Gerber v Commissioner for Inland Revenue (24/88) [1989] ZASCA 91; [1989] 4 All SA 950 (AD) (29 August 1989)

Gerber v Commissioner for Inland Revenue (24/88) [1989] ZASCA 91; [1989] 4 All SA 950 (AD) (29 August 1989)

The court held that the appellant's dividend-stripping operations constituted the carrying on of a trade within the meaning of the Income Tax Act, and the shares acquired were trading stock. However, section 19(1) and (2) apply to all dividend income, including that from trading stock, and require that both the total dividends and the cost of shares be scaled down in determining taxable income. The respondent's method of assessment, which scaled down deductions in accordance with section 19(2) and (3), was correct. The appellant failed to show that the amounts assessed were not taxable, and the Special Court's confirmation of the assessments was upheld. The cross-appeal, which sought to...

Citation
[1989] ZASCA 91
Parties
Appellant: Solomon Martin Gerber; Respondent: Commissioner for Inland Revenue
Court
Supreme Court of Appeal
Jurisdiction
South Africa
Judgment Date
29 August 1989
Case Number
24/88
Procedural Posture
Civil Appeal / Appeal From the Transvaal Income Tax Special Court; Both Appeal and Cross Appeal Heard and Decided
Outcome
Both the appeal and the cross-appeal are dismissed. No order is made as to costs.
Judges
Corbett, Hoexter, Nestadt, Vivier, Nicholas
Legal Topics
Income Tax Act, Deductibility of Expenditure, Dividend Stripping, Trading Stock, Section 19, Section 8d
Tax Law Commercial and Corporate Income Tax Act Deductibility of Expenditure Dividend Stripping Trading Stock Section 19 Section 8d

Case Brief

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Parties

Solomon Martin Gerber

Appellant

Commissioner for Inland Revenue

Respondent

Procedural Posture

Civil Appeal / Appeal From the Transvaal Income Tax Special Court; Both Appeal and Cross Appeal Heard and Decided

Legal Issues

  1. 1 Whether the appellant's dividend-stripping operations constituted the carrying on of a 'trade' within the meaning of the Income Tax Act.
  2. 2 Whether the cost of shares acquired in dividend-stripping operations is deductible under section 11(a) or precluded by section 23(g) of the Act.
  3. 3 Whether section 19(2) applies to shares acquired as trading stock in the course of dividend-stripping.

Ratio Decidendi

The court held that the appellant's dividend-stripping operations constituted the carrying on of a trade within the meaning of the Income Tax Act, and the shares acquired were trading stock. However, section 19(1) and (2) apply to all dividend income, including that from trading stock, and require that both the total dividends and the cost of shares be scaled down in determining taxable income. The respondent's method of assessment, which scaled down deductions in accordance with section 19(2) and (3), was correct. The appellant failed to show that the amounts assessed were not taxable, and the Special Court's confirmation of the assessments was upheld. The cross-appeal, which sought to...

Court Disposition

Both the appeal and the cross-appeal are dismissed. No order is made as to costs.

Orders

  • The appellant's appeal is dismissed.
  • The respondent's cross-appeal is dismissed.