the appeal should be dismissed. Here are my reasons.
/ The 	

2
The background	facts are to be found in my Brother's
judgment and also in the	reported judgment of the Court a
quo (at 1986 (4) SA 312	(T) ). I, therefore, need not
repeat them.
As my Brother has pointed out, the case hinges on the application of the general deduction formula in sec 11(a) of the Income Tax Act 58 of 1962 — and more particularly the words "expenditure.... actually incurred ...." (Afrikaans text: "onkoste... werklik....aangegaan") appearing therein — to the rentals paid or payable by the appellant in respect of the various business pre-mises hired by it. In the recent case of Nasionale Pers Bpk v Kommissaris van Binnelandse Inkomste, 1986 (3) SA 549 (A), this Court had occasion to consider the meaning of these words in sec 11(a) and at page 564 A-C Hoexter JA stated the position as follows:
/ "Dit	

3
"Dit 1 s 'n bekende grondstelling dat, vir doeleindes van art 11 (a) van Wet 58 van 1962, onkoste werklik aangegaan is in daardie belastingjaar waarin aanspreeklik-heid daarvoor regtens ontstaan, en nie (vir geval betaling daarvan later sou plaasvind) in die belastingjaar waarin daadwerklike vereffening van die skuld geskied het nie. Kyk Port Elizabeth Electric Tramway Co v Commissioner for Inland Revenue 1936 CPD 241 op 244 (8 SATC 13); Concentra (Pty) Ltd v Commissioner for Inland Revenue 1942 CPD 509 op 513 (12 SATC 95); Caltex Oil (SA) Ltd v Secretary for Inland Revenue 1975 (1) SA 665 (A) op 674 D-E (37 SATC 1). Die vereiste dat die onkoste 'werklik aangegaan' moet word, het egter tot gevolg dat moontlike toekomstige uit-gawes wat bloot as waarskynlik geag word nie ingevolge art 11(a) aftrekbaar is nie. Alleen onkoste ten opsigte waarvan die be-lastingbetaler 'n volstrekte en onvoorwaar-delike aanspreeklikheid op die hals gehaal het, mag in die betrokke belastingjaar af-getrek word."
Thus it is clear that only expenditure (otherwise quali-fying for deduction) in respect of which the taxpayer has incurred an unconditional legal obligation during the year of assessment in question may be deducted in terms of sec
/ 11(a) 	

4
11(a) from income returned for that year. The obligation may be unconditional ab initio or, though initially con-ditional, may become unconditional by fulfilment of the condition during the year of assessment; in either case the relative expenditure is deductible in that year. But if the obligation is initially incurred as a condi-tional one during a particular year of assessment and the condition i s fulfilled only in the following year of assessment, it i s deductible only in the latter year of assessment (the other requirements of deductibility being satisfied).
It is, of course, important in this context to distinguish between (i) expenditure in respect of which the obligation is conditional and remains so during the year of assessment, and (ii) expenditure in respect of which the obligation is or during the year of assessment becomes unconditional, but cannot be quantified until
/ after	

5
after the termination of the year of assessment. The latter situation, with reference to a loss instead of an expenditure, is exemplified by the Rhodesian Appellate Division case of Commissioner of Taxes v "A" Company 1979 (2) SA 409 (R,AD), which was concerned with a loan made by the taxpayer, a merchant banker, to a company which subsequently was placed in liquidation. For por-tion of this loan, amounting to $72 000, the taxpayer ranked as a concurrent creditor. The taxpayer sought to deduct this amount, as a loss incurred, in the year in which the company was placed in liquidation. At that stage the probabilities indicated that concurrent creditors would receive a dividend of not more than 5c in the $1, which would yield a recoupment to the taxpayer of $3 600. The Court held that, as the loss had been suffered once and for all during the tax year in question, it was deductible even though final quantification thereof, which was dependent on the exact amount of the dividend, could take place
/ only 	

6
only after the end of the tax year. It was further held that in the unlikely event of the dividend exceeding 5c, the excess would constitute gross income in the taxpayer's hands in the year in which it accrued. (See particularly p 416 A-E; also article by Mr H Vorster entitled "Unquantified and defeasible expenses incurred in the production of income", 1 SATJ 1, at pp 8-11.)
In the present case counsel were agreed that the crux of the matter was whether the provisions in clause 5 of the standard form of lease relating to a turnover rental created a contingent obligation which was incurred, if at all, only at the end of the annual lease period (as defined in clause 5.2.6 and which I shall call "the lease year")or whether they gave rise to an unconditional obligation the quantification of which took place at the end of the lease year. This is not an easy question — as the differences of judicial opinion in this Court and
/ between	

7
between the Courts a quo demonstrate — but I have come to the conclusion that the former of these propositions is the correct one and that, therefore, the Transvaal
Provincial Division ("the TPD") reached a correct de-cision.
Essentially clause 5, as I see it, provides not for a single rental obligation, as argued by appellant's counsel and as held by my Brother Nicholas, but two alternative rental obligations: the obligation to pay a basic rental or in certain circumstances the obligation to pay a turnover rental. The obligation to pay the basic rental accrues from month to month during the lease year and must be discharged in advance. It is payable "until the nett annual turnover figures in respect of (the) year are available" (clause 5.2.4). The obligation to pay the turnover rental is dependent upon the turnover produced from the leased premises during the lease year
/ being 	

8
being such that the turnover rental, as calculated in accordance with the formula laid down in clause 5.2.2., exceeds the basic rental. In that event it replaces the
basic rental; otherwise the rental obligation remains one to pay merely the basic rental. This emerges, I think, from :
(1)	Clause 5.2, which provides that the —
"monthly rental payable by the LESSEE
to the LESSOR shall be the greater
of the amounts as defined in 5.2.1 on
the "one hand" (1 e the basic rental —
see clause 5.2.1) "and in 5.2.2 read with
5.2.3, 5.2.4, 5.2.5 and 5.2.6 on the other
hand" (ie the turnover rental).
(2)	Clause 5.2.3, which provides that —
"Should the rental calculated in terms of 5.2.2 " (ie the turnover rental) "in any year, after deducting therefrom....
	 amount to less than the basic
rental, then in respect of that year the rental payable shall be as defined in 5.2.1" (ie the basic rental).
(3)	Clause 5.2.8 which provides that within 3 months
of the end of every lease year the lessee —
/"	 shall 	

9
"	 shall pay to the LESSOR the sum due
under paragraph 5.2.2 above if applicable" (my emphasis)
and shall deliver to the lessor a statement of the nett annual turnover for the lease year, certified as correct by the lessee's auditors. The words 'if applicable' obviously have re-ference to the contingency as to whether the turnover rental, as calculated in terms of clause 5.2.2, exceeds the basic rental or not. If it does, then the obligation to pay this turnover rental arises; if it does not, then this obligation does not arise.
It is true that there is no express provision in
clause 5 to the effect that, in the event of the turnover
rental becoming payable, only the amount by which the
turnover exceeds the basic rental, which has in the mean-
while been paid from month to month, is payable or, to put it another way, that the basic rental paid should be set off against the total turnover rental as calculated, but this is clearly implicit in the clause. And indeed this is how the parties have evidently operated
/ under 	

10
under the agreement (see the letters written on appellant's behalf, dated 3 July 1980 and 10 November 1981, which speak of the "additional rental" payable in terms of the turnover rental clause).
As pointed out by Ackermann J in delivering the judgment of the TPD in this matter, the case is concerned only with those instances where the lease year ends after the appellant's year of assessment, respondent (the Commissioner for Inland Revenue) having conceded that appellant was entitled to deduct from income in the re-levant tax year those portions of the amounts claimed in respect of turnover rental (as eventually quantified) which applied to those leases whose lease year ended on the last day of appellant's tax year (see reported judgment at p 314 G-H). The learned Judge also mentioned (at p 325 B-F) the possibility that even in the case of a lease having a lease year ending after the termination of appel-
/ lant's 	

11
lant's tax year, appellant might be able to establish that the turnover during the portion of the lease year falling within the tax year was of such a magnitude as to bring into operation during the tax year the obligation to pay additional turnover rental, but held that that was not the case presented by the appellant and that, therefore, no view need be expressed on this possibility. Before us appellant's counsel accepted this and argued the case on the premise that the liability to pay turnover rentals under the leases in question had not become apparent before the end of the tax year. I might just add, in case this is not already clear, that this case i s only concerned with the appropriate tax year in which the additional turnover rental may be de-ducted. Its deductibility in one year or the other is not in question.
Before the TPD appellant's counsel postulated four ways in which rental could be determined, the fourth
/ bei ng 	

12
being in essence the position under the standard form of lease used by appellant; and argued by analogy from the other three postulates that in the fourth case the turnover rental was in fact expenditure incurred month by month during the tax year. (See reported judgment p 323 C-F.) On appeal before us appellant's counsel advanced the same argument. I do not find such arguments based on analogy at all helpful. In the final resort the case must be decided on its own facts and the fact that, had the appellant arranged its leases differently a dif-ferent result, from the taxation point of view, might have ensued, seems to me to be beside the point.
To sum up the position as I see it, the standard form of lease makes provision for two alternative rental obligations: one to pay the basic rental and one to pay the turnover rental. Appellant as tenant is obliged to pay whichever of these rentals, each as calculated
/ according	

13
according to a certain formula, is the greater. The basic rental accrues and is paid from month to month in advance. The liability to pay the turnover rental can only be determined at the end of the lease year, when the annual turnover is known. It the turnover is below a certain level, and the turnover rental as calculated is less than the basic rental, then there is no obligation to pay turnover rental. There cannot be a vested obli-gation to pay nil rental. In that case the obligation to pay the basic rental prevails. If, on the other hand, the turnover level i s such that the turnover rental, as calculated, exceeds the basic rental, then the obliga-tion to pay it displaces the obligation to pay basic rental, subject to the lessee not being obliged to pay more than the excess. The obligation to pay turnover rental is thus contingent until the turnover for the lease year is determined at the end of the year. The expenditure re-
/ lating	

14
lating to the payment of turnover rental can, therefore, not be regarded as having been actually incurred in a tax year which ended prior to the termination of the lease year. It can, therefore, not be deducted in that tax year.
For these reasons I am of the view that the TPD reached the correct conclusion.
The appeal is accordingly dismissed with costs.
M M CORBETTT
HOEXTER JA)
VIVIER JA) CONCUR.
VILJOEN AJA)

CONSTITUTIONAL COURT OF SOUTH AFRICA

	Case CCT 3/2000

METCASH TRADING LIMITED	Applicant

versus

THE COMMISSIONER FOR THE
SOUTH AFRICAN REVENUE SERVICE	First Respondent 

THE MINISTER OF FINANCE	Second Respondent 

Heard on	: 	28 March 2000

Decided on 	:	24 November 2000

JUDGMENT 

KRIEGLER J: 

[1]	This case concerns the constitutional validity of section 36(1) and subsections (2)(a) and (5) of section 40 of the Value-Added Tax Act 89 of 1991 (the Act).  The question is whether these provisions unjustifiably limit the right of access to courts protected by section 34 of the Constitution.  In substance section 36(1) of the Act says that upon assessment by the Commissioner for the South African Revenue Service (the Commissioner), and notwithstanding the noting of an “appeal”, a taxpayer is obliged to pay the assessed tax, called value added tax (VAT) plus consequential imposts there and then, possible adjustments and refunds being left for dispute and determination later.   Concomitantly the other two impugned provisions of the Act empower the Commissioner to exact summary payment of the assessed amounts: section 40(2)(a) empowers the Commissioner, where payment of an assessment is overdue, to file a statement at court which has the effect of an exigible civil judgment for a liquid debt; and subsection (5) puts the correctness of the assessment beyond challenge in such execution.

[2]	The applicant is Metcash Trading Limited (Metcash).  It is a wholly owned subsidiary, and the principal operating entity in South Africa, of Metro Cash And Carry Limited (Metro), a public company listed on the Johannesburg Stock Exchange.  Metcash conducts business as a wholesaler and distributor of what it calls “fast moving consumer goods”, and as a liquor retailer.  It employs some 8 500 people at 162 outlets throughout the country and enjoyed a turnover of approximately R6 billion for the financial year to April 1999.  Metro’s turnover for that period exceeded R28 billion.  The respondents are respectively the Commissioner in his capacity as the official charged with the administration of the Act and the Minister of Finance, who was cited by reason of his interest in the validity of the impugned sections of the Act.
[3]	There had been intermittent rumblings from the revenue authorities about Metcash’s VAT returns and payments from as early as mid-1996.  These were followed by meetings, correspondence, investigations and further meetings between Metcash representatives and the Commissioner’s staff.  Things came to a head on 31 May 1999 when a letter bearing that date from the Commissioner to Metcash was delivered by hand.  The letter gave Metcash formal notice that the Commissioner was not satisfied with the VAT returns furnished by the former for the tax periods from July 1996 to June 1997 and that, for reasons detailed in an annexure to the letter and by virtue of his powers under section 31(1)(b) or (c) of the Act, he had made assessments listed in a further annexure.  The annexures run to 52 pages and furnish extensive particulars of the grounds for the Commissioner’s decision.  The schedule detailing the Commissioner’s grounds commences with a summary alleging that transactions entered into by Metcash and /or its associated companies with four named close corporations had been fictitious.  It continues:

“No goods were sold and delivered and accordingly no input tax on the transactions in question could be claimed.  The total amount of the claim for input tax in respect of the fictitious transactions, set out in Annexure 1, currently known to the Commissioner . . .  is R77 667 722,27.”

The schedule of assessed amounts reflects that Metcash was also assessed for additional tax of double the original R77 667 722, 27, namely an amount of R155 335 444,54, plus a penalty of 10% (R7 766 772,22) and interest as at that date of R25 165 004,01.  The total of the assessments at that stage was R265 934 943,04.  In terms of the letter the assessments adding up to this substantial sum were to be paid by 30 June 1999, failing which steps for their recovery would be taken without further notice.

[4]	On 24 June 1999 Metro’s chairman led a delegation to the Commissioner, followed up by a letter the next day in which, among others, the point was made that:

“. . . Metcash is a business of considerable size . . . and will be in a position to pay whatever assessment it may be determined to be liable for.”

and continuing:

“To this end, we would request that you do not require Metcash to pay the assessment pending the outcome of the investigations, whereafter SARS can assess its position.  We envisage that a period of 60 days should be adequate to draw satisfactory conclusions as to what has precisely transpired in this complex matter.”

On 30 June 1999 attorneys acting on behalf of Metcash delivered a letter to the Commissioner formally lodging an objection to the assessments and submitting argument in support of another request for a 60 day extension.  By letter dated 5 July 1999 the Commissioner granted an extension of 45 days from 30 June 1999.  This period, too, proved inadequate and at the eleventh hour, namely on 13 August 1999, the attorneys delivered another lengthy letter, repeating the formal noting of the objection.  Although the letter advanced and furnished supporting argument in respect of a number of grounds of objection, there was no serious attempt to join issue with the contentions in the annexures to the Commissioner’s letter of 31 May 1999.  The letter did however “place on record” that Metcash was not able at that stage “to fully and comprehensively deal with all the allegations” in the factual schedule.  It was also contended that:

“On the evidence currently at our client’s disposal, . . . the input tax was duly claimable by our client as it complied with the relevant provisions of the Vat [sic] Act . . . [E]nforceable contracts between our client and the relevant suppliers of goods, . . . did, in fact, exist.”

