Stellenbosch Farmers' Winery Ltd v Commissioner for the South African Revenue Service, Commissioner for the South African Revenue Service v Stellenbosch Farmers' Winery Ltd (511/2011, 504/2011) [2012] ZASCA 72; 2012 (5) SA 363 (SCA); 74 SATC 235 (25 May 2012)

Stellenbosch Farmers' Winery Ltd v Commissioner for the South African Revenue Service, Commissioner for the South African Revenue Service v Stellenbosch Farmers' Winery Ltd (511/2011, 504/2011) [2012] ZASCA 72; 2012 (5) SA 363 (SCA); 74 SATC 235 (25 May 2012)

The Supreme Court of Appeal found that the taxpayer held exclusive distribution rights as a capital asset and that the R67 million received for their early termination was compensation for the loss of that asset, not for loss of profits. The court rejected the Commissioner’s argument that the taxpayer was not a party to the relevant agreements and held that the evidence established the taxpayer’s entitlement to the rights and the compensation. The court further held that the compensation was not a gain from a profit-making scheme but a receipt for the impairment of the taxpayer’s business structure. For VAT purposes, the court agreed with the Tax Court that the surrender of the...

Citation
[2012] ZASCA 72
Parties
Appellant: Stellenbosch Farmers' Winery Limited; Respondent: Commissioner for the South African Revenue Service; Appellant: Commissioner for the South African Revenue Service; Respondent: Stellenbosch Farmers' Winery Limited
Court
Supreme Court of Appeal
Jurisdiction
South Africa
Judgment Date
25 May 2012
Case Number
511/2011, 504/2011
Procedural Posture
Civil Appeal / Appeal From the Tax Court, Cape Town
Outcome
The main appeal by the taxpayer is upheld; the additional assessment for the 1999 tax year is set aside. The cross-appeal by the Commissioner is dismissed. The Commissioner’s appeal regarding VAT is dismissed.
Judges
Brand, Van Heerden, Tshiqi, Kroon, Boruchowitz
Legal Topics
Income Tax, Capital Vs Revenue Receipt, Value Added Tax, Supply of Services, Onus of Proof, Compensation for Loss of Rights
Tax Law Commercial and Corporate Income Tax Capital Vs Revenue Receipt Value Added Tax Supply of Services Onus of Proof Compensation for Loss of Rights

Case Brief

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Parties

Stellenbosch Farmers' Winery Limited

Appellant

Commissioner for the South African Revenue Service

Respondent

Commissioner for the South African Revenue Service

Appellant

Stellenbosch Farmers' Winery Limited

Respondent

Procedural Posture

Civil Appeal / Appeal From the Tax Court, Cape Town

Legal Issues

  1. 1 Whether the receipt of R67 million by the taxpayer was of a capital or revenue nature for income tax purposes.
  2. 2 Whether interest on alleged underpayment of provisional tax should have been levied under s 89quat(3) of the Income Tax Act 58 of 1962.
  3. 3 Whether the receipt attracted value-added tax under s 7 of the Value-Added Tax Act 89 of 1991 or qualified for zero rating under s 11(2)(l)(ii).

Ratio Decidendi

The Supreme Court of Appeal found that the taxpayer held exclusive distribution rights as a capital asset and that the R67 million received for their early termination was compensation for the loss of that asset, not for loss of profits. The court rejected the Commissioner’s argument that the taxpayer was not a party to the relevant agreements and held that the evidence established the taxpayer’s entitlement to the rights and the compensation. The court further held that the compensation was not a gain from a profit-making scheme but a receipt for the impairment of the taxpayer’s business structure. For VAT purposes, the court agreed with the Tax Court that the surrender of the...

Court Disposition

The main appeal by the taxpayer is upheld; the additional assessment for the 1999 tax year is set aside. The cross-appeal by the Commissioner is dismissed. The Commissioner’s appeal regarding VAT is dismissed.

Orders

  • The main appeal is upheld with costs, including the costs of two counsel.
  • The additional assessment of the taxpayer in respect of the 1999 tax year is set aside.