Commissioner for Inland Revenue v Pick 'n Pay Employee Share Purchase Trust (640/90) [1992] ZASCA 84; 1992 (4) SA 39 (AD); [1992] 2 All SA 245 (A) (22 May 1992)

Commissioner for Inland Revenue v Pick 'n Pay Employee Share Purchase Trust (640/90) [1992] ZASCA 84; 1992 (4) SA 39 (AD); [1992] 2 All SA 245 (A) (22 May 1992)

The majority of the court held that the profits made by the Pick 'n Pay Employee Share Purchase Trust on the sale of shares to employees were not receipts of a revenue nature, but rather of a capital nature. The Trust was established as a conduit to enable employees to acquire shares, not to conduct a business or engage in a profit-making scheme. Its activities were constrained by the scheme's rules, and the acquisition and disposal of shares were incidental to its purpose, not designed for profit. The profits were fortuitous, not inevitable, and depended on variables such as forfeitures and market conditions. The Trust did not operate as a trader in shares, nor did it intend to make...

Citation
[1992] ZASCA 84
Parties
Appellant: Commissioner for Inland Revenue; Respondent: Pick 'n Pay Employee Share Purchase Trust
Court
Supreme Court of Appeal
Jurisdiction
South Africa
Judgment Date
22 May 1992
Case Number
640/90
Procedural Posture
Civil Appeal / Appeal From the Cape Income Tax Special Court; Judgment Delivered
Outcome
Appeal dismissed. The profits made by the Trust on the sale of shares to employees are receipts of a capital nature and not subject to normal tax.
Judges
Hoexter, Smalberger, Goldstone, Nicholas, Howie
Legal Topics
Gross Income Definition, Capital Vs Revenue Receipts, Employee Share Scheme, Onus of Proof, Floating Vs Fixed Capital
Tax Law Commercial and Corporate Gross Income Definition Capital Vs Revenue Receipts Employee Share Scheme Onus of Proof Floating Vs Fixed Capital

Case Brief

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Parties

Commissioner for Inland Revenue

Appellant

Pick 'n Pay Employee Share Purchase Trust

Respondent

Procedural Posture

Civil Appeal / Appeal From the Cape Income Tax Special Court; Judgment Delivered

Legal Issues

  1. 1 Whether profits made by the Pick 'n Pay Employee Share Purchase Trust on the sale of shares to employees constitute receipts of a capital nature or revenue (income) nature for purposes of the Income Tax Act.
  2. 2 Whether the Trust was carrying on a business or engaging in a scheme of profit-making, thereby rendering the profits taxable as income.
  3. 3 Whether the Trust discharged the onus of proving that the receipts were of a capital nature and thus not subject to normal tax.

Ratio Decidendi

The majority of the court held that the profits made by the Pick 'n Pay Employee Share Purchase Trust on the sale of shares to employees were not receipts of a revenue nature, but rather of a capital nature. The Trust was established as a conduit to enable employees to acquire shares, not to conduct a business or engage in a profit-making scheme. Its activities were constrained by the scheme's rules, and the acquisition and disposal of shares were incidental to its purpose, not designed for profit. The profits were fortuitous, not inevitable, and depended on variables such as forfeitures and market conditions. The Trust did not operate as a trader in shares, nor did it intend to make...

Court Disposition

Appeal dismissed. The profits made by the Trust on the sale of shares to employees are receipts of a capital nature and not subject to normal tax.

Orders

  • The application for condonation is granted. Costs in connection therewith are to be paid by the appellant.
  • The appeal is dismissed with costs, including the costs of two counsel.