[5]	By letter dated 13 September 1999 the Commissioner disallowed Metcash’s objection and gave it some 48 hours notice to pay all the amounts in full, failing which the summary procedure contemplated by section 40(2)(a) of the Act would be implemented.  This precipitated an urgent application to the High Court in Johannesburg to block the threatened action by the Commissioner.  An interim arrangement was made and the case subsequently came before Snyders J, who later delivered a reserved judgment.  The learned judge found that the relevant sections of the Act infringed the fundamental right of access to the courts afforded to everyone by section 34 of the Constitution.  In arriving at that conclusion she relied heavily on the judgment of this Court in Chief Lesapo v North West Agricultural Bank and Another, which she regarded as directly in point.  The learned judge then turned to a consideration of the possible saving of the offending provisions under section 36 of the Constitution and concluded that they were neither reasonable nor justifiable.

[6]	She accordingly proceeded to declare the three challenged provisions of the Act invalid and made certain ancillary orders, including an interdict preventing the Commissioner from enforcing payment of the assessed tax pending conclusion of Metcash’s appeal to the Special Income Tax Court (the Special Court) against the assessments.  In addition the judge referred the order of constitutional invalidity to this Court in terms of sections 167(5) and 172(2) of the Constitution, which provide that an order of constitutional invalidity made by a high court is of no force unless confirmed by the Constitutional Court.

[7]	What this Court therefore now has to consider is whether or not to confirm the order declaring the three subsections of the Act invalid. 

[8]	The Commissioner and the Minister oppose confirmation, contending that the judge erred in finding that the provisions in question infringe section 34 of the Constitution.  Their principal argument is that the “pay now, argue later” rule in section 36(1) of the Act nevertheless affords the taxpayer sufficient opportunities for a hearing on the assessment.  These they say are by objecting to the assessment; asking the Commissioner to grant an extension of the time for payment; if he refuses, asking a court to set aside such refusal on review; and, ultimately appealing to the Special Court against the assessment and other charges.  Therefore the provisions do not infringe the requirements of section 34 of the Constitution.  They further argue that even if there is such an infringement, the quick, reliable and predictable recovery of VAT is of vital national importance and that the relevant provisions are saved from invalidity by section 36 of the Constitution, which permits limitations of the rights protected in the Bill of Rights in particular circumstances.  Finally they contend that even if the provisions are indeed invalid, an order of invalidity should be suspended for three years to enable Parliament to draft appropriate substitute legislation.

[9]	Metcash, for its part, supports the ruling and basic reasoning in the High Court, contending that the opportunities for protest seen by the Commissioner in section 36 of the Act are illusory or inadequate: the taxpayer is effectively compelled to pay up and can but hope to get the money back later.  They also cite the judgment of this Court in Lesapo, which struck down provisions in a Bophuthatswana statute which permitted the bank in question to levy execution against its debtors without recourse to the courts.  The sections in question are said to be analogous to those dealt with in Lesapo in that they permit self-help and thus oust the jurisdiction of the courts in breach of the principle entrenched in section 34 of the Constitution.  In any event, so it is contended, the impugned provisions breach the Constitution in that the double tax they permit the Commissioner to impose is really punishment for criminal conduct without resort to the courts.  Therefore, so they argue, the provisions infringe the protection afforded by section 34 of the Constitution in these two respects.

[10]	As regards the justification under section 36 of the Constitution contended for by the Commissioner, Metcash raises several counter-arguments, among them that there are less invasive ways of protecting the national interest in ensuring speedy and dependable receipt of VAT.  It further contends that the relevant provisions of the Act are unduly harsh and more invasive of taxpayers’ rights than any comparable foreign tax statute.  As to the timing of any order invalidating the sections, the submission on behalf of Metcash was that there was no justification for allowing the Commissioner and the Minister time to ask Parliament to remedy the invalidity.

[11]	In order to appreciate the effect of the challenged provisions and to evaluate the cogency of the challenge, one must have some understanding of the VAT system, which replaced sales tax in South Africa when the Act came into operation in mid-1991.  The system is sophisticated and its provisions are numerous and complex.  For present purposes, however, a brief outline of its basic principles and main provisions will suffice.  What follows does therefore not purport to be an authoritative analysis of any provision of the Act merely touched on in the course of this introduction.  The Act is interlarded with many terms of art.  Some are defined in the Act itself and others bear a special meaning in their context.  Brief explanations of such terms are provided as and when necessary in order to make the introduction comprehensible.  These explanations, too, are not proffered as authoritative or exhaustive.

[12]	 VAT is, as its name signifies, a tax on added value.  It is imposed at each step along the chain of manufacture and distribution of goods or services that are supplied in the country in the course of business; and it is calculated on the value at the time of each such step.  The system was instituted by section 7(1) of the Act which, reduced to its bare essentials, provides as follows:

“. . . there shall be levied and paid . . . a tax, to be known as the value‑added tax —
(1)	on the supply by any vendor of goods . . . supplied by him on or after the commencement date in the course or furtherance of any enterprise carried on by him;
(b)	. . . 
(c)	. . .
calculated at the rate of 14 per cent on the value of the supply concerned . . .”

[13]	Although the tax is payable on a wide variety of transactions, the present discussion can be confined to the facts of this case, which involves the commercial purchase and sale of goods and can therefore serve as a straight forward example of how the system is supposed to work.  The basic idea of VAT is that it is calculated on the value of each successive step as goods move from hand to hand along the commercial production and distribution chain from their original source to their ultimate user.  For present purposes it can be accepted that the tax is calculated at the prescribed rate of 14%  on the price at which each successive act of handing on takes place.  Furthermore, the tax is not only calculated on the value of each successive supply, but is to be paid at that time.  As goods move along the distribution chain, everyone making up the sales chain is first a recipient, then a supplier.  The Act calls these recipients/suppliers who are engaged in enterprises “vendors” and section 23 makes provision for them to be registered as such with the Commissioner.  Section 7(2) of the Act then renders each vendor who supplies goods liable to pay the VAT on that particular supply.

[14]	Being a tax on added value, VAT is not levied on the full price of a commodity at each transactional delivery step it takes along the distribution chain.  It is not cumulative but merely a tax on the added value the commodity gains during each interval since the previous supply.  To arrive at this outcome a supplying vendor, when calculating the VAT payable on the particular supply, simply deducts the VAT that was paid when the particular goods were supplied to it in the first place.  As a commodity is on-sold by a succession of vendors, each payment of VAT by each successive supplier must then represent 14% of the selling price less the 14% of the  price which was payable when that commodity was acquired.  According to the scheme of the Act the tax that is payable by a supplying vendor is called output tax and the tax that was payable on the supply to that vendor upon acquisition is called input tax.

[15]	Of course it would be wholly impracticable to expect merchants to pay and the fiscus to receive individual payments of VAT on each and every separate supply.  Therefore the Act provides a detailed mechanism for vendors to keep certain kinds of records and periodically to calculate, account for and pay VAT to the Commissioner.  In broad outline the mechanism provides how the deduction of input tax from output tax is to be made and specifies the kinds of vouchers that have to be kept; and then when and how vendors are to make their payments and complete their supporting returns to the Commissioner.  In the result vendors are entrusted with a number of important duties in relation to VAT.  First there is the duty to calculate and levy VAT on each supply of goods; then to calculate the output tax and the input tax on that transaction correctly; also to keep proper records supported by the prescribed vouchers, periodically to add up the sum of output and input taxes attributable to that period and appropriately deducting the total of the input taxes from those of the output taxes; and, ultimately and crucially, to make due and timeous return and payment of the VAT that is payable in accordance with the vendor’s allocated tax period.

[16]	It would be convenient to pause at this point to recapitulate and fill in some details before moving on to the next phase of the Act, which deals with assessments by the Commissioner and what they may set in train.  The first significant point to note is that VAT, quite unlike income tax, does not give rise to a liability only once an assessment has been made.  VAT is a multi-stage tax, it arises continuously.  Moreover VAT vendors/taxpayers bear the ongoing obligation to keep the requisite records, to make periodic calculations of the balance of output totals over and above deductible input totals (and any other permissible deductibles) and to pay such balances over to the fisc.  It is therefore a multi-stage system with both continuous self-assessment and predetermined periodic reporting/paying.

[17]	An even more important feature of VAT, particularly in contradistinction to income tax, is that vendors are in a sense involuntary tax-collectors.  In principle VAT is payable on each and every sale; the VAT percentage, the details for its calculation and the timetable for periodic payment are statutorily predetermined, and it is left to the vendor to ensure that the correct periodic balance is calculated, appropriated and paid over in respect of each tax period.  By like token the regularity of VAT payments on the one hand ensures a steady and generally more accurately predictable stream of revenue via a multi-staged taxation that is perceived as resting less heavily on the taxpayer, but on the other hand it does require a great deal of book-keeping by vendors and policing by the revenue authorities.

[18]	A special feature of VAT relates to exports.  VAT is payable only on consumption in South Africa and as a result output tax is not payable on goods sold and exported.  In the arcane language of the Act, they are zero-rated.  Therefore a merchant who buys and sells goods in South Africa and also sells some goods that are exported does the periodic calculation by adding up all input taxes for deduction from the sum of output taxes but, in calculating the latter, includes no output tax on the value of the exports.  No output tax is payable on the exported goods but a full credit is given for the input tax.  This exemption, which aims at promoting exports and enhancing their competitiveness in the world market, holds self-evident benefits for export-orientated vendors.  Unfortunately those benefits not only attract honest exporters but are a notorious magnet for crooks who devise all manner of schemes to exploit the system to their advantage.

[19]	In the case of VAT the spectre of dishonesty extends beyond export related frauds, however.  Although VAT as a system of raising revenue clearly has many advantages, it undeniably also has weaknesses.  For present purposes only a few drawbacks need be mentioned.  VAT spreads the tax base wide, thus promoting an equitable tax burden, which can be scored as a plus.  But at the same time the multiplicity of vendors, many of them small and possibly ill-equipped to perform their statutory duties, places a heavy burden on the revenue authorities.  They have to administer a sophisticated system and supervise the performance of a large body of vendors with limited human and material resources.  In his affidavit the Commissioner complains of a lack of staff adequately trained in accounting and makes the point that a backlog in the training of accountants country-wide puts trained people at a premium in the private sector, leaving the Department chronically unable to obtain and retain a sufficient number of skilled staff. 

[20]	The Commissioner also emphasises that unscrupulous vendors take advantage of his Department’s notorious staffing embarrassment.  He gives depressing statistics in support of the proposition that general tax morality in the country is low and that there is a high rate of tax evasion and fraud.  By way of illustration he cites 19 816 field audits conducted from March to September 1999 revealing irregularities in 38,52% of the cases and involving R638,3 million.  During the same period fraud and evasion cases being investigated by the audit staff involved approximately R650 million while the sum involved in investigations relating to the fiscal years 1996 to 1998 and for the period from April to July 1999 amounted to a staggering R1,45 billion.  In the circumstances it is not surprising that the Commissioner’s affidavit stresses the difficulties his Department encounters in enforcing proper compliance with the requirements of the Act.

[21]	It would now be convenient to revert to the summary of the relevant statutory provisions which, it will be recalled, had reached the point where a vendor’s obligation to make timeous periodic returns and payments of VAT to the Commissioner were outlined.  The Act, having prescribed the VAT obligations of vendors, proceeds to cater for those vendors who do not voluntarily and faithfully fulfil those obligations.  The first step to that end is section 31 of the Act, which empowers the Commissioner to make an independent assessment of both the VAT and the amount on which it is payable, and makes the amount of the assessed tax payable, where there is a failure to make a VAT return, or where the Commissioner is not satisfied with a return or has reason to believe VAT is due but has not been paid.  The Commissioner must give the vendor written notice of the assessment and in the notice inform the vendor that objection to the assessment may be lodged.

[22]	Manifestly section 31 constitutes a valuable weapon in the hands of the Commissioner.  The prospect of having the Commissioner independently assess both the underlying amount and the VAT that is to be paid thereon must in itself be a powerful disincentive for recalcitrant, dishonest or otherwise remiss vendors.  But the compulsive force of this mechanism of the Act goes a good deal further.  The dissatisfied vendor can, by lodging an objection under section 32 of the Act and, that failing, by noting an appeal under section 33 or 33A, both compel the Commissioner to reconsider the assessment and have its correctness reconsidered afresh by an independent tribunal.  But the burden of proving the Commissioner wrong then rests on the vendor under section 37.  Because VAT is inherently a system of self-assessment based on a vendor’s own records, it is obvious that the incidence of this onus can have a decisive effect on the outcome of an objection or appeal.  Unlike income tax, where assessments can elicit genuine differences of opinion about accounting practice, legal interpretations or the like, in the case of a VAT assessment there must invariably have been an adverse credibility finding by the Commissioner; and by like token such a finding would usually have entailed a rejection of the truth of the vendor’s records, returns and averments relating thereto.  Consequently the discharge of the onus is a most formidable hurdle facing a VAT vendor who is aggrieved by an assessment: unless the Commissioner’s precipitating credibility finding can be shown to be wrong, the consequential assessment must stand.

[23]	The Act affords the Commissioner additional — and formidable — powers aimed at ensuring proper compliance on the part of vendors with their obligation to keep proper records, make correct returns and effect due payments of VAT on time.  First there is section 39, which imposes an automatic penalty of 10% of the amount of tax payable where there is a failure to pay any amount payable under section 28(1).  Even more intimidatory is the power vested in the Commissioner by section 60 of the Act to charge additional tax up to double the amount of tax due, in other words to treble tax vendors, in cases of tax evasion.  In the third place, a vendor is liable to pay interest at a rate of 1,2% per month on both the outstanding tax and additional tax.  There are many other enforcement mechanisms built into the Act, e.g. a form of garnishment under section 47, criminal sanctions under sections 58 or 59 and extensive powers of interrogation, entry, search and seizure under Part 9 of the Act.  None of these provisions of the Act is directly in issue in this case and they should merely be noted as part of the textual context in which the challenged provisions are to be interpreted and evaluated.

[24]	The target of the challenge on behalf of Metcash is not the basic functioning of the VAT system, nor the incentives aimed at ensuring prompt and proper reporting and payment of VAT.  The challenged provisions relate rather — and solely — to a two-pronged supplementary mechanism aimed at enforcing prompt payment pursuant to an assessment.  The one prong is section 36(1) and the other is made up of sections 40(2) and 40(5) read together.  Shorn of words not germane to the present discussion, these subsections read as follows:

“36.	Payment of tax pending appeal.—
(1)	The obligation to pay and the right to receive and recover any tax, additional tax, penalty or interest chargeable under this Act shall not, unless the Commissioner so directs, be suspended by any appeal or pending the decision of a court of law, but if any assessment is altered on appeal or in conformity with any such decision . . . a due adjustment shall be made, amounts paid in excess being refunded with interest . . . and amounts short‑paid being recoverable with penalty and interest calculated as provided in section 39(1).”

“40.	Recovery of tax.—

(1)	. . . .
(2)(a)	If any person fails to pay any tax, additional tax, penalty or interest payable in terms of this Act, when it becomes due or is payable by him, the Commissioner may file with the clerk or registrar of any competent court a statement certified by him as correct and setting forth the amount thereof so due or payable by that person, and such statement shall thereupon have all the effects of, and any proceedings may be taken thereon as if it were, a civil judgment lawfully given in that court in favour of the Commissioner for a liquid debt of the amount specified in the statement.
. . . .
(5)	It shall not be competent for any person in proceedings in connection with any statement filed in terms of subsection (2)(a) to question the correctness of any assessment upon which such statement is based, notwithstanding that objection and appeal may have been lodged against such assessment.”

It would be as well to quote a further provision, section 42, which bolsters the summary enforcement procedure and may therefore bear on its constitutionality.  It reads as follows:

“42.	Evidence as to assessments.—
The production of any document issued by the Commissioner purporting to be a copy of or an extract from any notice of assessment shall be conclusive evidence of the making of such assessment and shall, except in the case of proceedings on appeal against the assessment, be conclusive evidence that the amount and all the particulars of such assessment appearing in such document are correct.”

