Big G Restaurants (Pty) Limited v Commissioner for the South African Revenue Service (CCT13/19) [2020] ZACC 16; 2020 (6) SA 1 (CC); 2020 (11) BCLR 1297 (CC); 82 SATC 403 (21 July 2020)

Big G Restaurants (Pty) Limited v Commissioner for the South African Revenue Service (CCT13/19) [2020] ZACC 16; 2020 (6) SA 1 (CC); 2020 (11) BCLR 1297 (CC); 82 SATC 403 (21 July 2020)

The Constitutional Court held that section 24C(2) of the Income Tax Act requires a direct correlation between the contract under which income is received and the contract imposing the obligation to incur future expenditure. Big G's income is derived from contracts with individual customers, while the obligation to refurbish arises from the franchise agreements with Spur Group. The lack of correlation between the income-earning contracts and the obligation-imposing contracts means section 24C does not apply. The Court found no principled basis to distinguish between franchisee restaurateurs and unattached restaurateurs for the purposes of section 24C. The applicant is not entitled to the...

Citation
[2020] ZACC 16
Parties
Applicant: Big G Restaurants (Pty) Limited; Respondent: Commissioner for the South African Revenue Service
Court
Constitutional Court
Jurisdiction
South Africa
Judgment Date
21 July 2020
Case Number
CCT13/19
Procedural Posture
Leave to Appeal / Appeal From Supreme Court of Appeal, After Tax Court
Outcome
Leave to appeal granted; appeal dismissed with costs, including costs of two counsel.
Judges
Froneman, Jafta, Khampepe, Madlanga, Majiedt, Mhlantla, Theron, Tshiqi, Victor
Legal Topics
Income Tax Act, Section 24c Allowance, Contractual Interpretation, Franchise Agreements, Future Expenditure, Deductibility
Tax Law Commercial and Corporate Income Tax Act Section 24c Allowance Contractual Interpretation Franchise Agreements Future Expenditure Deductibility

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Parties

Big G Restaurants (Pty) Limited

Applicant

Commissioner for the South African Revenue Service

Respondent

Procedural Posture

Leave to Appeal / Appeal From Supreme Court of Appeal, After Tax Court

Legal Issues

  1. 1 Whether income derived from restaurant patrons is deductible by the franchisee under section 24C(2) of the Income Tax Act.
  2. 2 Whether the income received from customers is income received in terms of the franchise agreements for purposes of section 24C.
  3. 3 Whether the expenditure required to refurbish or upgrade is incurred by the franchisee in the performance of obligations under the same contract as the income accrues.

Ratio Decidendi

The Constitutional Court held that section 24C(2) of the Income Tax Act requires a direct correlation between the contract under which income is received and the contract imposing the obligation to incur future expenditure. Big G's income is derived from contracts with individual customers, while the obligation to refurbish arises from the franchise agreements with Spur Group. The lack of correlation between the income-earning contracts and the obligation-imposing contracts means section 24C does not apply. The Court found no principled basis to distinguish between franchisee restaurateurs and unattached restaurateurs for the purposes of section 24C. The applicant is not entitled to the...

Court Disposition

Leave to appeal granted; appeal dismissed with costs, including costs of two counsel.

Orders

  • Leave to appeal is granted.
  • The appeal is dismissed with costs, including the costs of two counsel.