Commissioner for Inland Revenue v Ocean Manufacturing Ltd. (483/88) [1990] ZASCA 66; 1990 (3) SA 610 (AD); [1990] 2 All SA 422 (A) (1 June 1990)

Commissioner for Inland Revenue v Ocean Manufacturing Ltd. (483/88) [1990] ZASCA 66; 1990 (3) SA 610 (AD); [1990] 2 All SA 422 (A) (1 June 1990)

The Supreme Court of Appeal held that the transfer agreement between Model Homes and Ocean Manufacturing was the relevant agreement for the purposes of section 103(2) of the Income Tax Act, 1962. The court found that the sole purpose of the transfer agreement was to utilize the assessed loss of Model Homes to avoid liability for tax, as evidenced by the Statement of Agreed Facts. The merger agreement did not directly or indirectly result in income being received by Model Homes, nor did it affect Model Homes. The transfer agreement was a discrete transaction, not an integral component of the merger agreement. The court rejected the respondent's argument that there was only one transaction...

Citation
[1990] ZASCA 66
Parties
Appellant: Commissioner for Inland Revenue; Respondent: Ocean Manufacturing Limited
Court
Supreme Court of Appeal
Jurisdiction
South Africa
Judgment Date
1 June 1990
Case Number
483/88
Procedural Posture
Civil Appeal / Appeal From Transvaal Provincial Division
Outcome
Appeal upheld with costs, including costs of two counsel. The orders of the courts below are set aside and replaced with an order referring the assessments back to the Commissioner for reassessment in light of this judgment.
Judges
Corbett, Botha, Smalberger, Nicholas, Smuts
Legal Topics
Assessed Loss Utilisation, Tax Avoidance, Income Tax Act Section 103 2, Merger Agreement, Transfer Agreement
Tax Law Commercial and Corporate Assessed Loss Utilisation Tax Avoidance Income Tax Act Section 103 2 Merger Agreement Transfer Agreement

Case Brief

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Parties

Commissioner for Inland Revenue

Appellant

Ocean Manufacturing Limited

Respondent

Procedural Posture

Civil Appeal / Appeal From Transvaal Provincial Division

Legal Issues

  1. 1 Whether the transfer agreement falls within the ambit of section 103(2) of the Income Tax Act, 1962.
  2. 2 Whether the sole or main purpose of the transfer agreement was to utilize assessed losses to avoid tax liability.
  3. 3 Whether the merger agreement or the transfer agreement is the relevant agreement for section 103(2) purposes.

Ratio Decidendi

The Supreme Court of Appeal held that the transfer agreement between Model Homes and Ocean Manufacturing was the relevant agreement for the purposes of section 103(2) of the Income Tax Act, 1962. The court found that the sole purpose of the transfer agreement was to utilize the assessed loss of Model Homes to avoid liability for tax, as evidenced by the Statement of Agreed Facts. The merger agreement did not directly or indirectly result in income being received by Model Homes, nor did it affect Model Homes. The transfer agreement was a discrete transaction, not an integral component of the merger agreement. The court rejected the respondent's argument that there was only one transaction...

Court Disposition

Appeal upheld with costs, including costs of two counsel. The orders of the courts below are set aside and replaced with an order referring the assessments back to the Commissioner for reassessment in light of this judgment.

Orders

  • The appeal is upheld with costs, including the costs of two counsel.
  • The order made by the Transvaal Provincial Division is set aside and the following is substituted: (i) The appeal is allowed with costs, including the costs of two counsel. (ii) The order made by the special court is set aside and the following is substituted: 'The assessments in respect of the years of assessment...