[25]	All the relevant data having been identified and tagged, we can now turn to an evaluation of the basis upon which the constitutional challenges were upheld by the learned judge in the High Court.  The reasoning that led to her conclusion that sections 36(1), 40(2)(a) and 40(5) are invalid by reason of their infringement of section 34 of the Constitution was based four-square on the judgment of this Court in Lesapo.  The statutory provisions under scrutiny in Lesapo and in this case she regarded as analogous; and the  reasons for the rejection of the one in issue in Lesapo she regarded as applicable to those under challenge in this case.  The starting point of that line of reasoning was that, subject to a qualification to be considered shortly, it was common cause that, read together, the sections unequivocally have the effect that:

“(a)	the obligation by the applicant to pay, which arose as per the determination of the first respondent on 30 June 1999, shall not be suspended by the applicant’s appeal against the assessment, nor by the current proceedings, nor by any decision of a court of law;
(b)	if the obligation is not settled by the applicant, and for purposes of the illustration I leave aside the first respondent’s gratuitous undertaking not to exercise its powers pending this judgment, the first respondent is entitled to enforce payment and even to execute against the applicant on the assessment as if it amounted to a civil judgment, lawfully given by a court of law, by simply filing a statement with the registrar or clerk of any competent court, which statement is to disclose the amount of the indebtedness and is to be certified by the first respondent as correct;
(c)	it is not competent for the applicant to question the correctness of the assessment upon which the statement so filed by the first respondent is based, notwithstanding the applicant’s appeal against the assessment; 
(d)	only a direction by the first respondent could have the effect of suspending the applicant’s obligation to pay.”

The judge considered and disposed of the qualification and continued:

“The meaning of the Act is that the obligation to pay remains intact: it cannot be suspended by a court of law but only by the first respondent.  Thus the power of any court of law to provide an aggrieved vendor with interlocutory relief is clearly excluded irrespective of the merits or demerits of his case.  The constitutional challenge by the applicant would therefore remain valid whether the first respondent made a decision and whether that decision was taken on review or not.”  

[26]	The judgment then proceeds to quote extensively from Lesapo and wraps up this particular part of the reasoning with the conclusion:

“Sections 36(1), 40(2)(a) and 40(5) explicitly exclude the need for recourse to a court of law and exclude the powers of the courts of law in interfering with that process regardless of the demands of justice.  The only option available to a vendor would be to pay prior to having any dispute settled by a court of law or suffer the course of execution outside the auspices of the judicial process.

There is no doubt that the relevant provisions are inconsistent with the provisions of s 34 of the Constitution in that:
(a)	it substitutes the first respondent for the court in determining every facet of the vendor’s liability and the enforcement thereof;
(b)	it precludes any interlocutory relief by a court of law for the aggrieved vendor whilst the statutory remedy of appeal is pursued.
The prospect that an eventual successful appeal might reverse the situation is no answer to the actual infringement which endures until then.”

[27]	Snyders J then turned to consider whether the impugned procedure could be saved under section 36 of the Constitution, the saving clause of the Bill of Rights, and cited the following passage from the Lesapo judgment in weighing the nature of the right infringed:

“The right of access to court is indeed foundational to the stability of an orderly society.  It ensures the peaceful, regulated and institutionalised mechanisms to resolve disputes, without resorting to self help.  The right of access to court is a bulwark against vigilantism, and the chaos and anarchy which it causes.  Construed in this context of the rule of law and the principle against self help in particular, access to court is indeed of cardinal importance.  As a result, very powerful considerations would be required for its limitation to be reasonable and justifiable.”

She then examined the “pressing considerations of public interest” advanced by the Commissioner and the Minister in defence of the impugned limitation on the right guaranteed by section 34 of the Constitution, which limitation she styled “dramatic and extensive”.  Part of the proffered justification she found to be argumentative and speculative, largely, as I understand the judgment, because it had not been shown that the amounts assessed in this particular case would have any effect on the national budget.

[28]	The learned judge continued the discussion of the disparity between general considerations and the circumstances of the particular case, holding that:

“. . . the approach adopted by the respondents in raising facts relevant to the importance of the purpose of the limitation is too general and loses sight of the particular facts of this case, which is what this Court should be weighing up and balancing.”

and that the

“. . . fairly narrow ambit of the facts of this case in the greater scheme of national tax necessarily lessens the impact of a delay in the recovery of the tax in terms of the present assessment and thus the importance of the purpose of the limitation.”

She was also of the view that:

“[n]umerous other measures could be devised in order to discourage or even prevent all the negative consequences foreseen by the respondents.  Higher penalties were suggested as a possibility, the furnishing of security, even higher interest rates or time-linked penalties are possibilities.  The potential for alternative measures must be numerous and is desirable in order to protect the right embodied in the Constitution.”

[29]	In the course of argument on behalf of the Commissioner before the High Court reliance was placed on the judgment in Hindry v Nedcor Bank Ltd and Another, in which a comparable fiscal provision allowing for a form of summary garnishment by the Commissioner of the credit in a taxpayer’s bank account, had been held justified under section 36 of the Constitution.  First, Snyders J distinguished the judgment in Hindry as it had “concerned a different section of a different Act under different circumstances.”  Next she held it to have been an obiter dictum insofar as it pronounced on the constitutionality of the relevant provision of the Income Tax Act.  In the third instance she observed that the judge concerned had in any event not had the benefit of studying the judgment in Lesapo, which had not been delivered at the time the Hindry judgment had been given.

[30]	The following issues seem to arise out of the judgment of Snyders J:
(a)	The meaning of section 36(1) of the Act and more specifically whether the section bears on the right of access to the courts guaranteed by section 34 of the Constitution.
(b)	The meaning of subsections (2)(a) and (5) of section 40 of the Act.
(c)	Whether the three challenged provisions jointly have the effect ascribed to them by the learned judge.  In this context the possible role of section 42 must also be considered.
(d)	Whether the strictures expressed in Lesapo are of application to the three sections in question in this case.
(e)	Whether, in the final analysis, those sections infringe the right to access to the courts protected by section 34 of the Constitution.
(f)	Whether, if indeed they do so infringe, they can be saved under section 36 of the Constitution.

[31]	Addressing those issues entails, in the first place, ascertaining what each of the three sections says and, possibly more pertinently, does not say.

The challenge to section 36(1) of the Act
[32]	Section 36 should be seen in the context of Part V of the Act, which comprises sections 32 to 37 and deals with objections and appeals.  Section 32, section 35 and section 37 are not relevant to the present discussion and can be put aside.  Sections 33, 33A and 34 of the Act deal with the statutory right afforded aggrieved vendors to challenge the rejection by the Commissioner of objections to assessments and associated decisions.  Sections 33 and 33A provide that vendors may bring such challenges in either the Special Court or before a board; and section 34 allows a further resort to an ordinary court of law against decisions of the Special Court.  The Act calls the proceedings before the Special Court/board (as well as the subsequent resort to a court of law) an “appeal”.  The Commissioner is not a judicial officer — and assessments and concomitant decisions by the Commissioner are administrative, not judicial, actions;  from which it follows that challenges to such actions before the Special Court or board are not appeals in the forensic sense of the word.  They are proceedings in terms of a statutory mechanism specially created for the reconsideration of this particular category of administrative decisions — and appropriate corrective action — by a specialist tribunal.
[33]	

[34]	It is important to have clarity about the effect of the mechanism created by sections 33 and 33A of the Act.  Were it not for this special “appeal” procedure, the avenues for substantive redress available to vendors aggrieved by the rejection of their objections to assessments and decisions by the Commissioner would probably have been common law judicial review as now buttressed by the right to just administrative action under section 33 of the Constitution, and as fleshed out in the Promotion of Administrative Justice Act.  Here, however, the Act provides its own special procedure for review of the Commissioner’s challenged decisions by specialist tribunals.  But, and this is crucial to an understanding of this part of the case, the Act nowhere excludes judicial review in the ordinary course.  The Act creates a tailor-made mechanism for redressing complaints about the Commissioner’s decisions, but it leaves intact all other avenues of relief.
[35]	
[36]	It is in that light that one must look at section 36(1).  In its textual context and on its plain wording the subsection is concerned with ensuring two separate but related objectives: first, that the obligation of aggrieved vendors to pay their tax and associated imposts is not delayed by their pursuing their remedies under Part V of the Act and, second, that where necessary refunds, plus interest, will be made later.  Here we are concerned with the first objective, namely that:

“[t]he obligation to pay . . . any tax , additional tax, penalty or interest chargeable under this Act shall not, . . . be suspended by any appeal or pending the decision of a court of law, . . . ”

Clearly “appeal” denotes the procedure under sections 33 and 33A and “the decision of a court of law” the subsequent resort to a court of law under section 34 of the Act.

[37]	Cogent authority for such an interpretation is to be found in CIR v NCR Corporation of SA (Pty) Ltd where Corbett JA had occasion to consider these very words where they appear in section 88 of the Income Tax Act (which corresponds to section 36 of the Act).  The learned judge analysed the legislative history of both the “appeal” and the “decision of a court of law” components of the phrase under discussion and observed that:

“[t]he common-law rule of practice that generally the execution of a judgment is automatically suspended upon the noting of an appeal . . . could hardly apply to an appeal noted to the Special Court against the disallowance of an objection to an assessment by the Commissioner, . . .”

However, the analysis reveals that when there was an amendment to the income tax legislation affecting the “pay now, argue later” provision, “it may well have been thought necessary to state explicitly that there was no such suspension unless the Commissioner so directed.”

The learned judge then proceeded to consider the meaning of the “decision of a court of law” component and, once again tracing the statutory antecedents of the words,  concluded the particular part of the judgment as follows: 

“Be all this as it may, the meaning of the first portion of s 88 is, in my opinion, clear.  It enacts in effect that, subject to a contrary direction by the Commissioner, a taxpayer’s obligation to pay tax to which he has assessed (and the Commissioner’s correlative right to receive and recover such tax) are not suspended by the fact that the taxpayer may have appealed to the Special Court against the Commissioner’s disallowance of an objection to the assessment, or by the fact that, the Special Court having given its decision concerning the assessment, there is an appeal pending in terms of s 86 or s 86A, at the instance of either party, against the decision of the Special Court.” (Emphasis added)

[38]	Manifestly the reasoning is equally applicable to section 36 of the Act.  The common-law rule of judicial practice relating to automatic suspension of execution by the noting of an appeal, does not apply to the appellate procedure created by sections 33, 33A and 34 of the Act.  Neither the noting of the statutory “appeal” to the Special Court (or the board) nor the noting of any subsequent appeal in itself suspends the vendor’s obligation to pay according to the tenor of the assessment and accompanying imposts.   That means that, unlike a common-law judgment debtor, an aggrieved vendor cannot procure an automatic suspension of the obligation to pay by the noting of an appeal to the Special Court (or board), and from the Special Court to an ordinary court of law.  As in the case of section 88 of the Income Tax Act discussed by Corbett JA in the quotation above, section 36 is not concerned with an appeal against a judgment, but with a statutory form of revision of an administrative decision according to a special procedure.

[39]	More importantly, section 36(1) is not concerned with access to a court of law and says nothing that can be construed as a prohibition against resort to such a court.  It also has nothing to do with judgment on the tax debt; and even less does it have any bearing on execution of such a judgment.  It does not afford any authority to circumvent the courts, nor any right to levy execution.  The first part of the section is simply not concerned with anything other than the non-suspension — notwithstanding demur — of the obligation to pay the assessed VAT and consequential imposts chargeable under the Act.

[40]	That does not mean that the obligation to pay notwithstanding appeal is inexorable. On the contrary, the provision is directed at automatic suspension and expressly gives a discretion to the Commissioner — “unless the Commissioner so directs”.  This is the qualification adverted to by Snyders J.  She made reference to it in relation to a submission by counsel for the Commissioner.  Counsel, conceding that section 36(1), read in context with the other two impugned provisions, effectively barred any judicial relief being extended to an aggrieved vendor, argued that the existence of the discretion coupled with the fact that the exercise of discretion would be reviewable on administrative law principles saved the section from unconstitutionality.  Snyders J rejected the contention.  She held that:

“I am of the view that s 36(1) of the Act is not reasonably capable of the interpretation contended for by the respondents.  The words relied upon stand in the context of the entire subsection and merely create one exception to the provisions of the subsection.  They cannot be said to create a procedure for an application to the first respondent to suspend the obligation to pay, which gives rise to a right of review.

Even if this very benevolent interpretation is accepted, the rest of the provisions cannot be clearer in their meaning and effect, namely that no court of law, irrespective of the nature of the dispute which serves before it, has the power to suspend the obligation to pay.  Thus, also, if the review of a decision by the first respondent not to suspend the obligation to repay was a competent procedure, it would not have had the effect of suspending the obligation to pay, nor could the Court of review order that and the first respondent would still have been entitled to proceed to file the appropriate statement and act on it as if it were a civil judgment.  The meaning of the Act is that the obligation to pay remains intact: it cannot be suspended by a court of law but only by the first respondent.”

[41]	In this Court, counsel for the Commissioner once again argued that the discretion conferred upon the Commissioner by section 36(1) should be interpreted in the light of section 39(2) of the Constitution in a fashion that would promote the right of access to court and the protection of the right to administrative justice.  Accordingly it was argued that the exercise of that discretion would constitute administrative action as contemplated by section 33 of the Constitution and a refusal to accede to a request for the suspension of the obligation to pay would be reviewable before a court.

[42]	It has long been accepted that when the Commissioner exercises discretionary powers conferred upon him (or her) by statute, the exercise of the discretion constitutes administrative action which is reviewable in terms of the principles of administrative law.  Those principles were described in Johannesburg Stock Exchange and another v Witwatersrand Nigel Ltd and another as follows:

“Broadly, in order to establish review grounds it must be shown that the president failed to apply his mind to the relevant issues in accordance with the ‘behests of the statute and the tenets of natural justice’ . . . Such failure may be shown by proof, inter alia, that the decision was arrived at arbitrarily or capriciously or mala fide or as a result of unwarranted adherence to a fixed principle or in order to further an ulterior or improper purpose; or that the president misconceived the nature of the discretion conferred upon him and took into account irrelevant considerations or ignored relevant ones; or that the decision of the president was so grossly unreasonable as to warrant the inference that he had failed to apply his mind to the matter in the manner aforestated . . . Some of these grounds tend to overlap.” (Citations omitted)

[43]	When the interim Constitution came into force in April 1994, the normative basis of administrative law shifted.  Chaskalson P described this in Pharmaceutical Manufacturers Association of SA and Another : In re Ex Parte President of the Republic of South Africa and Others as follows:

“The interim Constitution which came into force in April 1994 was a legal watershed.  It shifted constitutionalism, and with it all aspects of public law, from the realm of common law to the prescripts of a written constitution which is the supreme law.  That is not to say that the principles of common law have ceased to be material to the development of public law.  These well-established principles will continue to inform the content of administrative law and other aspects of public law, and will contribute to their future development.  But there has been a fundamental change.  Courts no longer have to claim space and push boundaries to find means of controlling public power.  That control is vested in them under the Constitution, which defines the role of the courts, their powers in relation to other arms of government and the constraints subject to which public power has to be exercised.  Whereas previously constitutional law formed part of and was developed consistently with the common law, the roles have been reversed.  The written Constitution articulates and gives effect to the governing principles of constitutional law.  Even if the common law constitutional principles continue to have application in matters not expressly dealt with by the Constitution (and that need not be decided in this case), the Constitution is the supreme law and the common law, insofar as it has any application, must be developed consistently with it and subject to constitutional control.”  (Footnote omitted)

[44]	The Commissioner, in exercising the power under section 36, is clearly implementing legislation and as such the exercise of the section 36 power constitutes administrative action and falls within the administrative justice clause of the Constitution.   I cannot agree with Snyders J to the extent that she considered the exercise of the discretion conferred upon the Commissioner in section 36 of the Act not to be reviewable.   The Act gives the Commissioner the discretion to suspend an obligation to pay.  It contemplates, therefore that notwithstanding the “pay now, argue later” rule, there will be circumstances in which it would be just for the Commissioner to suspend the obligation to make payment of the tax pending the determination of the appeal.  What those circumstances are will depend on the facts of each particular case.  The Commissioner must, however, be able to justify his decision as being rational.  The action must also constitute “just administrative action” as required by section 33 of the Constitution and be in compliance with any legislation governing the review of administrative action.

