Burman v Commissioner for Inland Revnue (72/89) [1990] ZASCA 138; 1991 (1) SA 482 (AD); [1991] 3 All SA 950 (AD) (23 November 1990)

Burman v Commissioner for Inland Revnue (72/89) [1990] ZASCA 138; 1991 (1) SA 482 (AD); [1991] 3 All SA 950 (AD) (23 November 1990)

The majority of the court held that the losses sustained by Burman on loans to property companies were of a capital nature and therefore not deductible from taxable income. The court reasoned that the loans constituted fixed capital, as the funds were advanced once and for all and were not intended to be used in a recurring business operation. The anticipated recoupment of the loans was to occur through the sale of shares and loan accounts as a package, but this did not alter the legal nature of the loans as fixed capital. The court distinguished between the acquisition of shares as trading stock and the advancement of loans, finding that only the shares could be considered trading stock...

Citation
[1990] ZASCA 138
Parties
Appellant: Daryl Burman; Respondent: Commissioner for Inland Revenue
Court
Supreme Court of Appeal
Jurisdiction
South Africa
Judgment Date
23 November 1990
Case Number
72/89
Procedural Posture
Civil Appeal / Appeal From the Eastern Cape Income Tax Special Court
Outcome
Appeal dismissed except for the amendment of the Special Court's order regarding the deductibility of interest paid on borrowed funds to purchase shares.
Judges
Botha, Nestadt, Kumleben, Nicholas, Goldstone
Legal Topics
Income Tax Deduction, Capital Vs Revenue Expenditure, Shareholder Loans, Bad Debt Deduction, Suretyship Liability
Tax Law Commercial and Corporate Income Tax Deduction Capital Vs Revenue Expenditure Shareholder Loans Bad Debt Deduction Suretyship Liability

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Parties

Daryl Burman

Appellant

Commissioner for Inland Revenue

Respondent

Procedural Posture

Civil Appeal / Appeal From the Eastern Cape Income Tax Special Court

Legal Issues

  1. 1 Whether the losses sustained by the taxpayer on loans to property companies were of a capital or revenue nature and thus deductible from taxable income.
  2. 2 Whether losses arising from suretyship obligations and interest on borrowed funds to purchase shares are deductible under section 11(a) of the Income Tax Act.
  3. 3 Whether the loans and shares constituted a single economic unit for the purposes of tax deduction.

Ratio Decidendi

The majority of the court held that the losses sustained by Burman on loans to property companies were of a capital nature and therefore not deductible from taxable income. The court reasoned that the loans constituted fixed capital, as the funds were advanced once and for all and were not intended to be used in a recurring business operation. The anticipated recoupment of the loans was to occur through the sale of shares and loan accounts as a package, but this did not alter the legal nature of the loans as fixed capital. The court distinguished between the acquisition of shares as trading stock and the advancement of loans, finding that only the shares could be considered trading stock...

Court Disposition

Appeal dismissed except for the amendment of the Special Court's order regarding the deductibility of interest paid on borrowed funds to purchase shares.

Orders

  • The order of the Special Court is amended to allow the deduction of interest paid by Burman, subject to adjustment under section 19 of the Income Tax Act to the extent that borrowings funded the purchase of shares.
  • Save as aforesaid, the appeal is dismissed with costs.