Defy Ltd v Commissioner for the South African Revenue Services (192/09) [2010] ZASCA 11; 2010 (5) SA 416 (SCA); [2010] 3 All SA 275 (SCA); 72 SATC 99 (12 March 2010)

Defy Ltd v Commissioner for the South African Revenue Services (192/09) [2010] ZASCA 11; 2010 (5) SA 416 (SCA); [2010] 3 All SA 275 (SCA); 72 SATC 99 (12 March 2010)

The court held that Defy did not earn a 'profit of a capital nature' as required by s 64B(5)(c)(ii) of the Income Tax Act because it had not disposed of its own capital asset. The exemption applies only to the pecuniary gain derived from the disposal of a capital asset by the company itself. Defy received its moneys as a dividend from its subsidiary, Appliances, which had disposed of its business and distributed the proceeds. The character of the transaction that yielded the moneys to Defy was not the disposal of a capital asset by Defy, but the receipt of a dividend. Therefore, the exemption did not apply to Defy’s distribution to its shareholders. The statutory scheme does not permit...

Citation
[2010] ZASCA 11
Parties
Appellant: Defy Limited; Respondent: Commissioner for the South African Revenue Service
Court
Supreme Court of Appeal
Jurisdiction
South Africa
Judgment Date
12 March 2010
Case Number
192/09
Procedural Posture
Civil Appeal / Appeal From the Tax Court
Outcome
Appeal dismissed with costs, including costs of two counsel.
Judges
NAVSA, NUGENT, HEHER, BOSIELO, LEACH
Legal Topics
Secondary Tax on Companies, Capital Profit Exemption, Income Tax Act, Liquidation Dividends, Statutory Interpretation
Tax Law Commercial and Corporate Secondary Tax on Companies Capital Profit Exemption Income Tax Act Liquidation Dividends Statutory Interpretation

Case Brief

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Parties

Defy Limited

Appellant

Commissioner for the South African Revenue Service

Respondent

Procedural Posture

Civil Appeal / Appeal From the Tax Court

Legal Issues

  1. 1 Whether the distribution received by Defy from its subsidiary Appliances constituted a 'profit of a capital nature' exempt from secondary tax on companies under s 64B(5)(c)(ii) of the Income Tax Act.
  2. 2 Whether Defy, as holding company, could claim exemption for the capital profit distributed by its subsidiary when it had not disposed of its own capital asset.
  3. 3 Whether the statutory scheme permits double exemption or only a deduction for exempt liquidation dividends received by a holding company.

Ratio Decidendi

The court held that Defy did not earn a 'profit of a capital nature' as required by s 64B(5)(c)(ii) of the Income Tax Act because it had not disposed of its own capital asset. The exemption applies only to the pecuniary gain derived from the disposal of a capital asset by the company itself. Defy received its moneys as a dividend from its subsidiary, Appliances, which had disposed of its business and distributed the proceeds. The character of the transaction that yielded the moneys to Defy was not the disposal of a capital asset by Defy, but the receipt of a dividend. Therefore, the exemption did not apply to Defy’s distribution to its shareholders. The statutory scheme does not permit...

Court Disposition

Appeal dismissed with costs, including costs of two counsel.

Orders

  • The appeal is dismissed.
  • Defy Limited is ordered to pay the costs of the appeal, including the costs of two counsel.