[45]	Once the Commissioner has disallowed an objection an aggrieved vendor can appeal such decision.  What section 36 clearly does not do is place any impediment in the way of such an appeal, either to the Special Court or from its decision to an ordinary court of law.  The crucial point, however, is that the section expressly does not preclude a disgruntled vendor against whom an assessment has been made from resorting to a court of law for whatever other relief that may be appropriate in the circumstances.  Although the Act vests jurisdiction to vary or set aside assessments — and other decisions by the Commissioner — in the Special Court in the first instance (and prescribes the avenue for further consideration of the case by the ordinary courts thereafter), there is nothing in section 36 to suggest that the inherent jurisdiction of a high court to grant appropriate other or ancillary relief is excluded.  The section does not say so expressly nor is such an ouster necessarily implicit in its terms, while it is trite that there is a strong presumption against such an implication.  It follows that Snyders J erred in holding that:

“. . . the power of any court of law to provide an aggrieved vendor with interlocutory relief is clearly excluded irrespective of the merits or demerits of his case.”
[46]	Indeed, it has for many years been settled law that the Supreme Court has  jurisdiction to hear and determine income tax cases turning on legal issues.  Thus in Friedman and Others NNO v Commissioner for Inland Revenue: In re Phillip Frame Will Trust v Commissioner for Inland Revenue McCreath J was asked to resolve the legal question whether a testamentary trust was a person within the meaning of the Income Tax Act.  Having referred to half a dozen reported cases, four of them in the Appellate Division, where the existence of such jurisdiction was accepted without discussion, and one Prentice Hall report where the point was specifically considered, McCreath J concluded as follows as to his competence to determine the case:
[47]	

“I am in agreement with the finding of the Court in that case that where the dispute involved no question of fact and is simply one of law the Commissioner and the Special Court are not the only competent authorities to decide the issue — at any rate when a declaratory order such as that in the present case is being sought.”

The judgment was confirmed on appeal.  Although those cases concerned income tax and the Income Tax Act, not specifically VAT and the Act, there is no reason to doubt the applicability of the jurisdictional principle in the present — analogous — context.  Indeed, it is evident from a comparison of the sections that the drafters of the Act  borrowed freely from the Income Tax Act, the terminology of which is frequently echoed.

[48]	There is more recent and directly applicable authority for the proposition that, pending the resolution of disputes under the special appeal procedure provided by the Act, a superior court has jurisdiction to consider — and where appropriate grant relief — in VAT cases.  It is the judgment in the case of Contract Support Services (Pty) Ltd and Others v Commissioner, South African Revenue Services, and Others.  The applicants in that case, vendors against whom the Commissioner had made assessments and had then used the garnishment mechanism of section 47 of the Act to enforce payment, applied to the Witwatersrand High Court for urgent interlocutory relief against the Commissioner pending the resolution of their disputes in the Special Court.  Part of what they sought was an order reviewing and setting aside the assessments and freezing the situation pending the determination of that issue.  There was no suggestion that the Court’s jurisdiction to consider relief had been ousted by the Act.  On the contrary, the argument on both sides and the judgment implicitly accepted that the Court was empowered to issue an interim declaratory order pending the resolution of the contemplated application to review and set aside the relevant assessments.  Similarly in Shell’s Annandale Farm (Pty) Ltd v Commissioner, South African Revenue Service, an application for a declaratory order by a vendor who intended lodging objection under the Act to an assessment, a preliminary issue raised on behalf of the Commissioner was whether the High Court had the power to grant the order.  The learned judge, Davis J, in dismissing the Commissioner’s preliminary objection, referred to some of the cases mentioned above as well as to two further tax cases considered in the Appellate Division and one in the Cape Provincial Division where it was accepted that declaratory relief was competent in cases where a taxpayer wished to challenge an assessment.

[49]	It is therefore clear that any decision of the Commissioner to make a VAT assessment under section 31 and/or to levy additional tax under section 60, and not only a refusal by the Commissioner to grant relief under the power to do so vested in the office by section 36(1) of the Act (“unless the Commissioner so directs”), is subject to judicial intervention in certain circumstances.  The implacable interpretation of section 36(1) contended for in argument on behalf of Metcash and accepted by the learned judge in the High Court is not warranted.  Neither the injunction to pay first, regardless of a resort to the Special Court, nor the non-suspension provision is intended or has the effect of prohibiting judicial intervention.  Nor is there any hidden or implicit ouster of the jurisdiction of the courts to be found in section 36 as it stands.  That section, therefore, cannot be said to bar the access to the courts protected by section 34 of the Constitution.

[50]	Section 36 does not by relegating the specialised subject matter of the Act to the
[51]	
Special Court purport to oust the jurisdiction of the courts protected by section 34 of the Constitution.  In any event, by the very referral of cases to that specialist tribunal, the Act can be seen to have designated an independent and impartial tribunal specifically tooled to deal with disputed tax cases.  The Special Court operates to all intents like an ordinary court and has extensive powers to interfere with, amend or set aside decisions of the Commissioner.  Although the procedure is referred to in the legislation as an appeal, it is a full hearing more akin to a trial.  The relevant provisions of the Income Tax Act that establish the Special Court and prescribe its procedure, principally contained in section 83 thereof, are eminently fair and afford a dissatisfied vendor more than a merely formal right of appeal.  The court is presided over by a judge, who sits with an accountant and a representative of the business community.  There is a right to legal or other expert representation, to adduce evidence and to challenge or rebut adverse evidence in a full-blown trial on the issues raised in the taxpayer’s notice of appeal.  Withal, therefore, a hearing before the Special Court meets the criteria of section 34 of the Constitution.  It should also be noted that only the first level of adjudication of tax disputes takes place outside the normal forensic hierarchy.  There is an unqualified right of appeal from the hearing at the first level in the Special Court to either a full bench of a high court or, if the presiding judge so directs, to the Supreme Court of Appeal.

[52]	It follows that none of the grounds for contending that section 36(1) of the Act falls foul of the constitutionally protected right of access to the courts can be supported.  In relation to a vendor who is aggrieved by an assessment by the Commissioner under section 31, or by the imposition of additional tax under section 60 of the Act, such right is not impaired by section 36(1) of the Act. 

The challenge to section 40(2)(a) and (5)

[53]	What then of the other two impugned provisions, sections 40(2)(a) and (5)? Subsection (2)(a), it will be recalled, allows the Commissioner to file a document with the clerk or registrar of a competent court, which then has the effect of a civil judgment in the Commissioner’s favour for a liquid debt.  Undoubtedly the provision creates a short-cut.  The Commissioner need not cause the issue of court process initiating a claim for judicial enforcement of a debt, as is normally the case where a creditor seeks to recover a debt. There need not be service of process summoning the debtor to court to answer to the claim, as happens in ordinary litigation.  There is no scope for opposition, nor for a hearing of sorts to resolve disputes.  But the indictment against section 40(2)(a) — and the finding of the High Court — is not that it short-circuits the judicial process in these or other respects.  The analysis founding the order of invalidation of the subsection was that the procedure it permits the Commissioner to employ, like that condemned in the Lesapo case, constitutes a form of self-help which by-passes the courts of the land. 
[54]	The statutory provision condemned in Lesapo expressly empowered the Bank, “without recourse to a court of law”, to attach and sell up the assets of its defaulting debtors through its own agents and on such conditions as the Bank’s board of directors might determine.  The thrust of the criticism which founded the invalidation of the section in question was, as Mokgoro J makes quite clear, that it infringed section 34 of the Constitution and breached the rule of law by sanctioning self-help: the Bank was permitted to be the judge in its own cause.  In two more recent cases similar powers vested in the Land and Agricultural Bank of South Africa were likewise struck down as impermissible infringements of section 34 of the Constitution.  Mokgoro J once again made plain that the fundamental objections against this kind of provision were:

“It permits the Land Bank to bypass the courts and gives it sole discretion over the conditions of sale.  This procedure, unlike the ordinary civil process of execution, allows the Land Bank to take the law into its own hands and serve as judge in its own cause.  The Act also authorises it to usurp the inherent powers and functions of the courts by deciding its own claims and relief.”  (Footnotes omitted)

[55]	That is neither what section 40(2)(a) of the Act says, nor what it implies.  On a plain reading of its words, the provision expressly contemplates the involvement of the courts.  In contradistinction to the self-initiated, self-driven and self-supervised mechanism involved in Lesapo and the two cases following it, the execution process created by section 40(2)(a) of the Act specifically goes via the ordinary judicial institutions.  It requires the intervention of court officials and procedures.  The subsection, by saying that once the Commissioner’s statement has been filed it has “all the effects . . . of a civil judgment”, quite unequivocally includes by reference the whole body of legal rules relating to execution.  Filing the statement sets in train the ordinary execution processes of the particular court.  Execution in the high courts is primarily governed by rules 45, 45A and 46 of the Uniform Rules of Court, and in the magistrates’ courts by rule 36 and following of the rules of those courts.  Whether and to what extent the rules of court and the myriad of common law and judge-made ancillary rules relating to execution have to be adapted to fit this particular process, need not be determined here.  The substance of the matter is that the ordinary civil process of execution is employed; and the Commissioner is not authorised to usurp any judicial functions.  Manifestly section 40(2)(a) of the Act is a far cry from the kind of open ticket to self-help condemned in the Lesapo and kindred cases.

[56]	Indeed, in a particular sense, section 40(2)(a) of the Act is the direct reverse of the provision found constitutionally unacceptable in Lesapo.  Here we have an administrative decision fixing liability for a statutory debt on the part of a vendor which, in terms of the scheme of the Act, cannot be executed upon otherwise than by involving the judiciary.  In Lesapo this Court was concerned with a contractual debt which could be executed upon domestically without involving the judiciary.  The two statutory provisions, far from being closely similar, are virtually diametrical opposites.

[57]	That leaves the third of the impugned sections, section 40(5) of the Act.  It relates in terms to the certified statement permitted by section 40(2)(a) and is clearly intended as a back-up to it.  The language is clear and the intention plain: in proceedings based on such a section 40(2)(a) certificate the taxpayer’s scope for challenge is limited.  Yet, on that very language, the limitation is not as sweeping as counsel’s argument would have it.  In the first place section 40(5) does not purport to bar legal proceedings by a vendor/taxpayer against whom the Commissioner has lodged a section 40(2)(a) certificate.  On the contrary, the subsection expressly contemplates the possibility of such proceedings and was inserted to limit the rights of a vendor in those very circumstances.   Therefore, although the subsection is couched in broad and general language — “any person”, “proceedings”, “in connection with” — it pertinently limits possible grounds for challenge but does not prohibit litigation.  Not only is that the tenor of the provision but it is as well to remember that we are engaged in the interpretation of a taxation statute, where verbal precision is essential.  Nothing that is not stated is to be read in, especially not an element as important as an ouster.

[58]	In the second place the prohibition is specifically narrowly focussed on the correctness of the assessment.  Looking fairly at the language the meaning of the subsection is quite clear.  The prohibition is aimed at “the correctness of any assessment”.  Reading the prohibition as striking at a challenge to the assessment itself overlooks the words “the correctness of”, which identify the essential core in the prohibition.  That is that “[i]t shall not be competent . . . to question the correctness of any assessment upon which such statement is based, notwithstanding . . . objection and appeal . . . ”.  The sole purpose of the words “the correctness of”is to qualify — and hence limit — the scope of the prohibition; and the result of the limitation they bring about is that a vendor remains free to raise any challenge to the assessment or the certificate falling outside the purview of the circumscribed prohibition.

[59]	A prohibition which specifically bars challenges to the correctness of the assessment, as distinct from barring other disputes foundational to, arising from or otherwise relating to it, makes perfectly good sense.  A special tribunal has been created to adjudicate upon objections by vendors and has been given the tools to thrash out any factual disputes relating to the calculation of VAT returns and supervening assessments. Objectors ought therefore to be precluded from entering into the kind of factual debate inevitably entailed in challenging the correctness of assessments made under section 31 of the Act, which can and should be thrashed out in the Special Court.  Having regard to the nature of VAT and its system of primary self-assessment, disputes about the correctness of assessments made by the Commissioner are likely to involve complicated and contentious issues of fact.  As has been observed about the special nature of VAT and VAT returns, assessment under section 31 is tantamount to a finding by the Commissioner that the returns rendered by the vendor have not been truthful.  Credibility disputes of this kind belong in the Special Court where the procedure is geared to deal with them.

[60]	But whatever other defences a vendor may wish to raise are left undisturbed by section 40(5) of the Act.  And it is notorious that the field of tax law can and often does raise a whole panoply of procedural or substantive issues derived from one or more of the individually complex and usually interlocking fields of law involved in tax disputes.  They remain at the disposal of the aggrieved vendor against whom the Commissioner has put in motion the special weaponry of the fisc contained in section 40 of the Act.  The dividing line between challenges that are permissible under section 40(5) and those that are not may at times be faint; but the distinguishing principle is clear and will have to be applied on a case-by-case basis.

[61]	Section 40(5) of the Act can therefore not be said to constitute, on its own, a complete bar to legal proceedings by a vendor with a view to obtaining some form of relief in relation to an impending judgment in favour of the Commissioner under section 40 of the Act.  Nor can it have that effect if read in conjunction with section 40(2)(a).  There is no holistic magic that renders their combined effect greater than that of the component parts.  The first provision puts the machinery of the courts at the disposal of the Commissioner as a process in aid of enforcing payment of VAT and ancillary imposts claimed by the revenue authorities pursuant to the exercise of administrative powers; the latter excludes a specific category of — usually disruptive — potential defences in such process.

[62]	In this context a different and distinctive point of substance should be made.  That is that however restrictive of a vendor’s possible claim for relief section 40(5) of the Act may be, its effect is temporary only.  The scheme of the Act is that sections 33, 33A and 34 provide an aggrieved vendor ample opportunity for fair judicial determination in due course of any dispute with the Commissioner arising out of the exercise of the latter’s powers to impose tax liability by assessment or associated impost.  The Act can therefore not be said to constitute a complete bar to access to the courts; at most it obliges the taxpayer to pay the disputed amount(s) subject to appropriate restitution, with interest, once the judicial dispute resolution process has run its course.  Moreover, having regard to the fundamental nature of VAT and the painstakingly detailed mechanism provided by the Act for calculating, collecting, recording and regularly transmitting VAT by vendors, an amount assessed by the Commissioner under section 31 is in the nature of a liquidated debt.

[63]	The applicant argues that to the extent that section 40(5) does limit access to a court prior to the full airing of the issues before the Special Court and does prevent a disgruntled taxpayer from obtaining interdictory relief to suspend the operation of the “pay now, argue later” rule, it is in breach of section 34 of the Constitution.  I am prepared to assume in favour of Metcash for the purposes of this judgment that section 40(5) does occasion such a limitation.  The question that then arises is whether that limitation is justifiable in terms of section 36 of the Constitution.

