Commissioner For Inland Revenue v Standard Bank of South Africa Ltd. (81/85) [1985] ZASCA 63; [1985] 2 All SA 512 (A) (22 August 1985)

Commissioner For Inland Revenue v Standard Bank of South Africa Ltd. (81/85) [1985] ZASCA 63; [1985] 2 All SA 512 (A) (22 August 1985)

The Supreme Court of Appeal held that the interest paid by the Bank on deposit moneys, some of which were used to acquire redeemable preference shares generating exempt dividend income, remains deductible. The Court found no sufficiently close connection between the interest expense and the exempt income to justify disallowance under section 23(f) of the Income Tax Act. The Bank accepts all deposits as a matter of commercial necessity, and the funds are pooled for general business purposes, with the acquisition of redeemable preference shares being purely incidental and insignificant in the context of the Bank's overall operations. The Court applied the principles from Commissioner for...

Citation
[1985] ZASCA 63
Parties
Appellant: Commissioner For Inland Revenue; Respondent: Standard Bank of South Africa Limited
Court
Supreme Court of Appeal
Jurisdiction
South Africa
Judgment Date
22 August 1985
Case Number
81/85
Procedural Posture
Civil Appeal / Appeal From the Transvaal Income Tax Special Court
Outcome
Appeal dismissed with costs, including costs of two counsel.
Judges
Corbett, Miller, Van Heerden, Hefer, Galgut
Legal Topics
Income Tax Deductions, Interest Expense, Exempt Income, Redeemable Preference Shares
Tax Law Commercial and Corporate Income Tax Deductions Interest Expense Exempt Income Redeemable Preference Shares

Case Brief

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Parties

Commissioner For Inland Revenue

Appellant

Standard Bank of South Africa Limited

Respondent

Procedural Posture

Civil Appeal / Appeal From the Transvaal Income Tax Special Court

Legal Issues

  1. 1 Whether interest paid by the Bank on deposit moneys used to acquire redeemable preference shares, which generate exempt dividend income, should be disallowed as a deduction for income tax purposes.
  2. 2 Whether there is a sufficiently close connection between the interest expense and the exempt dividend income to justify disallowance under section 23(f) of the Income Tax Act.
  3. 3 Whether the principles from Commissioner for Inland Revenue v Allied Building Society apply to the present facts.

Ratio Decidendi

The Supreme Court of Appeal held that the interest paid by the Bank on deposit moneys, some of which were used to acquire redeemable preference shares generating exempt dividend income, remains deductible. The Court found no sufficiently close connection between the interest expense and the exempt income to justify disallowance under section 23(f) of the Income Tax Act. The Bank accepts all deposits as a matter of commercial necessity, and the funds are pooled for general business purposes, with the acquisition of redeemable preference shares being purely incidental and insignificant in the context of the Bank's overall operations. The Court applied the principles from Commissioner for...

Court Disposition

Appeal dismissed with costs, including costs of two counsel.

Orders

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