Essential Sterolin Products (Pty) Ltd. v Commissioner for Inland Revenue (605/90) [1993] ZASCA 160; 1993 (4) SA 859 (AD); [1993] 2 All SA 632 (A) (30 September 1993)

Essential Sterolin Products (Pty) Ltd. v Commissioner for Inland Revenue (605/90) [1993] ZASCA 160; 1993 (4) SA 859 (AD); [1993] 2 All SA 632 (A) (30 September 1993)

The Supreme Court of Appeal held that the inability consideration was not received from a source within South Africa. The originating cause of the receipt was the reorganization of a business conducted predominantly in Europe, the grant of rights to a German distributor, and the protection and exploitation of patents and trademarks in West Germany. The only South African connection was the initial manufacture of the active substance, which was insufficient to establish a South African source. The inability consideration was linked to the potential deprivation of exclusive manufacturing rights as part of a European business transaction, and not to any activity or asset located in South...

Citation
[1993] ZASCA 160
Parties
Appellant: Essential Sterolin Products (Pty) Limited; Respondent: Commissioner for Inland Revenue
Court
Supreme Court of Appeal
Jurisdiction
South Africa
Judgment Date
30 September 1993
Case Number
605/90
Procedural Posture
Civil Appeal / Appeal From the Transvaal Income Tax Special Court
Outcome
Appeal allowed with costs, including costs of two counsel. The revised assessment for the tax year ended 28 February 1983 is set aside and the matter is referred back to the Commissioner for reassessment.
Judges
Corbett, Van Heerden, Smalberger, Goldstone, Howie
Legal Topics
Source of Income, Gross Income Definition, International Taxation, Capital Vs Revenue, Patent Rights, Business Restructuring
Tax Law Commercial and Corporate Source of Income Gross Income Definition International Taxation Capital Vs Revenue Patent Rights Business Restructuring

Case Brief

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Parties

Essential Sterolin Products (Pty) Limited

Appellant

Commissioner for Inland Revenue

Respondent

Procedural Posture

Civil Appeal / Appeal From the Transvaal Income Tax Special Court

Legal Issues

  1. 1 Whether the DM 4 000 000 'inability consideration' was received from a source within South Africa.
  2. 2 Whether the inability consideration constituted a capital or revenue receipt in the appellant's hands.
  3. 3 Whether the inability consideration fell within paragraph (g)(iii) of the definition of 'gross income' in section 1 of the Income Tax Act as a premium or like consideration for the use or right to use a process.

Ratio Decidendi

The Supreme Court of Appeal held that the inability consideration was not received from a source within South Africa. The originating cause of the receipt was the reorganization of a business conducted predominantly in Europe, the grant of rights to a German distributor, and the protection and exploitation of patents and trademarks in West Germany. The only South African connection was the initial manufacture of the active substance, which was insufficient to establish a South African source. The inability consideration was linked to the potential deprivation of exclusive manufacturing rights as part of a European business transaction, and not to any activity or asset located in South...

Court Disposition

Appeal allowed with costs, including costs of two counsel. The revised assessment for the tax year ended 28 February 1983 is set aside and the matter is referred back to the Commissioner for reassessment.

Orders

  • The appeal is allowed.
  • Appellant's revised assessment for the tax year ended 28 February 1983 is set aside.