[64]	In considering justification it is important to remember that the limitation under section 40(5) is limited in its scope, temporary and subject to judicial review.  There are three additional features.  First, the public interest in obtaining full and speedy settlement of tax debts in the overall context of the Act is significant.  In their affidavits the Commissioner and the Minister mentioned a number of public policy considerations in favour of a general system whereby taxpayers are granted no leeway to defer payment of their taxes.  These are in any event well-known and self-evident.  Ensuring prompt payment by vendors of amounts assessed to be due by them is clearly an important public purpose.  As stated earlier, the scheme of VAT instituted by the Act is a complex one which relies for its efficacy on self-regulation by registered vendors and regular periodic payments of VAT.  Requiring them to pay on assessment prior to disputing their liability is an essential part of this scheme.  It reduces the number of frivolous objections and ensures that the fiscus is not prejudiced by the delay in obtaining finality.  Section 40(5) plays an important role in this scheme.  In order for a “pay now, argue later” scheme to work, it is necessary that the Commissioner is able to obtain execution against a taxpayer without having first to air the subject matter of the objection which will be adjudicated upon by the Special Court in due course.  There is therefore a close connection between the overall purpose of the “pay now, argue later” rule and the effect of section 40(5).
[65]	
[66]	Secondly, the principle “pay now, argue later” is one which is adopted in many open and democratic societies.  In many of these jurisdictions, as well, some scheme for immediate execution against a taxpayer is provided to ensure that the rule is efficacious.  Given its prevalence in many other jurisdictions, it suggests that the principle is one which is accepted as reasonable in open and democratic societies based on freedom, dignity and equality as required by section 36.

[67]	Thirdly, the effect of the rule on individual taxpayers is ameliorated by the power conferred upon the Commissioner to suspend its operation.  The rule is not absolute but subject to suspension in circumstances where the Commissioner considers it appropriate.   The exercise of this power by the Commissioner constitutes administrative action within the contemplation of section 33 of the Constitution and as such is reviewable as discussed above.  The existence of this discretionary power therefore reduces the effect of the principle “pay now, argue later” in an appropriate manner.  In all these circumstances, therefore, I am persuaded that even if the effect of section 40(5) constitutes a limitation on the right entrenched in section 34 of the Constitution, it is a limitation which is justifiable within the meaning of section 36.
[68]	A further challenge to these provisions warrants consideration, albeit in passing.  It was contended in argument that one must look pragmatically and not theoretically at the challenged sections and must gauge their effect jointly and contextually, especially in conjunction with section 42.  In a sense that appears to have been the underlying reasoning of Snyders J in the High Court and it would be as well to consider it at this juncture.

The combined effect of sections 36(1), 40(2), 40(5) and 42

[69]	The suggestion was that subsections 40(2)(a) and (5), seen against the backdrop of section 36(1) and read together with section 42, so effectively nobbles the vendor who wishes to challenge adverse assessments de hors the statutory appeal procedure, that it really ousts the jurisdiction of a court of law once the Commissioner has filed the certified statement with the registrar or clerk of the court.  In substance, so the argument ran, the filing of the statement under section 40(2)(a) does not really entail a resort to a court of law to levy execution, but is a mere administrative step aimed at facilitating the extra-judicial recovery of tax: the trappings of a judicial process are used to afford the enforcement a semblance of legitimacy.
[70]	However, there is clear judicial authority to the contrary in the analogous procedure under the corresponding — and virtually identically worded — provisions of the Income Tax Act.  The authority arose in the context of a forensic war of attrition conducted for some fifteen years by a Mr Kruger with the revenue authorities relating to estimated assessments and additional tax levied on him.  The numerous court battles included an application for rescission of a “judgment” obtained by the revenue in the magistrate’s court on a certified statement by the Commissioner under section 91(1)(b) and (2) of the Income Tax Act.  The magistrate ruled that the judgment was not susceptible to rescission under section 36 (read with rule 46) of the Magistrates’ Courts Act as it was not truly a judgment but merely a step in an administrative procedure.  On appeal the Supreme Court held that the judgment was a judgment for the purposes of section 36 of the Magistrates’ Courts Act and was indeed susceptible to rescission under that section, e.g. because it had been taken by default or that it had been obtained by fraud or mistake common to the parties.

[71]	That finding was considered and approved by the Appellate Division in a later attempt by Kruger to have the original imposition of additional tax set aside on a variety of procedural grounds.  Of particular importance in the context of the present discussion is the careful analysis by Jansen JA of counsel’s argument that a “judgment” pursuant to section 91(1)(b) of the Income Tax Act (the forerunner of section 40(2) of the Act) did not block a claim for restitution.  In the course of considering the finality of that statutory “judgment” the learned judge examined the “conclusive evidence” provision in section 94 of the Income Tax Act (the precedent for section 42 of the Act), which ostensibly prohibits a challenge to an assessment backed by the Commissioner’s certified statement. He concluded that, notwithstanding section 94,

“. . . bly daar dus ’n wye veld vir verweer oop by ’n aansoek om tersydestelling van die ‘vonnis’.”

The observation not only signifies that section 42 is no bar to an application for rescission once a judgment has been entered under section 40(2) of the Act, but necessarily implies that a “wide field of defences” would be available to the taxpayer who wishes to pre-empt the entry of such judgment.

[72]	The reasoning in the Kruger cases links up with the views expressed in the judgments discussed above in connection with section 36.  These views point consistently to the conclusion that none of the sections challenged, either singly or in combination, constitutes a constitutionally offensive limitation of the right of access to the courts that is guaranteed by section 34 of the Constitution.  In other words the “pay now, argue later” rule applicable to a vendor who is aggrieved by an assessment under our VAT legislation does not infringe such vendor’s constitutional right to due adjudication or if it does, the limitation is justified.  In the result I cannot agree with the learned judge in the High Court with regard to either infringement by or justification of the sections in question.  Likewise the opinion as to the constitutional justifiability of an enforcement mechanism in the Income Tax Act expressed by Wunsh J in Hindry’s case, which Snyders J regarded as obiter and which this Court referred to but left open in Lesapo, is once again left open.  The provision that was considered in Hindry’s case in any event differs quite materially from those in issue in this case and no purpose would be served by discussing it further.

[73]	What cannot be left there, however, is the belief that was common to the parties in both courts and that coloured the approach and conclusion of the learned judge in the High Court.  The three provisions in question, section 36(1), section 40(2)(a) and section 40(5) of the Act, are found to pass constitutional muster because they do not bear the meaning ascribed to them in terms of the common belief.  Not one of these sections means, nor do any of them read together mean, that a vendor aggrieved by an assessment or other decision of the Commissioner is precluded from seeking appropriate judicial relief, notwithstanding that an appeal under the Act may be pending, whether to the Special Court or against its judgment.  However, the nature of the relief that could be afforded is limited by the provisions of sections 40(5) and 42 to the extent discussed above.

[74]	The variety of VAT-contentious circumstances that may arise in the affairs of VAT vendors is infinite and their range of legal constructions equally limitless.  It would therefore be foolish to try to delineate with any pretence at ultimate accuracy where in a given case the dividing line between permissible interlocutory relief and unwarranted impairment of the “pay now, argue later” rule should be found to lie.  Over the years the courts have managed to draw the analogous line in income tax cases, where a closely similar division exists between the discrete but supplementary — and occasionally overlapping — jurisdictions of the Special Court and the ordinary courts.  It is a decision that will continue to be made in the unique circumstances of each particular case.

[75]	This much can be said, however.  Because the very basis of VAT is that it is the vendor that calculates, collects and pays over the tax on each transaction, and because each such payment must be backed by the vendor’s records and vouchers, the scope for  factual disputes in good faith is very limited indeed.  Therefore the formal constraints of sections 40(5) and 42 of the Act add little to the limitations inherent in the VAT system.  Even if one thinks away these two provisions, a vendor seeking to establish a basis for interim relief against an assessment pending the resolution of the underlying factual dispute in the Special Court, will in practice have a formidable hurdle to surmount.  The very assessment would postulate that the vendor’s records had been found untruthful by the revenue authorities and very unusual circumstances would be necessary before a court would intervene in any way in the dispute resolution mechanism created by the Act.

[76]	But that does not mean that a court is prohibited from hearing an application for interlocutory relief in the face of a pending VAT appeal, or from granting other appropriate relief.  Nor does it mean that the jurisdiction is theoretically extant but actually illusory.  A court would certainly have jurisdiction to grant declaratory relief to such a vendor if, for instance, it were to be alleged that the Commissioner had erred in law in regarding the applicant as a vendor; or had misapplied the law in holding a particular transaction to be liable to VAT; or had acted capriciously or in bad faith; or had failed to apply the proper legal test to any particular set of facts.  There are as many examples as can be contemplated in the wide field of administrative law defences, to paraphrase Jansen JA in Kruger’s case.  In particular the vendor may take on review a decision by the Commissioner under section 36(1) of the Act refusing to suspend the “pay now, argue later” principle.  Moreover, a vendor would now be able to found a cause of action for interim relief on any appropriate constitutional ground as well.

Summary
[77]	The first three issues identified above have now been analysed.  This analysis indicates that sections 36(1), 40(2)(a) and 40(5) of the Act do not oust the jurisdiction of the courts of law.  To the extent that it can be argued that section 40(5) does indeed limit an aggrieved vendor’s access to an ordinary court of law, such limitation is justified under section 36 of the Constitution.

[78]	Little need be said with regard to the contention on behalf of Metcash that the power vested in the Commissioner under section 60 of the Act to impose additional tax is a form of punishment, and therefore trespasses on the exclusive terrain of the judiciary.  The validity of section 60 did not form part of the debate in the court of first instance, does not figure in the invalidation order made there, and consequently cannot be considered by this Court.  We are concerned here with proceedings under section 172(2) of the Constitution for the confirmation or otherwise of the order made by Snyders J.
[79]	

Order
[80]	In terms of sections 167(5) and 172(2)(a) the Court declines to confirm the order made in the Witwatersrand High Court declaring sections 36(1), 40(2)(a) and 40(5) of the Value-Added Tax Act 89 of 1991 invalid.

Chaskalson P, Langa DP, Goldstone J, Madala J, Mokgoro J, O’Regan J, Ngcobo J, Sachs J, Yacoob J and Cameron AJ concur in the judgment of Kriegler J.

On behalf of the Applicant		:	MJD Wallis SC and PF Louw instructed by Fluxman Rabinowitz Raphaely Weiner.

On behalf of the Respondents	:	GJ Marcus SC and AR Bhana instructed by the State Attorney, Johannesburg.

IN THE SUPREME COURT OF APPEAL
 OF SOUTH AFRICA

	 CASE  NO: 23/2003 

In the matter between :

ESTATE R F WELCH	Appellant

and

COMMISSIONER FOR THE SOUTH AFRICAN REVENUE SERVICE	 Respondent
___________________________________________________________________________

Coram:	MARAIS, ZULMAN, NUGENT, CONRADIE et CLOETE JJA
Heard:	11 MARCH 2004
Delivered:      	21 MAY 2004
Donations Tax – Whether exigible  on value of assets settled upon trust primarily to enable trustees to discharge settlor’s maintenance obligations in terms of an order for divorce incorporating a consent paper which provided for the establishment of such trust. Order to be found in para [73]. ___________________________________________________________________________

J U D G M E N T

___________________________________________________________________________

	MARAIS JA/

MARAIS JA:
[1]	The issue in this appeal is whether, in the particular circumstances of the case, the disposal of assets to a trust amounted to a donation upon which donations tax is payable. The Special Income Tax Court presided over by Foxcroft J held that it was not. A full court of the Cape High Court (Davis J with Selikowitz and Van Reenen JJ concurring) reversed the finding but granted leave to appeal to this court. The decision is reported at 2003 (1) SA 257 (C).
[2]	The facts:
Mr R F Welch married twice. There was a child born of each marriage. His second marriage was dissolved by a decree of divorce granted to him on 25 October 1996. The action was unopposed because the parties, each represented by attorneys, had negotiated at arm’s length an agreement (‘the consent paper’) which governed such matters as property rights, maintenance for Mrs Welch and maintenance for the minor child, T., born of the second marriage. The consent paper entailed the setting up by Mr Welch of a trust and the transfer to it of assets to enable the trustees to fulfil the obligations to be undertaken by them. The primary obligation of the trustees was to ensure that the provisions of the consent paper which had been made an order of court were implemented. The terms upon which the trust was to be established were set out in an annexure to the consent paper.
[3]	It is not necessary to do more than to summarise the import of the consent paper and the trust deed. The consent paper ‘recognises (Mr Welch’s) legal obligation to pay rehabilitative maintenance to defendant (Mrs Welch) as well as to contribute towards the maintenance of the parties’ minor child, T.’. It provided that ‘(i)n discharge thereof’ Mr Welch would settle certain assets upon a trust to be created ‘with the specific intention of providing income’ for the purposes thereafter set out in the consent paper. Mrs Welch was to be paid R4 500,00 per month for 60 months or until her death or remarriage whichever should occur first. The cost of a hospital plan to be taken out for her benefit for as long as maintenance was payable to her was to be deducted from the amount of R4 500,00. The maintenance payable was to increase each year by a percentage equal to the percentage increase in the urban weighted average of the consumer price index.
[4]	The minor child, T., was to receive a contribution towards his maintenance until he reached the age of 21 years or became self-supporting, whichever occurred first. The amount was R1 000,00 per month (to be paid to his mother) and was to be increased annually in the same manner as his mother’s maintenance was to be increased. In addition all school fees, school uniforms, school books, extramural activities, stationery and equipment had to be paid for. So did all medical, dental, pharmaceutical, ophthalmologic  and related medical expenses. If the child showed an aptitude for tertiary education he was to be maintained until he had completed his tertiary study notwithstanding that he might have attained the age of 21 years.
[5]	In the event of the trust being unable to meet these obligations, ‘or any portion thereof’, to Mrs Welch or the minor child, T., the obligations were to revert to Mr Welch. His obligations under the consent paper were declared to be binding upon his estate.
[6]	Mrs Welch was to retain a property situate at Bergvliet, its contents, and a Toyota Corolla motor car all of which assets were recorded to have been financed exclusively by Mr Welch. As consideration ‘for the assets and maintenance settled upon her’ in terms of the consent paper, Mrs Welch waived in favour of the minor child, T., her right to any income or benefit which might  have  accrued  or  might  in  the  future  accrue  to  her  from  another  trust, the R F Welch Family Trust. Mr Welch  was  also  bound  to  repay  to  the P F Hofmeyer Trust a loan of R30 000,00 made by it to him to assist him in acquiring the Bergvliet property for Mrs Welch.
[7]	The trust deed was signed on 19 November 1996. It recorded that Mr Welch was obliged in terms of the consent paper and order of court ‘to make a settlement for the purposes and on the terms and conditions recorded in this Trust Deed’. It created ‘The Carom Trust’ and vested in the trust all of Mr Welch’s shares in NO Welch Engineering (Pty) Ltd, his half-share of two erven at Ottery in the Cape and his one-third share in another erf at Ottery. The value of the assets was R3 216 760,00. Mr Welch undertook to transfer the assets to the trust ‘subject to the terms, conditions and provisions of this Trust Deed’. The trust was empowered to accept additional amounts in the future ‘on the same terms and conditions and for the purposes set forth in this Trust Deed’.
[8]	A complicating factor is that the trust deed went further than simply providing for fulfilment by the trustees of the obligation to pay maintenance for Mrs Welch and the minor child, T.. It created income beneficiaries and capital beneficiaries some of whom were not persons to whom maintenance obligations were owed in terms of the consent paper. While both Mr and Mrs Welch and the children born of Mr Welch were beneficiaries, their rights were not similar in all respects.
[9]	As far as income was concerned, Mrs Welch and the minor child, T., were entitled to have the ‘amounts due in terms of the consent paper’ paid before any distribution of income to them or to Mr Welch and his other children. It seems reasonably clear from this that there could be further distributions of income over and above that distributed to meet the obligations spelt out in the consent paper. Those further distributions might be made to one or more or all of the named beneficiaries. The trustees were empowered to pay to beneficiaries from the trust’s income amounts for, inter alia, ‘such purposes as may, in the sole and absolute discretion of the trustees be for the benefit or in the interest of the Beneficiary concerned’.
[10]	However, the trustees were also empowered to accumulate, until the vesting date when capital became payable to the capital beneficiaries, the income of the trust without paying it or any part of it to the income beneficiaries. That did not mean that they did not have to settle the maintenance obligations due in terms of the consent paper to Mrs Welch and T.; it simply meant that they were not obliged to distribute any further income to them or to any other income beneficiaries in their capacity as beneficiaries.
[11]	Any income so accumulated had to be held ‘as part of the capital of the Trust for all the purposes’ of the trust but the trustees were empowered to apply ‘the whole or any part or parts of the said accumulations as if the same were income arising in the then current year’.
[12]	The capital (which could of course have grown or have been diminished by the vesting date) was to be distributed to the capital beneficiaries on the vesting date stipulated in the trust deed. The capital beneficiaries were Mr Welch’s children. That date was either the date upon which the youngest of any children born to Mr Welch attained the age of 30 years or such date as might be elected by the unanimous decision of the trustees. If at the date elected by the trustees any capital beneficiary was not yet 30 years of age the capital payable to him or her had to continue to be held in trust until that age was attained. That notwithstanding, the trustees were empowered to make premature payments of capital and/or income to such a beneficiary ‘for such reasons and for such purposes as the trustees in their sole and entire discretion shall determine’.
[13]	The net effect of these provisions was this. The trustees were obliged in law to fulfil the maintenance obligations to Mrs Welch and the minor child, T., which Mr Welch had undertaken in terms of the consent paper. The consequence of that was that for so long as they did so, they would be discharging Mr Welch’s obligations to Mrs Welch and T. under the consent paper.
[14]	Mr Welch was to transfer assets to the value of R3 216 760,00 to the trust. He did not agree to do so because he intended to make a gift of those assets to the trustees to be used as they saw fit. He agreed to do so for two purposes. The primary and dominant purpose was to enable the trustees to fulfil the maintenance obligations which he had undertaken in terms of the consent paper. He was obliged to set up a trust for that purpose. Pragmatically, the secondary purpose was necessitated by the first. It was inherent in the situation that there might be more income generated in the trust than was required to achieve the primary purpose and that there might be capital remaining after the obligations arising from the consent paper had been discharged. Some provision would have had to be made to cater for that contingency. The ultimate destination of those funds could not have been left in the air.
[15]	What Mr Welch did to cater for those contingencies was to empower the trustees to use income for the benefit of himself and Mrs Welch and his children. In the case of Mrs Welch and T. the exercise of such a power would mean of course that they would receive income over and above that which they were entitled to receive in fulfilment of the obligations arising from the consent paper.
[16]	As to capital, Mr Welch could of course legitimately have stipulated that any capital remaining after the primary purpose had been achieved should revert to him. Instead, he stipulated that it should go to his children. Herein lies the complication which tends to cloud the analysis of what was intended and what was done. Such an analysis is essential in order to determine whether the transfer of assets to the trust was a donation attracting liability for donations tax.
[17]	Unfortunately, before transfer of the assets had taken place, Mr Welch died on 16 December 1996. His executors regarded the obligations undertaken by him in terms of the consent paper to be binding upon his estate (‘the estate’) and they caused assets to be transferred to the trust in the manner contemplated in the consent paper.
[18]	The respondent sought initially to tax the estate upon the value of the assets settled upon the trust upon the premise that estate duty was payable. Correspondence between the estate and the respondent ensued and it led to a change in stance by the respondent. His contention then became that the entire settlement was a donation to the trust within the meaning of s 54 of the Income Tax Act 58 of 1962 (‘the Act’) and that donations tax on the whole of the value of the assets (R3 216 760,00) was payable by the trust. The Special Income Tax Court rejected the contention.
[19]	The basis on which the full court reversed the judgment of the Special Income Tax Court was, in my opinion, wrong. It interpreted the definition of ‘donation’ in s 55 (1) of the Act as requiring an identifiable quid pro quo or consideration to be given by the trustees for the assets settled upon the trust if the transfer of the assets was to escape being labelled a donation. It considered that there was none given by the trustees and consequently that a donation as defined to the trustees had taken place. It concluded that donations tax was therefore payable upon the value of the assets transferred to the trust.
[20]	The charging provision is s 54 of the Act. It reads: ‘Subject to the provisions of section 56, there shall be paid for the benefit of the National Revenue Fund a tax (in this Act referred to as donations tax) on the value of any property disposed of (whether directly or indirectly and whether in trust or not) under any donation by any resident (in this Part referred to as the donor).’

[21]	The word ‘donation’ is defined in s 55 (1). It ‘means any gratuitous disposal of property including any gratuitous waiver or renunciation of a right’. The word ‘donee’ is also defined. It ‘means any beneficiary under a donation and includes, where property has been disposed of under a donation to any trustee to be administered by him for the benefit of any beneficiary, such trustee: Provided that any donations tax paid or payable by any trustee in his capacity as such may, notwithstanding anything to the contrary contained in the trust deed concerned, be recovered by him from the assets of the trust’. The word ‘property’ is defined in s 55 as meaning ‘any right in or to property movable or immovable, corporeal or incorporeal, wheresoever situated’.
[22]	Some preliminary observations are appropriate. The test to be applied at common law to determine whether the disposition of an asset amounts to a donation properly so called (as opposed to a remuneratory donation) is so well-settled that it hardly needs repetition. The test is of course that the disposition must have been motivated by ‘pure liberality’ or ‘disinterested benevolence’. As it was put in De Jager v Grunder, ‘Was die dryfveer iets anders as suiwer vrygewigheid  en welwillendheid jeens die eiser, was dit geen skenking nie.’ Furthermore, there is a presumption against donations in our law.
[23]	It is a question to what extent the definition of ‘donation’ in s 55 (1) of the Act differs in any material respect from the common law concept of a donation. It is also a question whether the definition of ‘donee’ in the same section is to play any role in the interpretation of the definition of ‘donation’. There is no reference  in  either  the  charging section (s 54) or the definition of ‘donation’ (s 55 (1)) to the word ‘donee’. 
[24]	It seems to me that the relevance of the definition of the word ‘donee’ arises only after it has been determined that there has been a donation within the meaning of s 54 read  with  the  definition  of  the  word ‘donation’ in s 55 (1). To do otherwise would be to put the cart before the horse. The definition of ‘donee’ would become relevant then only to determine who is to be regarded as the donee in cases where a trustee has been interposed between the donor and the intended beneficial recipient of the donation. In such a case the effect of the definition of ‘donee’ is to deem the trustee rather than the beneficiary to have benefited from the donation, even although the trustee obviously has not, and to render the trustee jointly and severally liable with the donor for the donations tax payable if the donor has not paid it within the prescribed period of three months from the date upon which the donation takes effect.
[25]	Consistently with the effect of the latter provision (deeming the trustee to be the donee) s 56 (1) (e) of the Act exempts from donations tax property disposed of under a donation ‘if such property is disposed of under and in pursuance of any trust’. The obvious purpose of this provision is to avoid donations tax being levied twice upon what was in essence one donation by the donor.
[26]	CIR v Estate Hulett is authority for the proposition that the definition of ‘donation’ in s 55 (1) is not synonymous with the common law concept of a donation. In that case Friedman AJA said: ‘The word “donation” has acquired under our law the meaning of a gratuitous disposal of property prompted by motives of sheer liberality or disinterested benevolence …. .’ I cite this passage because of the concatenation of the words ‘gratuitous disposal’ and ‘sheer liberality or disinterested benevolence’. It suggests to me that the latter words are intended to be elucidatory of the word gratuitous and not antithetical to it. In his work on income tax Meyerowitz has suggested that ‘It can be said that because of the definition of donations in the Income Tax Act, the aspect of pure liberality or disinterested benevolence is not required’ and that the decision in Hulett’s case provides support for that view.
[27]	I do not agree with either the proposition or the suggestion that the decision in Hulett supports it. In the passage cited by Meyerowitz the learned judge was not purporting to decide any such point. He was simply rejecting an argument that the definition of the word ‘donation’ in one Act could be applied in a different Act where it was undefined. In what particular respect or respects the word as defined differed from the undefined word he did not purport to decide. He merely said that the common law meaning of the word had a meaning ‘differing substantially from the statutory definition sought, by the argument, to be attributed to it’.
[28]	Nor do I read the decisions in CIR v Kohler Estateand Estate Furman and Others v CIRas deciding that a gratuitous disposal of property can exist without an accompanying motive of sheer liberality or disinterested benevolence. Those decisions were concerned solely with the meaning of the word ‘disposition’ in the provisions under scrutiny in those cases.
[29]	In ITC No 1545 the Cape Special Income Tax Court regarded it as so obvious that the word ‘gratuitous’ in the definition of the word ‘donation’ did not eliminate the need to enquire into the motive with which the disposal was made, that it did not regard it as necessary to provide any reasons for so thinking. I share that view and provide reasons only because the contrary was argued before us. 
[30]	In my opinion the legislature has not eliminated from the statutory definition the element which the common law regards as essential to a donation, namely, that the disposition be motivated by pure liberality or disinterested benevolence and not by self-interest or the expectation of a quid pro quo of some kind from whatever source it may come. 
[31]	If one were to scour the dictionaries to find a single word apt to convey that the disposition should be motivated by pure liberality and not in expectation of any quid pro quo of whatever kind, one would not find a better or more appropriate word than ‘gratuitous’. The shorter OED gives the following meaning to the word: 
‘1.	Freely bestowed or obtained; granted without claim or merit; costing nothing to the recipient; free.
2.	Done, made, adopted or assumed without any good ground or reason; uncalled for; unjustifiable.’
[32]	The ordinary meaning of that word in the context of the making of a disposition includes, I suggest, ‘without obligation’; ‘for no return’; ‘without any quid pro quo being given or expected’. None of those meanings is incompatible with the co-existence of a motive of pure liberality or disinterested benevolence. On the contrary, they are indicative of the co-existence of just such a motive. If the legislature wished to alter the meaning which the common law assigns to the word donation in that particular respect it could not have chosen more inappropriate language to achieve that objective.
[33]	When the legislature intended to treat as if they were donations, disposals of property which were not when judged by common law standards, it expressed itself plainly. Thus s 58 of the Act deems to have been disposed under a donation a disposal of property for a consideration, which, in the opinion of the Commissioner, is not an adequate consideration, provided that in determining the value of the property a reduction must be made by an amount equal to the value of the consideration.
[34]	Here, unlike s 54 and the definition of ‘donee’ in s 55 (1), the words ‘under a donation’ do not qualify the words ‘where any property has been disposed of’ in s 58. It follows that the definition of ‘donation’ in s 55 (1) plays no role in interpreting or giving effect to the provision in s 58. It is thus clear, in applying this provision, that the motive for the disposal is irrelevant; it is simply a question of whether the consideration given for a disposal of property (whatever the motive) was, in the opinion of the Commissioner, adequate.
[35]	There has been no such clarity of expression in the definition of ‘donation’ in s 55 (1). In my view, it is entirely consistent with a legislative  intention not to depart from the common law conception of a donation in that particular respect. To the extent that the definition may be ambiguous (and I do not think it is) it would of course have to be interpreted contra fiscum.
[36]	It may perhaps be suggested that abandonments and other possible modes of disposing of property may be gratuitous but that they are not necessarily accompanied by motives of pure liberality or disinterested benevolence and that they would therefore be hit by the definition of donation. Where the abandonment takes the form of consignment to a rubbish bin I grant that an accompanying motive of pure liberality or disinterested benevolence is not easy to discern. (Possibly the raiders of rubbish bins may be the intended beneficiaries but that seems fanciful.) The true answer lies, I think, in the context of the definition read with the Act. It contemplates the existence of another person in whom the property disposed of is intended to vest or (in the case of waiver or renunciation of a right) a person whose obligations to the party waiving or renouncing a right will cease to exist. It is for that reason that abandoned property (res derelictae) does not fit into either the common law mould or the statutory mould of a donation.
[37]	It may of course be different where the abandonment is more apparent than real. For example, an eccentric multi-millionaire who throws a diamond into a haystack with an accompanying public statement that he has done so and that whoever finds it first is welcome to it, may well be said to have donated it (in the common law sense of the word) to whoever finds it first or to have gratuitously disposed of it (as the statutory definition of donation puts it) to that person. But these and similar conundrums are really beside the point. They are just not potent enough to dispel the impact of the choice of the word ‘gratuitous’ in the definition when read together with the antecedent existence of a well-known  set of common law criteria which determine whether a disposal of property is a donation. As I have said, far from the use of the word signalling an intention to jettison these criteria, it signals the contrary.
[38]	I am fortified in my belief that the definition does not eliminate the need to enquire whether the motive for the disposal was or was not pure liberality or disinterested benevolence by considering the startling consequences of a contrary conclusion. There is nothing in South African law which prohibits a citizen from establishing an inter vivos trust for any lawful reason. The motive with which a trust may be established can vary from, at one end of the scale, purely altruistic and benevolent to, at the other, the discharge of legally binding obligations. In neither case is there any intention to benefit the trustee and that is so despite the fact that in law the bare dominium of the property settled upon the trust vests in the trustee. In the first-mentioned case there is of course an intention to bestow a gratuitous benefit upon the named beneficiary and a donation has taken place in both the common law sense, and a fortiori, if one assumes it has a wider meaning, in the defined sense of the word. Where that is the motive, liability for donations tax cannot be avoided simply by interposing a trustee between the donor and the beneficial recipient of the asset transferred to the trustee. In such a case the effect of the definition of ‘donee’ in s 55 (1) is that the trustee is deemed to have been the donee even although the trustee has to administer the donation for the benefit of the beneficiary.
[39]	In the second case, there is no intention to make a donation in any sense of the word. The funds settled upon the trust are not intended to be given to anybody as a gift; they are intended to be used to settle legal obligations which burden the settlor. The trustee undertakes to fulfil the mandate given to him and in fulfilling it discharges the obligations of the settlor to the relevant third parties. If the mere fact that the trustee in his own right has not paid the settlor anything or given some quid pro quo (other than an undertaking to fulfil the mandate imposed by the trust deed) for the funds given to him for that purpose is to be the sole criterion for imposing a liability to pay donations tax, it is difficult to conceive of any case in which a trust can be established and assets transferred to the trust where a liability for donations tax would not arise.
[40]	Trustees do not ordinarily pay or give consideration in return for benefits which third parties are to receive. Nor do they do so in return for the bare dominium of the assets which are vested in them. It would follow that all such trusts, whatever their purpose, are liable for donations tax unless exempt under one or other of the provisions of s 56 of the Act. A person who has sufficient insight into his own habitual financial profligacy to sequester enough money in the hands of a trustee to ensure that his future provisional tax and income tax obligations will be met, will have to accept that 25% of the funds that he makes available to his trustee to ensure his tax obligations to the Commissioner are met on due date, will have to be paid to the selfsame Commissioner. That is a consequence which can, I think, rightly be described as absurd.
[41]	The example I have given is of course specifically designed to evoke derision from which it is but a short step to the attachment of the label ‘absurd’ to it. However, many more examples of absurdity can be given which are not so rarely encountered that they may be discounted as purely hypothetical and unlikely to arise in practice. A judge who orders a large damages award to an orphaned minor to be paid to a trust to be formed is not ordering the defendant to make a donation. The defendant is not making a donation in paying the ordered damages to the trustee. It is fulfilling an obligation imposed by law. The trustee is not the beneficiary of the trust and the beneficial interest in the award is vested in the orphan. The trustee has not given any quid pro quo to the defendant. Even the commitment by the trustee to administer the award for the benefit of the orphan is not really a quid pro quo given to the defendant. It is a commitment given to the court. Yet it is plain that by paying the sum ordered to the trustee the defendant will be discharging its obligation to the orphan. If the trustee misappropriates the money that will not revive the defendant’s liability. The defendant has certainly not made a donation motivated by sheer liberality nor has it gratuitously disposed of the money paid to the trustee. Yet, if the submissions of counsel for the Commissioner are correct, the defendant will be liable for donations tax together with the trustee.
[42]	The examples can be multiplied. People who spend much of their lives in foreign climes but who still retain substantial links with South Africa and set up trusts which they endow with funds to enable the trustee to meet their recurring and ongoing financial obligations to their creditors in South Africa are not disposing of money by donating it in either the common law sense of the word or in the statutory sense (if it be different from the common law sense) of gratuitously disposing of it.
[43]	It is so that logic, fairness and consistency are not essential attributes of taxing legislation and that that has to be borne in mind when interpreting such legislation. But that does not mean that in interpreting taxing provisions one should assume a priori that an interpretation which is illogical, unfair and inconsistent is probably what was intended. Nor does the fact that it is a taxing provision which is under consideration mean that where the language employed is reasonably capable of two possible interpretations, one of which will yield absurd results, and another which will not, the former should be preferred.
[44]	In the present case, the facts are such that whatever view one takes of the definition of ‘donation’ there has been no donation of R3 216 760,00. If one accepts that a motive of sheer liberality or disinterested benevolence remains an essential element in the inquiry and has not been excluded by the definition, it is clear that the assets were not settled upon the trustees with any such motive. The primary and dominant purpose was to enable them to satisfy the legal obligations which the consent paper which had been made an order of court imposed upon Mr Welch.  I shall return in due course to the implications of the subsidiary motive of providing for excess income and remaining capital to go to persons to whom he was under no legal obligation.
[45]	If one does not accept that those criteria (sheer liberality or disinterested benevolence) remain relevant, it is at least clear that if some realistic consideration is being received by the settlor, the disposal cannot be regarded as ‘gratuitous’. Here the consideration is obvious. Mr Welch was under a legal obligation to pay maintenance for Mrs Welch and T.. That was a debt due by him to them and it would not cease to exist upon his death. The mechanism agreed upon by Mr and Mrs Welch for ensuring that this obligation was discharged was the establishment of a trust which was to be provided with sufficient assets to enable the trustees to meet those obligations. If they did so (and they were obliged to do so in terms of the trust deed), Mr Welch’s obligations would be pro tanto discharged.
[46]	The fact that he could not entirely and permanently slough off his liability to Mrs Welch and T. by establishing the trust and that he would remain liable to them in the event of the trust being unable to fulfil the maintenance obligations does not derogate from the fact that he disposed of the assets for a substantial quid pro quo. That quid pro quo was a relinquishment by Mrs Welch of her right to claim the agreed maintenance for herself and T. from Mr Welch for so long as the trustees fulfilled their obligation to pay that maintenance and an undertaking by the trustees to fulfil that obligation.
[47]	That consideration or quid pro quo was not illusory or insubstantial. Viewed  in  balance  sheet  terms  Mr  Welch  transferred  assets  to  the  value of R3 216 760,00 to the trustees. He also had a liability to Mrs Welch and T. in terms of the consent paper and court order. As against that, he received from the trustees an asset in the form of an undertaking by them to discharge his liability to Mrs Welch and T.. That asset cannot be ignored in deciding whether the transfer of the assets to the trustees was gratuitous. Its acquisition by Mr Welch was the consideration for the transfer. Without it Mr Welch obviously would not have been willing to transfer the assets.
[48]	There was also of course a quid pro quo given by Mrs Welch. She waived her right to the income from the R F Welch Family Trust. She agreed to look to the trust and not to Mr Welch for the agreed maintenance payable to herself and T. for as long as the trustees were able to discharge those obligations by utilising the assets which had been settled upon the trust. To suggest that Mr Welch transferred the assets to the trustees in return for nothing of any value would be to place a wholly unrealistic and erroneous interpretation upon the transaction.
[49]	It remains to deal with the complications arising from the secondary purpose (set out in para [8]) for which the trust was created. It may well be that in so far as income or capital might be paid to the beneficiaries (over and above the maintenance payable to Mrs Welch and T.) a donation would have been made. But the beneficiaries’ expectation of receiving any such payments would be no more than a spes. It might or might not happen. The problems associated with attempting to assess the probability or improbability of that spes maturing into an actual receipt of income or capital are legion. Imponderable or relatively imponderable factors such as future inflation rates, investment returns, investment expertise, the prospect of remarriage, the possibility of serious permanently disabling injury or illness occurring, and the possibility of early death of one or more of the beneficiaries bedevil reliable prognostication. Yet the effort may sometimes have to be made. Indeed, in invoking s 58 the Commissioner has to assess as best he can what the value is of the consideration that has been received for the disposal of the property. In the present case (in which s 58 was not invoked by the Commissioner) that would have involved assessing what the value to Mr Welch was of Mrs Welch’s renunciation of her right to income from the R F Welch Family Trust in favour of T.. I say this bearing in mind that maintenance to be paid to a minor child is always subject to variation on good cause shown and consequently that income paid to T. which is separate and distinct from income paid to him through his mother by the Carom Trust by way of maintenance would be relevant to an assessment of the extent to which he could call upon the trustees of the Carom Trust or Mr Welch to maintain him. Any assessment of the value of the consideration received by Mr Welch would also involve assessing the value to him of transferring (even if only conditionally and subject to reversion to him) to the trustees the obligation to fulfil the obligations undertaken by him in the consent paper and court order.
[50]	The short point is this. However difficult the assessment may have been, it may have been open to the Commissioner to invoke s 58 in order to recover donations tax on such part of the sum of R3 216 760,00 for which, in his opinion, no adequate consideration was given. But he did not do so. Instead he opted to regard the entire sum as a gratuitous disposal. In that, he was wrong. I might add that even if it were to be held that there was a donation to the trustees it would be obvious that they received no more than the bare dominium of the assets. It is that which would have to be valued and it is difficult to see how it could be assigned any value. And if what fell to be valued was the mere spes of the beneficiaries that they might receive income or capital after the maintenance obligations of the trust had been met, the difficulties alluded to in para [49] would arise. On any view of the matter an assessment of donations tax based on the premise that the value of the donation was R3 216 760,00 was not permissible. It follows that the assessment for donations tax cannot be allowed to stand.
[51]	The decision in Ogus v Secretary of Inland Revenue may appear at first blush to run counter to the conclusions I have reached and to contain dicta in conflict with some of the observations I have made. But if account is taken of the unique nature of the obligation which the settlor in that case imposed upon the trustees, namely, to pay or indemnify him for the donations tax payable on the sum of money which he settled upon the trust, and in particular of an observation by the court to which I shall return, I do not think there is any clash.
[52]	The key to an understanding of the decision in that case that donations tax was payable upon the whole of the sum of money settled upon the trust and not upon that sum less the donations tax payable upon it, lies in the circuity of reasoning which is inherent in the argument of the settlor as to the interpretation of the term in the trust deed imposing the obligation to pay or indemnify the settlor for the donations tax payable. Although this was not articulated by the court I think that it was this circuity of reasoning which consciously or sub-consciously underlay its decision.
[53]	There is a world of difference between, on the one hand, the nature of the obligations undertaken by the trustees in the hypothetical examples I have postulated in paras [40], [41] and [42] of this judgment and the obligations undertaken by the trustees in this case, and, on the other, the obligation undertaken by the trustee in Ogus’s case. In the former class of case the corpus (or part of it) is plainly given to the trustee to be used to discharge legal obligations which the settlor would have had to discharge himself and which are clearly identifiable as obligations which have an existence independent of the existence of the trust. It is therefore notionally possible to say that, to the extent that the settlor settled funds upon the trustee to enable him to discharge the settlor’s independently existing legal obligations (whether present or future), there has been no donation or gratuitous disposal of those funds because he has received a quid pro quo of equivalent value.
[54]	 Ogus’s case differs toto caelo. Donations tax liability cannot exist absent a donation which spawns it. And the quantum of the tax is dependent on the value of the donation. Unless the value of the donation is known or can be assessed, it will be impossible to quantify the donations tax liability. Where, as in Ogus’s case, a settlor imposes an obligation upon a trustee to pay or indemnify him for donations tax, he cannot be said to have received a consideration in that amount and therefore to have donated less than the full amount he settled upon the trustee. Even if he had subjectively intended to bring about that result, he would not have been able to achieve his purpose in law. The reason is this.
[55]	Postulate a settlor who settles R1 000 000,00 upon a trustee for the benefit of a named beneficiary but stipulates that donations tax must be paid by the trustee (or that he, the settlor, must be indemnified for paying it himself). If the donation is taken to be R1 000 000,00 and the rate of tax is say 20%, the tax will be (ignoring exemptions) R200 000,00. But, argues the settlor, ‘I should not be taken to have donated R1 000 000,00; I should be taken to have donated only R800 000,00 because payment by the trustee of the tax of R200 000,00 on the amount of R1 000 000,00 was the consideration I received for settling an equivalent amount upon the trustee.’
[56]	The problem with this argument is that it is irremediably circuitous and involves fictions. If it is indeed so that the settlor must be taken to have donated only R800 000,00 then the donations tax would be 20% of R800 000,00 and not 20%  of  R1 000 000,00.  The  tax  would  then  be  R160 000,00  as  opposed  to R200 000,00. But the trustee would then have a balance of R840 000,00 and not R800 000,00 at his disposal for the benefit of the beneficiary. The difference is R40 000,00. That sum will have escaped the levying of donations tax upon it. 
[57]	In effect, the argument results in using the fictional incidence of donations tax upon the entire sum of R1 000 000,00 to reduce the amount upon which the duty actually payable is to be calculated. The process entails not one but two calculations of donations tax. The first is a purely notional and fictional one which yields an amount of tax which is not intended to be actually paid and which, when fictionally deducted from the sum of R1 000 000,00, leaves a fictional balance of R800 000,00 for the beneficiary. The second is a calculation of the tax which is intended to be actually paid. The base for this calculation is the fictionally arrived at balance of R800 000.00. It reduces the tax payable to R160 000,00.
[58]	There can be no justification for reducing, before calculating the tax actually payable, the sum of R1 000 000,00 by deducting from it a purely hypothetical sum of R200 00,00 said to represent donations tax payable, when it has not actually been paid and there is no intention of actually paying it. If that was what was intended by the settlor it was not a result attainable in law. In the example I have given donations tax must be calculated on the  full  amount of R1 000 000,00 because, if it is not, there will be no other way in which it can be calculated so as to give effect to the term requiring the trustee to pay the donations tax or indemnify the settlor for having paid it. Lex non cogit ad impossibilia.
[59]	The choice then is between interpreting the term imposing the obligation as being impossible of performance and, subject to possible arguments relating to severability, putting the validity of the entire settlement at risk, or interpreting it as premised upon the entire sum of R1 000 000,00 being and remaining the intended donation, but subject to the proviso that if the settlor has to pay the tax the trustee will have to reimburse him using the funds donated. Faced with such choices, the law favours the interpretation which will give effect to what has been agreed rather than one which will render futile what has been agreed.
[60]	The above, with respect, appears to me to be the inarticulate major premise of the judgment in Ogus’s case and the dicta  to be found in it should be confined to the special nature of the obligation undertaken by the trustee in that case. An observation by Boshoff AJP appears to bear this out. He said: ‘There was no question of a handing over of an amount of money with an instruction or direction that it should be applied for the purposes of tax.’ I read that as indicating that the position will be different in cases such as I have postulated in paras [40], [41 and [42].
[61]	Although ITC Case No 1192 was not referred to by either counsel or the two courts through which this case has passed, it is unfortunately necessary to consider its implications for this case before ending this judgment. With much of what was said by Trollip J in that case I respectfully agree but some of the court’s conclusions may, in my opinion, be unsound. The court was dealing with three trusts set up by the settlor for the benefit of members of his family. The beneficiaries were to obtain no benefit from the trusts until after his death. In the meantime the corpus of the trusts was vested in the trustees and the income derived from it was to be paid to the settlor. The Commissioner levied donations tax on the value of the corpus in each of the trusts while the settlor was alive.
[62]	The settlor objected and relied upon the exemption from donations tax in s 56 (1) (d) of the Act. It read: ‘Donations tax shall not be payable in respect of the value of any property which is disposed of under a donation – (d) in terms of which the donee will not obtain any benefit thereunder until the death of the donor.’ The court held that the beneficiaries had no more than a spes of benefiting and that they would not obtain or acquire any pecuniary advantage, profit or gain before the donor’s death. Their interest was said to have ‘no present inherent value’ and because they would receive no benefit from the beneficial interest in the corpus of each trust until after the donor’s death, no donations tax was payable on those benefits. With that I have no quarrel. (Estate duty is another matter.)
[63]	However, the court proceeded to hold that although the trustees had received only the bare dominium of the corpus of the trusts, ‘(i)n the hands of a  beneficiary  that  would  have  a  value, capable  of  being determined  under s 62 (1) (c), and it would constitute a pecuniary advantage, profit or gain; consequently, as the trustees received it for the benefit of the ultimate beneficiaries, whoever they may be, they must be regarded as having received that benefit in their representative capacity as “donees” within the meaning of s 56 (1) (d)’. That benefit, so it concluded, was not exempt under s 56 (1) (d) because it was a benefit obtained before the donor’s death. Donations tax was therefore chargeable but only on the value of the bare dominium of the assets delivered to the trustees under each of the donations.
[64]	Faced with a contention that such an interpretation of s 56 (1) (d) would render redundant and otiose the exemption in s 56 (1) (l) (‘if such property is disposed of under and in pursuance of a trust’), the court’s only answer was that the provision ‘was probably inserted ex abundante cautela to make it crystal clear that property disposed of under and in pursuance of a trust was not a gratuitous disposal of property’.
[65]	It is these conclusions in paras [63] and [64] which seem to me to be suspect. It is implicit in them that even although the donor under an inter vivos trust intends to donate say R1 million to a nephew when he attains the age of 30 years and settles that sum upon the trustee to be held until that occurs, no donations tax can be levied upon the amount of R1 million when the nephew receives it because it is not a ‘gratuitous’ disposal by the trustee. The only donations tax recoverable is that levied upon the value of the bare dominium vested in the trustee when the trust was established. The net result is that what was plainly a donation of R1 million to the nephew will escape donations tax but the initial vesting of the bare dominium of that sum in the trustee will attract liability for donations tax. But its value then is zero. So no tax is payable. It is to be doubted whether that could ever have been the intention of the legislature.
[66]	Moreover, the learned judge’s relegation of the provisions of s 56 (1) (l) to the category of a provision enacted ex abundante cautela only to make clear that property which passes from a trustee to a beneficiary is not a gratuitous disposal appears to me to probably be unjustified. First, one does not lightly conclude that self-standing statutory provisions are simply repetitive of what has already been clearly enacted. Secondly, there seems to be a self-contradiction inherent in the proposition. The provision appears in that section of the Act which exempts certain donations from liability for donations tax. If a disposal is not a donation as defined in s 54 there can be no talk of it being exempted from liability for donations tax. No tax is payable because  it  is  not  a  donation;  not  because  it  is  a  donation  but  exempt under s 56.
[67]	Herein lies, so it seems to me, the possible fallacy in the approach of Trollip J. The manifest purpose of s 56 (1) (l) (and all the other sub-paragraphs of s 56) is not to tell one what are and are not donations, but to tell one what donations will not attract liability for donations tax. To use the provision to determine whether a donation has taken place, is to fail to understand that it has no application at all unless a donation has taken place and that whether a donation has taken place is governed entirely by other provisions of the Act.
[68]	Thirdly, the learned judge’s emasculation of the provision results in one being hard pressed to find some possible field of application for the exemption. After all, if, as the learned judge thought, no disposition by a trustee to a beneficiary could rank as a donation because it would not be gratuitous, how could liability for donations tax ever arise? Why exempt from liability a donation which ex hypothesi, could never exist?
[69]	Fourthly, the interpretation accorded s 56 (1) (l) appears to negate its obvious purpose. The scheme of the donations tax provisions in the Act is plain. Disposals of property which are not donations do not attract liability for donations tax. Those which are donations do. Because trusts are frequently employed to confer benefits which are in fact donations, special provision is made to cater for that. The provision made is primarily in s 54 which levies the tax upon property disposed of under a donation by a resident donor whether or not it has been disposed of directly, indirectly, or via a trust. The donee in a donation is defined in s 55 (1) as the ‘beneficiary under a donation’ and the definition also artificially includes a trustee if ‘property disposed of under a donation [is] to be administered by him for the benefit of any beneficiary’. Section 59 renders the donor liable to pay the tax but if he fails to pay it timeously the trustee is to be jointly and severally liable for the tax. The proviso to the definition of ‘donee’ enables the trustee, if he has paid or is liable to pay the tax, to look to the assets of the trust for reimbursement. In terms of s 60 (1) the tax becomes payable within three months (or such longer period as may be allowed by the Commissioner) from the date upon which the donation takes effect. Section 55 (3) provides that ‘a donation shall be deemed to take effect upon the date upon which all the legal formalities for a valid donation have been complied with’. 
[70]	The import of all this is that the interposition of a trustee between the donor and the beneficiary will not enable the donor to avoid liability for donations tax if the disposal of the corpus of the trust is a donation as defined. Where it is, and despite the trustee having no beneficial interest in the corpus while it is vested in him, he is regarded as if he were the donee under the donation and the donation is ‘deemed’ to have taken effect at latest upon his receipt of the corpus. The donor becomes liable immediately to pay donations tax upon the full value of the dominium plenum of the corpus (less any amount excluded by virtue of s 56 (2)) and not merely upon the value of the bare dominium. Failure by the donor to pay within the time allowed for payment renders the trustee liable to pay the tax. If either of them does so liability for donations tax on the donor’s donation will have been discharged. (And even if it has not, they remain liable for the tax, despite the fact that the beneficiary may have already received the corpus.) Section 56 (1) (l) seems to be intended to protect the donor and the trustee from the levying yet again of donations tax upon the ultimate disposal by the trustee of the corpus to the beneficiary who gives nothing in return for it. Its apparent purpose is simply to avoid taxing twice what is in reality one donation traceable to the initial act of the donor in settling assets upon the trust.
[71]	The implications of these aspects of the judgment of Trollip J (if correct) for the case before us are these. What the beneficiaries may receive from the trustees (whether they be payments to discharge the maintenance obligations or simply payments of excess income and capital) cannot be classified as donations because payments emanating from the trustees are not gratuitous. If what the trustees receive from Mr Welch by way of assets exceeds in value what is needed to satisfy the maintenance obligations there is pro tanto a disposal of property under a donation to the trustees to be administered by them for the benefit of the beneficiaries. The trustees are thus donees by definition and are potentially liable to pay donations tax on the value of the assets settled upon them. But in valuing the property disposed of to the trustees it is only the value of the bare dominium of that excess which is relevant because that is all they have received under the donation. The value according to the decision in CIR v Estate Crewe & Another is zero. The net result is that no donations tax is payable at all. 
[72]	It seems therefore that whether the aspects of ITC Case No 1192 which I have questioned were rightly or wrongly decided does not affect the outcome of this case which would be the same in either event. It is therefore not necessary, despite my criticisms, to decide finally whether it should be overruled as erroneous. Nor would it be advisable to do so in the absence of any argument concerning it at the hearing.
[73]	It is ordered that the appeal be allowed with costs including the costs of two counsel and that the assessment of the Commissioner that the appellant is liable for donations tax upon the sum of R3 216 760,00 is set aside. The costs are to include the costs of the application for leave to appeal.

_____________________
									    R M MARAIS
								        JUDGE OF APPEAL

ZULMAN JA)
CLOETE JA )  CONCUR

CONRADIE JA:
[74]	I regret that I am unable to agree with my brother Marais that the appeal should succeed. Estate planners have for many years known that a person who wants to transfer his or her assets to a trust and avoid paying donations tax cannot simply give them to the trust: the trust must buy them. The purchase price is usually left owing bearing a rate of interest that is not so low as to alarm the Revenue. When the settlor dies his estate owns the claim to the depreciated purchase price and the trust owns the assets which with any luck have grown in value. There is no donation. The trust has given a quid pro quo.
[75]	The facts in Ogus v Secretary for Inland Revenue1978 (3) SA 67 (T) resemble those set out in the judgment of my brother Marais. In Ogus the taxpayer provided that it was ‘an express condition’ of the donation that the trust should be liable for and indemnify him against liability for donations tax in respect of the donation made in terms of the deed. It was argued that the taxpayer had instructed the trustees to discharge his liability for donations tax and that it 
‘…was as much paid by the appellant when it was paid directly by virtue of his direction under the trust, as if it had been paid by his own cheque. The appellant put a fund in the hands of the trustees for the purpose of paying the tax and the trustees applied that fund in paying the tax, acting on the mandate of the appellant and not on the mandate of any of the beneficiaries. This in short means that the amount of the donations tax was not a donation at all but was meant to be the means of procuring the payment of a legal obligation of the appellant and consequently did not form part of the cumulative taxable value of property disposed of under a donation by the appellant.’
[76]	This was essentially the appellant’s argument here: Mr Welch put a fund in the hands of the trustees for the purpose of paying his present and future, contingent, debts and if, acting on his mandate, they applied that fund to discharging his liabilities there was no donation of that part of the capital transferred to the trust to discharge the appellant’s obligations. In each case, therefore, the benefit to the settlor was the discharge by the trust of a liability. 
[77]	Boshoff AJP who gave the judgment for the full court in Ogus, dealt with the argument in that case as follows (at 79E – G) : 
‘ I have some difficulty in following the argument that, because clause 20 constitutes the fisc an adjectus solutionis gracia, mutual obligations came into being between the appellant and the trustees and, because of the obligation of the trustees to pay the fisc and relieve the appellant of a liability for tax, the appellant receives a consideration for the donation made to the trustees, and, because he receives a consideration, s 58 applies and the value of the donation must be reduced by the value of the consideration.
As has already been indicated, clause 20 is merely a term in the deed of trust dealing with the liability for the donations tax. It is in its context no more than a circumstance under which the trust was created by the appellant. It is certainly not in the nature of a reciprocal obligation. A reciprocal obligation is found in a synallagmatic contract, that is a contract which contains mutual reciprocal engagements by each of the two parties towards the other to perform his portion of the contract, and this performance must take place pari passu; see Maserowitz v Little 1911 TPD 1061 at 1063. In the context of s 58 the word “consideration” is used in the sense of a “quid pro quo,” compensation or reward having some value. Otherwise no reduction can be made in respect thereof. There is nothing in the deed of trust that warrants the view that the appellant disposed of the R100 000 to the trustees for a consideration of the kind contemplated in s 58, and least of all, for a reciprocal obligation.’
[78]	In this case, also, the provision for the payment of ‘maintenance’ in the trust deed was a term of the trust contract. It was not a term of the disposal contract. It is important to appreciate that in a transaction such as this there are two contracts. The first is the trust agreement. It is concluded between the settlor and the trustees and establishes the trust, usually setting out in detail the mechanics of its governance. It may or may not in the same document record an undertaking by the settlor to sell or donate something to the trust. Whether or not it does, the disposal is a separate contract. It is concluded between the disposer and the trustees on behalf of the trust once the trust has been established. 
[79]	In the present case the disposal contract transferred R3.2 m in assets from the disposer’s estate to the trust. Nothing was promised by the trust in return. That makes the disposition, in the ordinary meaning of the term, gratuitous. It is a disposition without value. And whether one declines to stipulate for anything in return from a noble motive like disinterested benevolence or an ignoble one seems to me to be irrelevant to the purposes sought to be achieved by the income tax legislation. It is the depletion of the disposer’s estate, not the goodness of his heart, that interests the Revenue. One of the factors of production that produces wealth is capital. The fiscus relies for much of his revenue on imposts on income produced by capital. It is a matter of concern to him, therefore, that taxpayers deplete their asset bases by distributing their capital resources to others without anything to replace them.  (Ovenstone v Secretary for Inland Revenue 1980 (2) SA 721 (A) at 736C–E) Ogus (at 74C–D) puts it well:
‘….the donations tax was introduced to make up for loss of revenue by way of income tax and estate duty when certain types of donations are made. The mischief aimed at was the practice by taxpayers of reducing their assets by making donations and thereby reducing their income on which income tax is payable, reducing their assets on which estate duty would be payable at their death, and spreading the assets and the income derived therefrom over several taxpayers. The tax is consequently in terms levied in respect of the gratuitous disposal of property.’
[80]	The trustees of the Carom trust did not in terms of the trust deed undertake any obligations to Welch. Their only obligations were to the beneficiaries whom they were, within the constraints of the trust deed and prudent fiduciary management of the estate, free to benefit to any extent they thought appropriate. They were not bound to perform the obligations of the Carom trust in discharge of any promise made by the trust to Welch.  As trustees their only duty was to the trust and the beneficiaries.  
[81]	That, it seems to me, was the stand eventually taken by the Commissioner. Having at first taken the view that the benefit anticipated by Welch from the manner in which the trustees might be expected to perform their duties in terms of the trust agreement amounted to ‘consideration’ in terms of s 58 of the Income Tax Act 58 of 1962 (the Act) the Commissioner offered to deduct the estimated capitalized value of the maintenance obligations from the disposition and to tax only the amount over and above that as a deemed donation. The Commissioner in terms of that section may deem a disposal to be a donation if in his opinion adequate consideration for the property has not been given. He then changed his mind, taking the view which I think is the correct one, that whatever benefit to Welch flowed from the performance of their duties by the trustees could in law not amount to consideration for the disposition to the trust.   
[82]	By establishing the Carom trust Welch certainly intended to receive some benefits from the performance by the trustees of the trust contract. Since he was one of the trustees he would presumably share in their remuneration. He was also an income beneficiary so that once the trust’s obligations to the prime beneficiaries had been discharged, he might hope to share in the trust income. But, it is said, the greatest benefit he might hope to receive was that the trustees would faithfully carry out their duties to the prime beneficiaries. All that seems to me to be irrelevant: Whatever collateral benefit Welch might have hoped to receive from the performance of another contract - not the contract of donation but the trust agreement - would not qualify as consideration for the disposition. Had it been the intention of the legislature in s 58 of the Act to permit as a deduction from the value of a donation any advantage derived by a donor from the administration of a trust it would undoubtedly have employed a word of wider meaning than ‘consideration’. However, even the use of a term like ‘benefit’ (a term which is used in s 56 dealing with exemptions from donations tax) might not have helped Welch. In ITC 1192 35 SATC 213 the Income Tax Special Court dealt with a claim for an exemption under s 56(1)(d) of the Act. The subsection then as now provides that donations tax is not payable in respect of the value of any property which is disposed of under a donation in terms of which the donee will not obtain any benefit until the death of the donor. The question arose whether the remunerated appointment of the trustees could be characterized as a ‘benefit’ under the subsection. If it could be, the exemption would not be claimable. The special court was clearly alive to the distinction between the donation and the trust agreement. At p 218 Trollip J said: 
‘But the appointment as trustees here is not the kind of ‘benefit’ envisaged by s 56(1)(d); as pointed out above that benefit must flow not from the contract but from the gratuitous disposal of the property itself, the intention being to tax a donation and not, eg a contract for the letting and hiring of services or work, however lucrative that might be; and, in any event, as the trustees here receive no remuneration until after the donor’s death, they receive no pecuniary advantage, profit or gain prior thereto. It clearly follows, too, that the exemption from having to provide security is equally not a ‘benefit’ as was also contended for by Mr Barnard’.    
[83]	The effect of the scheme incorporated in the divorce settlement was that the wife renounced her claim for maintenance against Welch or his estate in return for a claim against the trust, the property of which would ultimately go to the two children. A child’s maintenance claim being predicated upon need, the parties’ son, T., had no claim for maintenance against his father to the extent that his father had, through the medium of the trust, made him financially independent. The reality is that both the two prime income beneficiaries were to be maintained by the trust at the expense of the discretionary beneficiaries and the ultimate capital beneficiaries. The benefit to Welch was not only collateral, it was also indirect and remote; it came about because by the terms of the trust agreement, Welch had persuaded his wife to look elsewhere for her rehabilitative maintenance and made his son financially independent. I am not persuaded that this happy consequence flowing from the terms of the trust agreement in any way determined the character of the disposition by Welch to the trust.  
[84]	In my view the decision of the court a quo is not open to criticism. I would dismiss the appeal with costs.

							__________________									   J H CONRADIE
							JUDGE OF APPEAL

NUGENT JA)  Concurs                    

ZULMAN JA:
[85]	I have read the judgments of my brothers Marais and Conradie JJA. I agree with the former but regret that I am unable to agree with the latter. It is of course so that more often than not the corpus of a trust is provided by way of a loan from the settlor or acquired by way of credit granted by the settlor. But the reason for that is obvious. Money lent or an asset purchased by the trust from the settlor is not a donation at common law or within the meaning of the definition of donation in the Income Tax Act 58 of 1962 (the Act). In those instances where the corpus is lent or purchased rather than given there is usually no pre-existing causa for the transaction which would rescue it from being classified in law as a donation if the corpus were to be given rather than lent or purchased. But where there is a pre-existing causa, such as a legal obligation owed to the intended beneficiary, the need to lend rather than simply provide the means by which the obligation is to be discharged, is entirely absent. The question which falls to be answered in this particular case cannot be solved by adopting a priori a point of departure which purports to answer in advance the very question which remains to be considered. That point of departure is that all disposals of property to a trust are donations unless they are loans to the trust or pursuant to purchases by the trust.
[86]	In my view the point that requires special emphasis in this case is that this trust is not typical of the many inter vivos trusts which exist in South Africa.  Typically, the latter trusts give expression to a unilateral desire by the settlor to sequester funds for the benefit of named beneficiaries to whom no legal obligation to do so is owing. Here the position is quite different.
[87]	The creation of this trust had its genesis in arms’ length negotiations in a litigatory setting. Its creation was part of a compromise reached between the parties and was made mandatory by the court order. In so far as it is suggested that two contracts were entered into, one between the settlor and the trust and the other between the trust and the beneficiaries, I believe that the two contracts were so closely interrelated and interdependent that no useful purpose is served by seeking to isolate them from one another.
[88]	To equate this trust with trusts created in circumstances where no antecedent obligations are owed by the settlor to the named beneficiaries is neither possible nor appropriate.
[89]	I do not believe that it is correct to generalise about the intended reach of revenue legislation. Its reach must be determined by the language which the legislature has chosen to express its will. We are dealing here with a particular class of tax, namely, donations tax. One is not taxed because one spends one’s money in the settlement of legal obligations. Nor is one taxed (value added tax aside) if one chooses to dissipate one’s money or assets by profligate spending on luxurious living, however much that may deprive the fiscus of potential tax, be it estate duty, donations tax, or income tax. One is taxed only if one gratuitously disposes of money or assets in the sense of either the common law or the definition of donation in the Act. That is not what happened here.
[90]	Money expended stante matrimonio by Mr Welch to maintain his wife and minor child could obviously not be characterised as donations attracting liability for donations tax. I see no justification for saying that funds provided by him (or his estate) to enable those obligations to be met after dissolution of the marriage mutate into donations attracting liability.
[91]	I share the view of Marais JA that the true explanation for the decision reached in the case of Ogus is that set out in para [52] of his judgment. To the extent that there are dicta in the judgment that are incompatible with what Marais JA or I have said, I consider them, with respect, to be unsound.

						                _________________________
								       R H ZULMAN
						                     JUDGE OF APPEAL

MARAIS JA)
CLOETE JA)   CONCUR